---

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UNITED
   STATES


SECURITIES AND
   EXCHANGE COMMISSION


Washington, D. C.
   20549


FORM
   10-K





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




| | For the fiscal
     year ended December 31, 1999
| | ------------------------------------------------




OR





| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------------




| | For the
     transition period from_____________ 
      to  _____________
| | -------------------------------------------------------------------------




Commission file
   number 0-14879





BAY VIEW CAPITAL
   CORPORATION


(Exact name of
   registrant as specified in its charter)





|Delaware |  | 94-3078031
|-------- |  | ----------
|
|         | 
|
|
|




Registrants
    telephone number, including area code: (650) 312-7200





Securities
    registered pursuant to Section 12(b) of the Act:





Common Stock, par
    value $0.01 per share


Stock Purchase
    Rights


9 1 / 8 Subordinated
    Notes due 2007


(Title of
    class)





Securities
    registered pursuant to Section 12 (g) of the Act:





None





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 requirements for the past 90 days. 
     YES x NO  ̈





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





As of January 31, 2000, there were
    outstanding 32,562,942 shares of the registrants Common Stock. The
    aggregate market value of the voting stock held by non-affiliates of the
    registrant, computed by reference to the closing price of such stock as of
    January 31, 2000, was $287,060,915. (The exclusion from such amount of the
    market value of the shares owned by any person shall not be deemed an
    admission by the registrant that such person is an affiliate of the
    registrant).





DOCUMENTS
    INCORPORATED BY REFERENCE





Part III of Form
    10KPortions of Definitive Proxy Statement for 2000 Annual Meeting of
    Stockholders





---

---




FORM
    10-K





|           |  |                                                                                            |  |    
|---------- |  | ------------------------------------------------------------------------------------------ |  | ---
|Item 1.    |  | Business                                                                                   |  |    
|           |  | General                                                                                    |  | 4  
|           |  | Business Overview                                                                          |  | 4  
|           |  | Lending Activities                                                                         |  | 5  
|           |  | Investing Activities                                                                       |  | 8  
|           |  | Retail Deposit Activities                                                                  |  | 8  
|           |  | Borrowing Activities                                                                       |  | 9  
|           |  | Debt                                                                                       |  | 9  
|           |  | Competition                                                                                |  | 9  
|           |  | Economic Conditions, Government Policies and Legislation                                   |  | 10 
|           |  | Supervision and Regulation                                                                 |  | 10 
|           |  | Employees                                                                                  |  | 16 
|           |  | Executive Officers of the Registrant                                                       |  | 17 
|Item 2.    |  | Properties                                                                                 |  | 18 
|Item 3.    |  | Legal Proceedings                                                                          |  | 19 
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                        |  | 19 
|           |  |                                                                                            |  |    
|           |  | Part
     II                                                                               |  |    
|           |  |                                                                                            |  |    
|Item 5.    |  | Market for Registrants Common Equity and Related
     Stockholder Matters                 |  | 20 
|Item 6.    |  | Selected Financial DataFive-Year Financial
     Information                               |  | 21 
|Item 7.    |  | Managements Discussion and Analysis of Financial
     Condition and Results of Operations |  | 23 
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market
     Risk                            |  | 60 
|Item 8.    |  | Financial Statements and Supplementary Data                                                |  | 64 
|Item9.     |  | Changes in and Disagreements with Accountants on Accounting
     and Financial Disclosure  |  | 112
|           |  |                                                                                            |  |    
|           |  | Part
     III                                                                              |  |    
|           |  |                                                                                            |  |    
|Item 10.   |  | Directors and Executive Officers of the Registrant                                         |  | 112
|Item 11.   |  | Executive Compensation                                                                     |  | 112
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and
     Management                        |  | 112
|Item 13.   |  | Certain Relationships and Related Transactions                                             |  | 112
|           |  |                                                                                            |  |    
|           |  | Part
     IV                                                                               |  |    
|           |  |                                                                                            |  |    
|Item 14.   |  | Exhibits, Financial Statement Schedules, and Reports on Form
     8-K                      |  | 113
|Signatures |  |                                                                                            |  | 116




FORWARD-LOOKING
   STATEMENTS





This Form 10-K contains forward-looking
   statements which describe our future plans, strategies and expectations. All
   forward-looking statements are based on assumptions and involve risks and
   uncertainties, many of which are beyond our control and which may cause our
   actual results, performance or achievements to differ materially from the
   results, performance or achievements that we anticipate. Factors that might
   affect forward-looking statements include, among other things:





| | · | the demand for our
     products;
| | - | ---------------------------------




| | · | actions taken by
     our competitors;
| | - | --------------------------------------




| | · | tax rate changes,
     new tax laws and revised tax law interpretations;
| | - | ------------------------------------------------------------------------




| | · | adverse changes
     occurring in securities markets;
| | - | -----------------------------------------------------




| | · | inflation and
     changes in prevailing interest rates that reduce our margins or the fair
     value of the financial instruments we hold;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------




| | · | economic or
     business conditions, either nationally or in our market areas, that are
     worse than we expect;
| | - | -------------------------------------------------------------------------------------------------------------------




| | · | legislative or
     regulatory changes that adversely affect our business;
| | - | --------------------------------------------------------------------------




| | · | our inability to
     identify suitable future acquisition candidates;
| | - | ----------------------------------------------------------------------




| | · | the timing, impact
     and other uncertainties of our acquisitions and our success or failure in
     the integration of their operations;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------




| | · | our ability to
     enter new geographic and product markets successfully and capitalize on
     growth opportunities;
| | - | ----------------------------------------------------------------------------------------------------------------------




| | · | technological
     changes that are more difficult or expensive than we expect;
| | - | -------------------------------------------------------------------------------




| | · | increases in
     delinquencies and defaults by our borrowers and other loan
     delinquencies;
| | - | ------------------------------------------------------------------------------------------------




| | · | increases in our
     provision for losses on loans and leases;
| | - | ---------------------------------------------------------------




| | · | our inability to
     sustain or improve the performance of our subsidiaries;
| | - | -----------------------------------------------------------------------------




| | · | our inability to
     achieve the financial goals in our strategic plans, including any
     financial goals related to both contemplated and consummated
     acquisitions;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | the outcome of
     lawsuits or regulatory disputes;
| | - | ----------------------------------------------------




| | · | credit and other
     risks of lending, leasing and investment activities; and
| | - | ------------------------------------------------------------------------------




| | · | our inability to
     use the net operating loss carryforwards we currently have.
| | - | ---------------------------------------------------------------------------------




As a result of the above, we cannot assure you
   that our future results of operations or financial condition or any other
   matters will be consistent with those presented in any forward-looking
   statements. Accordingly, we caution you not to rely on these forward-looking
   statements. We do not undertake, and specifically disclaim any obligation,
   to update these forward-looking statements, which speak only as of the date
   made.





PART
   I





Item 1.    Business





General





Bay View Capital Corporation, incorporated
   under the laws of the state of Delaware in 1989, is a $6.5 billion bank
   holding company headquartered in San Mateo, California. Our primary
   subsidiary is Bay View Bank, N.A., a commercial bank that operates 57 full
   service branches throughout the greater San Francisco Bay Area. Our other
   wholly owned subsidiaries include Bay View Securitization Corporation, Bay
   View Capital I and FMAC Insurance Services, Inc.





Bay View Bank was organized in 1911 and became
   a wholly owned subsidiary of Bay View Capital Corporation in 1989 upon our
   formation as a bank holding company. Prior to 1996, Bay View Bank generated
   a majority of its earnings from relatively low-yielding mortgage-based
   assets funded primarily by certificates of deposit. In late 1995, we
   installed a senior management team with extensive commercial bank
   experience. We then embarked upon a business plan to enhance earnings by
   systematically changing-out our balance sheet, replacing lower-yielding
   mortgage-based loans with consumer and commercial loans and leases with
   higher risk-adjusted returns and enhancing and expanding our deposit base by
   attracting and retaining lower cost transaction accounts, and ultimately
   converting Bay View Bank from a thrift to a commercial bank. This conversion
   was officially consummated in 1999 when Bay View Bank obtained a national
   bank charter. (See Item 7. Managements Discussion and Analysis
   of Financial Condition and Results of Operations for further details
   regarding our conversion strategy).





In executing our business plan to transform
   Bay View Bank into a commercial bank, we made several strategic acquisitions
   since 1996 to form key business divisions. In June 1996, we formed our auto
   lending division to provide financing options through auto dealers
   nationwide. In April 1997, we formed our commercial lending division to
   provide customized financing to emerging, small and middle-market businesses
   throughout the country. In January 1998, we acquired an additional 36
   banking branches, creating the largest deposit franchise operating
   exclusively in the San Francisco Bay Area. And, most recently, in November
   1999, we acquired Franchise Mortgage Acceptance Company, a national leader
   in franchise lending, and its wholly owned multi-family lending division,
   Bankers Mutual, collectively referred to as FMAC. (See Item 7.
   Managements Discussion and Analysis of Financial Condition and
   Results of Operations for further details of our FMAC
   acquisition).





Business Overview





Our principal business activity as a
   traditional commercial bank is to earn interest on loans, leases and
   investment securities that are funded by customer deposits and other
   borrowings. Our difference between the interest received and the interest
   paid has historically comprised the majority of our earnings. Our primary
   lending activities consist of multi-family and commercial real estate loans,
   consumer auto and home equity lending, and commercial business and franchise
   financing. With the acquisition of FMAC in November 1999, our future
   earnings will be significantly affected by our ability to securitize and/or
   sell franchise loans and leases. Our 57 branch deposit franchise provides
   personalized banking services to individuals and businesses and is the
   significant source of funding for our lending operations. The operating
   results of our major business segments are accounted for and presented by
   platform. (See Item 7. Managements Discussion and Analysis of
   Financial Condition and Results of Operations for further details and
   financial information related to the Banking Platform, the Home Equity
   Platform, the Auto Platform, and the Commercial Platform).





Lending Activities





Real Estate Lending





At December 31, 1999, real estate loans
   totaled $1.9 billion, representing 43.2% of our gross loan and lease
   portfolio. The real estate loan portfolio is comprised of single-family
   residential mortgage loans, multi-family residential mortgage loans and
   nonresidential commercial real estate loans.





Single-Family Residential Mortgage Loans (one
   to four units)At December 31, 1999, loans secured by single-family
   residential real estate totaled $940.2 million, representing 21.6% of our
   gross loan and lease portfolio. These loans are primarily adjustable-rate
   mortgages, sometimes referred to as ARMs, and generally have original terms
   of 30 years. We discontinued originating single-family loans in 1996 and, as
   a result, the portfolio of single-family loans decreased as these loans pay
   off. We anticipate that this portfolio will continue to decline as a
   percentage of our assets as we continue to generate and purchase other
   assets which provide higher risk-adjusted yields. During 1999, we sold $105
   million in northern California single-family mortgage loans that were
   indexed to the Eleventh District Cost of Funds Index, sometimes referred to
   as COFI. COFI is considered a lagging index because its interest rate
   movements generally lag behind changes in market interest rates. This sale
   reduced our interest rate risk exposure to COFI-based assets, our
   concentration of lower-yielding mortgage loans and our geographic
   concentration risk.





Multi-Family Residential Mortgage Loans
   (five or more units)At December 31, 1999, loans secured by
   multi-family residential real estate totaled $622.8 million, representing
   14.3% of our gross loan and lease portfolio. The loans that we hold in our
   portfolio are primarily fully-amortizing ARMs with original terms of 30
   years or 15-year ARMs with monthly payments calculated on a 30-year
   amortization period with a balloon payment due at maturity. Prior to 1996,
   we originated ARMs that were indexed to COFI. Since that time, our
   originations have been based on indexes other than COFI, such as the London
   Interbank Offered Rate, or LIBOR, to avoid the associated interest rate risk
   that the COFI index creates. During July 1999, we sold approximately $450
   million of our northern California COFI-based multi-family loans, reducing
   our interest rate exposure to COFI-based assets and our geographic
   concentration risk. At December 31, 1999, only 16.5% of multi-family loans
   were COFI-indexed loans.





We generally do not lend more than 75% of the
   appraised value of multi-family residences on a first mortgage loan. The
   propertys cash flow available for loan payments is also a limiting
   factor on the approved loan amount. Properties securing multi-family loans
   are required to generate cash flow sufficient to cover loan payments and
   other expected property expenditures.





In addition to the multi-family loans we hold
   in our portfolio, we also originate fixed-rate multi-family loans to be
   sold. These operations were acquired in 1999 through our acquisition of
   FMAC. (See Item 7. Managements Discussion and Analysis of
   Financial Condition and Results of Operations for further details of
   our FMAC acquisition). The loans are originated expressly for sale under the
   Fannie Mae Delegated Underwriting and Servicing and Freddie Mac Program Plus
   plans. Most of these loans have an original term of 30 years. Once sold, we
   continue to service the loans on a fee basis. At December 31, 1999, the
   servicing portfolio of multi-family loans sold totaled $3.2
   billion.





Nonresidential Commercial Real Estate
   LendingAt December 31, 1999, loans secured by nonresidential
   commercial real estate totaled $317.1 million, representing 7.3% of our
   gross loan and lease portfolio. Substantially all of our commercial real
   estate loans are ARMs. ARMs secured by commercial real estate are generally
   made upon the same terms and conditions as ARMs secured by multi-family
   residences.





Most of our commercial real estate loans
   consist of loans secured by improved property such as office buildings,
   warehouses and retail sales facilities. A majority of these loans are in
   amounts ranging from $250,000 to $1 million. We generally do not originate
   commercial real estate loans that have a loan-to-value ratio exceeding 70%.
   The propertys cash flow available for loan payments is also a limiting
   factor on the approved loan amount. Properties securing commercial real
   estate loans are required to generate cash flow sufficient to cover loan
   payments and other expected property expenditures.





Underwriting Policies and Procedures for
   Real Estate LoansMulti-family and commercial real estate lending
   entails significant additional risks compared to single-family residential
   mortgage lending. Income producing property loans may involve large loan
   balances to single borrowers or groups of related borrowers. In addition,
   repayment of loans secured by multi-family and commercial real estate
   properties is typically dependent upon the successful operation of the
   properties, as well as favorable conditions in the real estate market and/or
   the economy in general.





We originate multi-family and commercial real
   estate loans through internal loan production personnel. As part of the loan
   underwriting process, staff appraisers or qualified independent appraisers
   inspect and appraise the property that will secure the loan. A loan
   underwriter analyzes the merits of the loan based upon information obtained
   relative to the borrower and property (e.g., income, credit history, assets,
   liabilities, cash flows, and the value of the real property as stated on the
   appraisal report). Loans are then approved at various levels of authority
   depending upon the amount and type of loan.





The majority of real estate loans held in our
   portfolio are secured by properties located in northern California. We
   require the American Land Title Association form of title insurance on all
   loans secured by real property and require that fire and extended coverage
   casualty insurance in amounts sufficient to rebuild or replace the
   improvements at current replacement costs be maintained on all properties
   securing the loans. In addition, we require flood insurance for properties
   in flood hazard zones to protect the property securing our interest.
   Consistent with regional industry practices, we do not necessarily require
   earthquake insurance as part of our general underwriting practices. In
   certain circumstances, however, we may require mudslide, earthquake and/or
   other hazard insurance depending upon the location of the
   property.





Business Loans and Lines of Credit





At December 31, 1999, our business loans
   totaled $33.3 million, representing 0.8% of our gross loan and lease
   portfolio. The business loans are comprised of business lending products
   (e.g., business term loans and lines of credit) which are offered in
   conjunction with other services in order to expand Bay View Banks
   customer base and make us more competitive in the commercial business
   banking environment.





Consumer Lending





At December 31, 1999, consumer loans totaled
   $1.1 billion, representing 26.3% of our gross loan and lease portfolio. The
   consumer loans are comprised primarily of auto loans and home equity loans
   and lines of credit.





Automobile FinancingAt December
   31, 1999, auto loans totaled $496.9 million, representing 11.4% of our gross
   loan and lease portfolio. Additionally, auto leases totaled $463.1 million
   at December 31, 1999, representing 7.1% of our consolidated assets. We
   underwrite and purchase new and used fixed-rate prime auto loans and leases
   on an indirect basis. The auto leases are accounted for as operating leases
   and, accordingly, the leased asset is capitalized and depreciated down to
   its estimated residual value over the term of the lease.





We underwrite all loans and leases that we
   purchase, utilizing custom credit scoring systems. Our underwriting
   standards focus on the borrowers ability to repay, as demonstrated by
   debt-to-income ratios, as well as the borrowers willingness to repay,
   as demonstrated by Fair, Isaac & Company Credit Bureau scores, sometimes
   referred to as FICO scores.





We periodically securitize and sell our auto
   loans. During the fourth quarter of 1999, $247 million of auto loans were
   securitized and sold.





Home Equity LendingAt December
   31, 1999, home equity loans and lines of credit totaled $648.7 million,
   representing 14.9% of our gross loan and lease portfolio. Bay View Bank
   originates conventional home equity loans and lines of credit through its
   branch network. We also purchase home equity loans on an indirect basis.
   Through the first quarter of 1999, we purchased uninsured high loan-to-value
   home equity loans. We define high
 loan-to-value home equity loans as loans with a combined loan-to-value ratio
   of 100% or more. Later in 1999, we ceased purchasing these uninsured high
   loan-to-value home equity loans and focused our production efforts towards
   originating higher-quality conventional home equity loans and lines of
   credit (where combined loan-to-value ratios are less than 100%, typically
   80% to 90%) or insured high loan-to-value home equity loans where 100% of
   the loan is insured against credit losses. At December 31, 1999, our
   portfolio included $434.4 million in high loan-to-value home equity loans,
   $34.4 million in 100% insured high loan-to-value home equity loans and
   $179.9 million in conventional home equity loans.





We underwrite all home equity loans that we
   originate and purchase. Our underwriting standards for home equity loans
   focus on debt-to-income ratios and FICO scores.





Commercial Lending





Asset-Based Lending, Factoring and
   Equipment LeasingAt December 31, 1999, our commercial loans and
   leases, excluding franchise loans, totaled $254.7 million, representing 5.8%
   of our gross loan and lease portfolio. Approximately $158.2 million of the
   loans and leases outstanding at December 31, 1999 were asset-based loans,
   including asset-based participation loans, another $25.2 million of the
   balance was related to receivable factoring and $71.3 million were equipment
   leases. Asset-based and factoring loans are adjustable rate loans primarily
   based on the prime rate index. Our equipment leases are fixed-rate direct
   financing leases. We employ underwriting procedures which include, among
   other things, continuous reviews of the borrowers financial condition
   and periodic audits of the receivables, equipment or other assets securing
   the loans and leases.





Franchise LendingAt December 31,
   1999, our commercial franchise loans totaled $1.0 billion, representing
   23.9% of our gross loan and lease portfolio. We offer commercial loans for
   franchise businesses. Our long-term loans are called permanent loans. We
   refer to our short-term loans as Development and Construction, or DEVCO
   loans, and Seasoning loans.





Our permanent franchise loans are
   fully-amortizing long-term fixed- or adjustable-rate loans provided for
   purposes other than development and construction of business units. These
   loans generally have a maximum term and amortization period of up to 20
   years. Fixed-rate loans are based upon U.S. Treasury rates plus a spread
   while adjustable-rate loans are tied to LIBOR plus a spread and generally
   reprice on a monthly basis. Flexible loan programs are employed, based on
   cash flows and pledged collateral, to help tailor products to the needs of
   specific borrowers.





We employ underwriting and monitoring
   procedures which include, among other things, continuous reviews of the
   borrowers financial condition and periodic audits of the borrower
   s business results. We focus on the cash flow of the business, the
   continuing ability of the borrower to operate the business unit in a cash
   positive manner and the borrowers ability to repay the loan since
   neither the real property mortgage nor the franchise or license agreement is
   generally assignable to secure the loan. In determining enterprise value, in
   addition to a borrowers credit profile, we focus on the following
   factors:





| | · | Business
     Profitability.We lend to borrowers whose
     business operations provide adequate cash flow to support loan
     payments.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------




| | · | Strength of
     Business Concept.    We emphasize loans to
     borrowers whose business has significant national or regional market
     penetration.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | Operating
     Experience.    We emphasize loans to borrowers
     having ownership of multiple business units with strong industry
     backgrounds.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------




| | · | Site
     Considerations.We focus on the location,
     physical condition and environmental characteristics. We look for
     borrowers with business units located in high traffic areas that we
     believe exhibit strong retail property fundamentals. We look for borrowers
     investing in well-maintained existing properties or in newly constructed
     properties and we use third-party appraisal professionals who conduct
     physical site inspections of each property. We employ environmental
     professionals and a process that, although
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | not requiring
     either Phase I or Phase II environmental inspections, includes a pragmatic
     detailed questionnaire covering both federal and state documentation and
     certification requirements.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | Collateral.
         Loans are partially secured by taking a first lien
     on all available furniture, fixtures and equipment. Where the available
     collateral includes a building on a ground lease, we require an assignment
     of the lease in addition to a security interest on the building and on the
     furniture, fixtures and equipment. If the collateral includes owned real
     estate, we also obtain a first mortgage on the property. Borrowers with
     additional collateral are generally afforded better credit terms.
     Depending upon the collateral provided, loan-to-value ratios, up-front
     fees and interest rates are adjusted to properly reflect credit
     risk.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




DEVCO loans are offered to fund the
   development and construction of new business units. DEVCO loans generally
   provide an interest-only period of up to 18 months that gives the borrower
   the opportunity to construct the unit, stabilize business unit performance
   and achieve a higher cash flow in the short-term. Fixed-rate DEVCO loans are
   tied to U.S. Treasury rates, while adjustable-rate DEVCO loans are tied to
   LIBOR. Adjustable-rate DEVCO loans generally have an 18-month maturity and
   fixed-rate DEVCO loans generally have a 15-year maturity. Both adjustable-
   and fixed-rate DEVCO loans generally provide an initial 18 month period
   necessary for the unit to be constructed and sales to stabilize. Within the
   initial 18 month period, the unit is appraised and a final loan amount is
   then determined, using actual unit level performance. After 18 months, the
   borrower can apply for a permanent loan which will be re-underwritten,
   converting the adjustable-rate DEVCO loan to a permanent loan. As a result
   of fee incentives built into the adjustable-rate DEVCO loans, borrowers
   generally look to convert into permanent loans on the maturity date. DEVCO
   loans are secured by the real property mortgage or leasehold interest as
   well as all available furniture, fixtures and equipment.





Seasoning loans are offered to fund the
   acquisition of new business units or the conversion of existing business
   units into a different franchise concept. Seasoning loans generally provide
   an interest-only period of up to 18 months that gives the borrower the
   opportunity to stabilize business unit performance and achieve a higher cash
   flow in the short-term. Generally, other terms and conditions are similar to
   those of DEVCO loans.





Investing Activities





Our investing activities primarily involve the
   purchase and sale of mortgage-backed securities by Bay View Bank. We
   purchase securities to supplement our high-quality loan and lease
   production. Our portfolio includes mortgage-backed securities issued by
   Fannie Mae, Freddie Mac, and the Government National Mortgage Association.
   Our portfolio also includes senior tranches of private issue collateralized
   mortgage obligations which carry less prepayment and credit risk as compared
   to other collateralized mortgage obligation tranches.





Securities are classified as held-to-maturity
   or available-for-sale. We do not maintain a trading portfolio. Securities in
   the held-to-maturity category consist of securities purchased for long-term
   investment in order to enhance our ongoing stream of net interest income.
   Securities deemed held-to-maturity are classified as such because we have
   both the intent and ability to hold these securities to maturity. Securities
   purchased to meet investment-related objectives such as interest rate risk
   and liquidity management, but which may be sold as necessary to implement
   management strategies, are designated as available-for-sale at the time of
   purchase. We also hold retained interests in our franchise and auto loan and
   lease securitizations which are designated as securities available-for-sale.
   At December 31, 1999 we had $49.1 million in securities available for sale
   (including $43.1 million in retained interests) and $10.0 million in
   securities classified as held-to-maturity.





Retail Deposit Activities





Bay View Bank attracts both short-term and
   long-term deposits from the general public by offering a wide range of
   deposit products and services. Bay View Bank, through its branch network,
   provides its banking customers with money market accounts, savings and
   checking accounts, certificates of deposit, individual retirement accounts,
   investment services, business checking accounts, cash management services,
   24-hour automated teller machines, and, in 2000, internet banking and
   bill-pay services.








Enhancing the value of Bay View Banks
   retail branch franchise remains one of our primary objectives. We plan to
   continue to expand our retail banking presence in northern California
   through internal growth, new product development and the acquisition or
   purchase of deposits. Our retail deposit franchise is now the largest of any
   financial institution operating exclusively in the San Francisco Bay
   Area.





Borrowing Activities





Our borrowing activities are primarily
   conducted by Bay View Bank. The Federal Home Loan Bank System functions in a
   reserve credit capacity for qualifying financial institutions. As a member,
   Bay View Bank is required to own capital stock in the Federal Home Loan Bank
   of San Francisco and may apply for advances from the Federal Home Loan Bank
   of San Francisco utilizing Federal Home Loan Bank stock, qualifying mortgage
   loans and mortgage-backed securities as collateral.





The Federal Home Loan Bank of San Francisco
   offers a full range of borrowing programs on its advances with terms of up
   to ten years at competitive market rates. A prepayment penalty is usually
   imposed for early repayment of these advances. As a Federal Reserve Bank
   member, Bay View Bank may also borrow from the Federal Reserve Bank of San
   Francisco.





We also utilize other short-term borrowing
   including warehouse lines and reverse repurchase agreements. Reverse
   repurchase agreements are sales of securities we own to securities dealers
   or the Federal Home Loan Bank of San Francisco with our commitment to
   repurchase such securities for a predetermined price at a future date. At
   December 31, 1999 our Federal Home Loan Bank advances totaled $1.4 billion
   and our short-term borrowings totaled $415.4 million.





Debt





At December 31, 1999, we had approximately
   $239.5 million of debt outstanding. This debt is comprised of (i) $99.5
   million of 9.125% Subordinated Notes due August 15, 2007 issued in August
   1997 by Bay View Capital Corporation, (ii) $50 million of 10.00%
   Subordinated Notes due August 31, 2009 issued in August 1999 by Bay View
   Bank and (iii) $90 million of 9.76% Capital Securities due December 31, 2028
   issued in December 1998 by Bay View Capital I, a Delaware business trust
   sponsored by Bay View Capital Corporation.





Competition





The banking and financial services industry in
   general, and specifically in California and the San Francisco Bay Area, is
   highly competitive. The increasingly competitive environment is a result
   primarily of changes in regulation, changes in technology and product
   delivery systems, and the accelerating pace of consolidation among financial
   services providers. We compete for loans and leases, deposits, and customers
   with other commercial banks, savings and loan associations, securities and
   brokerage companies, mortgage companies, insurance companies, finance
   companies, money market funds, credit unions, and other nonbank financial
   services providers. Many of these competitors are much larger in total
   assets and capitalization, have greater access to existing and newly
   emerging capital markets and offer a broader range of financial services
   than Bay View Bank. In addition, recent federal legislation may have the
   effect of further increasing the pace of consolidation within the financial
   services industry. (See Supervision and RegulationFinancial
   Services Modernization Legislation).





In order to compete with other financial
   services providers, we principally rely upon local promotional activities,
   personal relationships with our customers, and specialized services tailored
   to meet the needs of the communities served. In those instances where we are
   unable to accommodate a customers needs, we may arrange for those
   services to be provided by our correspondents. Bay View Bank has branch
   offices located in the following San Francisco Bay Area counties: San
   Francisco, San Mateo, Santa Clara, Marin, Contra Costa, Alameda, Sonoma,
   Solano, and Santa Cruz. In addition, we maintain commercial lending offices
   in Los Angeles, California and operate various lending facilities through a
   nationwide network of loan production offices.





Economic Conditions, Government Policies, Legislation, and
   Regulation





Our profitability, like most financial
   institutions, is dependent on interest rate differentials. In general, the
   difference between the interest rates we pay on our interest-bearing
   liabilities, such as deposits and other borrowings, and the interest rates
   we receive on our interest-earning assets, such as loans, leases and
   securities, comprises a significant portion of our earnings. These rates are
   highly sensitive to many factors that are beyond our control, such as
   inflation, recession and unemployment and the impact of future changes in
   domestic and foreign economic conditions that we cannot predict.





Our business is also influenced by the
   monetary and fiscal policies of the federal government and the policies of
   regulatory agencies, particularly the Board of Governors of the Federal
   Reserve System, sometimes referred to as the Federal Reserve Board. The
   Federal Reserve Board implements national monetary policies, with objectives
   such as curbing inflation and combating recession, through its open-market
   operations in U.S. Government securities by adjusting the required level of
   reserves for depository institutions subject to its reserve requirements,
   and by varying the target federal funds and discount rates applicable to
   borrowings by depository institutions. The actions of the Federal Reserve
   Board in these areas influence the growth of bank loans, leases,
   investments, and deposits, and also affect interest rates earned on
   interest-earning assets and paid on interest-bearing liabilities. We cannot
   predict the nature or impact on us of any future changes in monetary and
   fiscal policies.





From time to time, legislation is enacted, and
   regulations are adopted which have the effect of increasing the cost of
   doing business, limiting or expanding permissible activities, or affecting
   the competitive balance between financial services providers. Proposals to
   change the laws and regulations governing the operations and taxation of
   national banks, bank holding companies and other financial institutions are
   frequently made in the U.S. Congress, in the state legislatures and by
   various regulatory agencies. We cannot predict the likelihood of any
   legislative or regulatory changes or the impact that these changes might
   have on us.





Supervision and Regulation





General





Bay View Capital Corporation and Bay View
   Bankare extensively regulated under federal law. This regulation is
   intended primarily for the protection of depositors and the deposit
   insurance fund and not for the benefit of our stockholders. Set forth below
   is a summary description of the material laws and regulations which relate
   to our operations. The description is qualified in its entirety by reference
   to the applicable laws and regulations.





Bay View Capital Corporation





As a registered bank holding company, we are
   subject to regulation under the Bank Holding Company Act of 1956, as
   amended, sometimes referred to as the BHCA. We are required to file with the
   Federal Reserve Board quarterly, semi-annual and annual reports, and such
   additional information as the Federal Reserve Board may require pursuant to
   the BHCA. The Federal Reserve Board may conduct examinations of Bay View
   Capital Corporation and our subsidiaries.





The Federal Reserve Board may require that we
   terminate an activity or terminate control of, or liquidate or divest
   certain subsidiaries or affiliates when the Federal Reserve Board believes
   the activity, or the control of the subsidiary or affiliate constitutes a
   significant risk to the financial safety, soundness or stability of any of
   our banking subsidiaries. The Federal Reserve Board also has the authority
   to regulate provisions of certain bank holding company debt, including
   authority to impose interest ceilings and reserve requirements on such debt.
   Under certain circumstances, we must file written notice and obtain approval
   from the Federal Reserve Board prior to purchasing or redeeming our equity
   securities.





Under the BHCA and regulations adopted by the
   Federal Reserve Board, we and our nonbanking subsidiaries are prohibited
   from requiring certain tie-in arrangements in connection with any extension
   of credit,
 lease or sale of property or furnishing of services by Bay View Bank, N.A.
   Further, we are required by the Federal Reserve Board to maintain certain
   levels of regulatory capital.





We are required to obtain the prior approval
   of the Federal Reserve Board for the acquisition of more than 5% of the
   outstanding shares of any class of voting securities or substantially all of
   the assets of any bank or bank holding company. Prior approval of the
   Federal Reserve Board is also required for the merger or consolidation of
   Bay View Capital Corporation with another bank holding company.





We are prohibited by the BHCA, except in
   certain statutorily prescribed instances, from acquiring direct or indirect
   ownership or control of more than 5% of the outstanding voting shares of any
   company that is not a bank or bank holding company and from engaging
   directly or indirectly in activities other than those of banking, managing
   or controlling banks or furnishing services to our subsidiaries. However, we
   may, subject to the prior approval of the Federal Reserve Board, engage in
   any, or acquire shares of companies engaged in, activities that are deemed
   by the Federal Reserve Board to be so closely related to banking or managing
   or controlling banks as to be a proper incident thereto.





Under Federal Reserve Board regulations, a
   bank holding company is required to serve as a source of financial and
   managerial strength to its subsidiary banks and may not conduct its
   operations in an unsafe or unsound manner. In addition, it is the Federal
   Reserve Boards policy that in serving as a source of strength to its
   subsidiary banks, a bank holding company should stand ready to use available
   resources to provide adequate capital funds to its subsidiary banks during
   periods of financial stress or adversity and should maintain the financial
   flexibility and capital-raising capacity to obtain additional resources for
   assisting its subsidiary banks. A bank holding companys failure to
   meet its obligations to serve as a source of strength to its subsidiary
   banks will generally be considered by the Federal Reserve Board to be an
   unsafe and unsound banking practice or a violation of the Federal Reserve
   Boards regulations or both.





Our securities are registered with the
   Securities and Exchange Commission under the Securities Exchange Act of
   1934, as amended. As such, we are subject to the information, proxy
   solicitation, insider trading, and other requirements and restrictions of
   the Securities Exchange Act.





Effective April 1, 1999, we changed the
   listing of our common stock and Capital Securities from Nasdaq to the New
   York Stock Exchange and commenced trading of our Subordinated Notes on the
   New York Stock Exchange. Our common stock trades under the ticker symbol
   BVC, our capital securities trade under the ticker symbol
   BVS, and our Subordinated Notes trade under the ticker symbol
   BVC 07.





Bay View Bank, N.A.





Bay View Bank, N.A., as a national banking
   association, is subject to primary supervision, examination and regulation
   by the Office of the Comptroller of the Currency, sometimes referred to as
   the OCC. To a lesser extent, Bay View Bank is also subject to regulations of
   the Federal Deposit Insurance Corporation, sometimes referred to as the
   FDIC, which insures our deposit accounts, and the Federal Reserve Board. If,
   as a result of an examination, the OCC determines that the financial
   condition, capital resources, asset quality, earnings prospects, management,
   liquidity or other aspects of Bay View Banks operations are
   unsatisfactory, or that Bay View Bank or its management is violating or has
   violated any law or regulation, various remedies are available to the OCC.
   Such remedies include the power to enjoin unsafe or unsound practices
   , to require affirmative action to correct any conditions resulting
   from any violation or practice, to issue an administrative order that can be
   judicially enforced, to direct an increase in capital, to restrict the
   growth of Bay View Bank, to assess civil monetary penalties, and to remove
   officers and directors. The FDIC has similar enforcement authority, in
   addition to its authority to terminate Bay View Banks deposit
   insurance in the absence of action by the OCC and upon a finding that we are
   in an unsafe or unsound condition, are engaging in unsafe or unsound
   activities, or that our conduct poses a risk to the deposit insurance fund
   or may prejudice the interest of our depositors.





Various requirements and restrictions under
   the laws of the United States affect the operations of Bay View Bank.
   Federal statutes and regulations relate to many aspects of Bay View Bank
   s operations, including reserves
 against deposits, ownership of deposit accounts, interest rates payable on
   deposits, loans and investments, mergers and acquisitions, borrowings,
   dividends, locations of branch offices, capital requirements, and disclosure
   obligations to depositors and borrowers.





Financial Services Modernization Legislation





On November 12, 1999, President Clinton signed
   into law the Gramm-Leach-Bliley Act, also referred to as the Financial
   Services Modernization Act. The Financial Services Modernization Act repeals
   the two affiliation provisions of the Glass-Steagall Act: Section 20, which
   restricted the affiliation of Federal Reserve Member Banks with firms
   engaged principally in specified securities activities; and
   Section 32, which restricts officer, director or employee interlocks between
   a member bank and any company or person primarily engaged in
   specified securities activities. In addition, the Financial Services
   Modernization Act also contains provisions that expressly preempt any state
   law restricting the establishment of financial affiliations, primarily
   related to insurance. The general effect of the law is to establish a
   comprehensive framework to permit affiliations among commercial banks,
   insurance companies, securities firms, and other financial services
   providers by revising and expanding the BHCA framework to permit a holding
   company to engage in a full range of financial activities through a new
   entity known as a Financial Holding Company. Financial activities
    is broadly defined to include not only banking, insurance and
   securities activities, but also merchant banking and additional activities
   that the Federal Reserve Board, in consultation with the Secretary of the
   Treasury, determines to be financial in nature, incidental to such financial
   activities or complementary activities that do not pose a substantial risk
   to the safety and soundness of depository institutions or the financial
   system generally.





Generally, the Financial Services
   Modernization Act:





| | · | Repeals historical
     restrictions on, and eliminates many federal and state law barriers to,
     affiliations among banks, securities firms, insurance companies, and other
     financial services providers;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | Provides a uniform
     framework for the functional regulation of the activities of banks,
     savings institutions and their holding companies;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------




| | · | Broadens the
     activities that may be conducted by bank holding companies and
     subsidiaries of national banks;
| | - | ---------------------------------------------------------------------------------------------------------------------




| | · | Provides an
     enhanced framework for protecting the privacy of consumer
     information;
| | - | --------------------------------------------------------------------------------------------




| | · | Adopts a number of
     provisions related to the capitalization, membership, corporate
     governance, and other measures designed to modernize the Federal Home Loan
     Bank system;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | Modifies the laws
     governing the implementation of the Community Reinvestment Act, sometimes
     referred to as CRA; and
| | - | -----------------------------------------------------------------------------------------------------------------------------




| | · | Addresses a variety
     of other legal and regulatory issues affecting both day-to-day operations
     and long-term activities of financial institutions.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------




In order for us to take advantage of the
   ability to affiliate with other financial services providers, we must become
   a Financial Holding Company as permitted under an amendment to
   the BHCA. To become a Financial Holding Company, we would file a declaration
   with the Federal Reserve Board, electing to engage in activities permissible
   for Financial Holding Companies and certifying that we are eligible to do so
   because all of our insured depository institution subsidiaries are
   well-capitalized and well-managed (see Capital Standards). In
   addition, the Federal Reserve Board must also determine that each of our
   insured depository institution subsidiaries has at least a satisfactory
    CRA rating (see Community Reinvestment Act and Fair Lending
   Developments). We meet the requirementsto make an election to
   become a Financial Holding Company. Our management has not determined at
   this time whether we will seek an election to become a Financial Holding
   Company. We are examining our strategic business plan to determine whether,
   based upon market conditions, our relative financial condition, regulatory
   capital requirements, general economic conditions, and other factors, we
   desire to utilize any of our expanded powers provided in the Financial
   Services Modernization Act.





The Financial Services Modernization Act also
   permits national banks to engage in expanded activities through the
   formation of financial subsidiaries. A national bank may have a subsidiary
   engaged in any activity authorized for national banks directly or any
   financial activity, except for insurance underwriting, insurance
   investments, real estate investment or development, or merchant banking.
   These activities, except real estate investment or development, may only be
   conducted through a subsidiary of a Financial Holding Company. Financial
   activities include all activities permitted under new sections of the BHCA
   or by OCC regulation or interpretation.





A national bank seeking to have a financial
   subsidiary, and each of its depository institution affiliates, must be
   well-capitalized and well-managed. The total assets
   of all financial subsidiaries may not exceed the lesser of 45% of a bank
   s total assets, or $50 billion. A national bank must exclude from its
   assets and equity all equity investments, including retained earnings, in a
   financial subsidiary. The assets of the subsidiary may not be consolidated
   with the banks assets. The bank must also have policies and procedures
   to assess financial subsidiary risk and to protect the bank from such risks
   and potential liabilities.





We do not believe that the Financial Services
   Modernization Act will have a material adverse effect on our operations in
   the near-term. However, to the extent that it permits banks, securities
   firms and insurance companies to affiliate, the financial services industry
   may experience further consolidation. The Financial Services Modernization
   Act is intended to grant to community banks certain powers as a matter of
   right that larger institutions have accumulated on an ad hoc basis.
   Nevertheless, this Act may have the result of increasing the amount of
   competition that we face from larger institutions and other types of
   companies offering financial products, many of which may have substantially
   more financial resources than we do.





Dividends and Other Transfers of Funds





Our principal source of income is dividends
   from Bay View Bank. Bay View Bank is a legal entity separate and distinct
   from Bay View Capital Corporation. Bay View Bank is subject to various
   statutory and regulatory restrictions on its ability to pay dividends to us.
   In addition, the OCC has the authority to prohibit Bay View Bank from paying
   dividends, depending upon its financial condition, if such payment is deemed
   to constitute an unsafe or unsound practice. As a national bank, Bay View
   Bank may pay dividends in any one calendar year equal to its net earnings in
   that calendar year plus net earnings for the previous two calendar years,
   less any dividends paid during this three-year period.





The OCCalso has the authority to
   prohibit Bay View Bank from engaging in activities that, in the OCC
   sopinion, constitute unsafe or unsound practices in conducting
   its business. It is possible, depending upon the financial condition of the
   bank in question and other factors, that the OCCcould assert that
   the payment of dividends or other payments might, under some circumstances,
   be such an unsafe or unsound practice. Further, the OCCand the
   Federal Reserve Board have established guidelines with respect to the
   maintenance of appropriate levels of capital by national banks and bank
   holding companies under their jurisdiction. Compliance with the standards
   set forth in such guidelines and the restrictions that are or may be imposed
   under the prompt corrective action provisions of federal law could limit the
   amount of dividends that Bay View Bank or Bay View Capital Corporation may
   pay. An insured depository institution is prohibited from paying management
   fees to any controlling persons or, with certain limited exceptions, making
   capital distributions, if after such transaction the institution would be
   undercapitalized. See Capital Standards and Prompt
   Corrective Regulatory Action and Other Enforcement Mechanisms and for
   a discussion of these additional restrictions on capital
   distributions.





Bay View Bank is subject to certain
   restrictions imposed by federal law on any extensions of credit to, or the
   issuance of a guarantee or letter of credit on behalf of, Bay View Capital
   Corporation or other affiliates, the purchase of, or investments in, stock
   or other securities thereof, the taking of such securities as collateral for
   loans, and the purchase of our assets. Such restrictions prevent us from
   borrowing from Bay View Bank unless the loans are secured by marketable
   obligations of designated amounts. Further, such secured loans and
   investments are limited, individually, to 10% of Bay View Banks
   capital and surplus (as defined by federal regulations), and such secured
   loans and investments are limited, in the aggregate, to 20% of Bay View Bank
   s
 capital and surplus (as defined by federal regulations). California law also
   imposes certain restrictions with respect to transactions involving Bay View
   Capital Corporation and other controlling persons of Bay View Bank.
   Additional restrictions on transactions with affiliates may be imposed on
   Bay View Bank under the prompt corrective action provisions of federal law.
   See Prompt Corrective Action and Other Enforcement Mechanisms.
   





Capital Standards





The Federal Reserve Board and the OCChave adopted risk-based minimum capital guidelines intended to provide a
   measure of capital that reflects the degree of risk associated with a
   banking organizations operations for both transactions reported on the
   balance sheet as assets and transactions, such as letters of credit and
   recourse arrangements, which are recorded as off-balance sheet items. Under
   these guidelines, nominal dollar amounts of assets and credit equivalent
   amounts of off-balance sheet items are multiplied by one of several risk
   adjustment percentages, which range from 0% for assets with low credit risk,
   such as certain U.S. Treasury securities, to 100% for assets with a higher
   degree of credit risk, such as commercial loans.





The federal banking agencies require a minimum
   ratio of qualifying total risk-based capital to risk-adjusted assets of 8%
   and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%. In
   addition to the risk-based guidelines, federal banking regulators require
   banking organizations to maintain a minimum amount of Tier 1 capital to
   total average assets, referred to as the leverage ratio. For a banking
   organization rated in the highest of the five categories used by regulators
   to rate banking organizations, the minimum leverage ratio of Tier 1 capital
   to total average assets is 3%. In addition to these uniform risk-based
   capital guidelines and leverage ratios that apply across the industry, the
   regulators have the discretion to set individual minimum capital
   requirements for specific institutions at rates significantly above the
   minimum guidelines and ratios.





The following table presents the amounts of
   regulatory capital and capital ratios for Bay View Bank, compared to its
   minimum regulatory capital requirements at December 31, 1999.





|                       |  | At December 31,
     1999
|---------------------- |  | -------------------------
|
|
|
|Tier 1
     leverage   |  | $406,001                 
|Tier 1
     risk-based |  | $406,001                 
|Total
     risk-based  |  | $507,516                 




The following table presents the amounts of
   regulatory capital and capital ratios for Bay View Capital Corporation,
   compared to its minimum regulatory capital requirements at December 31,
   1999.





|                       |  | At December 31,
     1999
|---------------------- |  | -------------------------
|
|
|
|Tier 1
     leverage   |  | $386,110                 
|Tier 1
     risk-based |  | $386,110                 
|Total
     risk-based  |  | $587,773                 




Prompt Corrective Action and Other Enforcement
   Mechanisms





Federal banking agencies possess broad powers
   to take corrective and other supervisory action to resolve the problems of
   insured depository institutions, including but not limited to those
   institutions that fall below one or more prescribed minimum capital ratios.
   Each federal banking agency has promulgated regulations defining
 the following five categories in which an insured depository institution will
   be placed, based upon its capital ratios: well-capitalized, adequately
   capitalized, undercapitalized, significantly undercapitalized, and
   critically undercapitalized. At December 31, 1999, Bay View Bank and Bay
   View Capital Corporation both exceeded the required ratios for
   classification as well-capitalized.





An institution that, based upon its capital
   levels, is classified as well-capitalized, adequately capitalized or
   undercapitalized may be treated as though it were in the next lower capital
   category if the appropriate federal banking agency, after notice and
   opportunity for hearing, determines that an unsafe or unsound condition or
   an unsafe or unsound practice warrants such treatment. At each successive
   lower capital category, an insured depository institution is subject to more
   restrictions. The federal banking agencies, however, may not treat a
   significantly undercapitalized institution as critically undercapitalized
   unless its capital ratio actually warrants such treatment.





In addition to measures taken under the prompt
   corrective action provisions, commercial banking organizations may be
   subject to potential enforcement actions by federal regulators for unsafe or
   unsound practices in conducting their businesses or for violations of any
   law, rule, regulation, or any condition imposed in writing by the agency or
   any written agreement with the agency.





Safety and Soundness Standards





The federal banking agencies have adopted
   guidelines designed to assist them in identifying and addressing potential
   safety and soundness concerns before capital becomes impaired. The
   guidelines set forth operational and managerial standards relating to: (i)
   internal controls, information systems and internal audit systems, (ii) loan
   documentation, (iii) credit underwriting, (iv) asset growth, (v) earnings,
   and (vi) compensation, fees and benefits. In addition, the federal banking
   agencies have also adopted safety and soundness guidelines with respect to
   asset quality and earnings standards. These guidelines provide six standards
   for establishing and maintaining a system to identify problem assets and
   preventing those assets from deteriorating. Under these standards, an
   insured depository institution should: (i) conduct periodic asset quality
   reviews to identify problem assets, (ii) estimate the inherent losses in
   problem assets and establish reserves that are sufficient to absorb
   estimated losses, (iii) compare problem asset totals to capital, (iv) take
   appropriate corrective action to resolve problem assets, (v) consider the
   size and potential risks of material asset concentrations, and (vi) provide
   periodic asset quality reports with adequate information for management and
   the Board of Directors to assess the level of asset risk. These new
   guidelines also set forth standards for evaluating and monitoring earnings
   and for ensuring that earnings are sufficient to maintain adequate capital
   and reserves.





Premiums for Deposit Insurance





Bay View Banks deposit accounts are
   insured by the Savings Association Insurance Fund, or SAIF, as administered
   by the FDIC, up to the maximum amounts permitted by law. Insurance of
   deposits may be terminated by the FDIC upon a finding that our institution
   has engaged in unsafe or unsound practices, is in an unsafe or unsound
   condition to continue operations or has violated any applicable law,
   regulation, rule, order, or condition imposed by the FDIC or the institution
   s primary regulator.





The FDIC charges an annual assessment for the
   insurance of deposits based on the risk that a particular institution poses
   to its deposit insurance fund. The risk classification is based on an
   institutions capital group and supervisory subgroup assignment.
   Pursuant to federal law, on January 1, 1997, Bay View Bank began paying, in
   addition to its normal deposit insurance premium as a member of the SAIF, an
   amount equal to approximately 6.4 basis points per $100 of insured deposits
   toward the retirement of the Financing Corporation bonds issued in the 1980s
   to assist in the recovery of the savings and loan industry. Members of the
   Bank Insurance Fund, or BIF, by contrast, pay, in addition to their normal
   deposit insurance premium, approximately 1.3 basis points. Under federal;
   law, the FDIC is not permitted to establish SAIF assessment rates that are
   lower than comparable BIF assessment rates. Effective January 1, 2000, the
   rate paid to retire the Financing Corporation bonds is equal
 for members of the BIF and the SAIF at 2.12 basis points. Federal law also
   provided for the merging of the BIF and the SAIF by January 1, 1999,
   provided there were no financial institutions still chartered as savings
   associations at that time. However, as of January 1, 1999, there were still
   financial institutions chartered as savings associations.





Interstate Banking and Branching





The BHCA permits bank holding companies from
   any state to acquire banks and bank holding companies located in any other
   state, subject to certain conditions, including certain nationwide- and
   state-imposed concentration limits. Bay View Bank has the ability, subject
   to certain restrictions, to acquire by acquisition or merger branches
   outside its home state. The establishment of new interstate branches is also
   possible in those states with laws that expressly permit it. Interstate
   branches are subject to certain laws of the states in which they are
   located. Competition may increase further as banks branch across state lines
   and enter new markets.





Community Reinvestment Act and Fair Lending
   Developments





Bay View Bank is subject to certain fair
   lending requirements and reporting obligations involving home mortgage
   lending operations and CRA activities. The CRA generally requires the
   federal banking agencies to evaluate the record of a financial institution
   in meeting the credit needs of its local communities, including low-and
   moderate-income neighborhoods. A bank may be subject to substantial
   penalties and corrective measures for a violation of certain fair lending
   laws. The federal banking agencies may take compliance with such laws and
   CRA obligations into account when regulating and supervising other
   activities.





A banks compliance with its CRA
   obligations is based upon a performance-based evaluation system which bases
   CRA ratings on an institutions lending service and investment
   performance. When a bank holding company applies for approval to acquire a
   bank or other bank holding company, the Federal Reserve Board will review
   the assessment of each subsidiary bank of the applicant bank holding
   company, and such records may be the basis for denying the application.
   Based on an examination conducted October 13, 1998, Bay View Bank was rated
   satisfactory in complying with its CRA obligations.





Employees





At December 31, 1999, we had a total of 1,299
   employees on a full-time equivalent basis, consisting of both full-time and
   permanent part-time employees, as follows:





|Bay View Bank, N.A.
     and Subsidiaries |  | 1,149
|----------------------------------------- |  | -----
|Bay View Capital
     Corporation         |  | 150  
|                                          |  |      
|Total                                     |  | 1,299
|                                          |  |      




Our employees are not represented by any
   unions or covered by any collective bargaining agreements. We consider our
   relations with our employees to be satisfactory.





Executive Officers of the Registrant





The following table sets forth certain
   information regarding the executive officers of the Registrant.





|Name                          |  | Age |  | Position                                                                                                      |  | Year
   
   Appointed
|----------------------------- |  | --- |  | ------------------------------------------------------------------------------------------------------------- |  | ---------------------
|Edward H.
     Sondker        |  | 52  |  | Director, President
     and Chief Executive Officer                                                          |  | 1995                 
|Richard E.
     Arnold        |  | 59  |  | Executive Vice
     President and Director of Sales and
   
   Banking Administration, Bay View Bank          |  | 1997                 
|John N.
     Buckley          |  | 42  |  | Executive Vice
     President and Chief Credit Officer                                                        |  | 1995                 
|Matthew L.
     Carpenter     |  | 40  |  | President and Chief
     Executive Officer, Bay View
   
   Commercial Finance Group                          |  | 1999                 
|David A.
     Heaberlin       |  | 50  |  | President and Chief
     Operating Officer, Bay View
   
   Bank                                              |  | 1999                 
|Wayne L.
     Knyal           |  | 53  |  | President and Chief
     Executive Officer,, Bay View
   
   Franchise Mortgage Acceptance Company            |  | 1999                 
|Scott H.
     Ray             |  | 35  |  | Executive Vice
     President and Chief Financial
   
   Officer                                              |  | 2000                 
|Ronald L.
     Reed           |  | 53  |  | Executive Vice
     President and Director of
   
   Management Information Systems and Loan
   
   Servicing |  | 1997                 
|Douglas J.
     Wallis        |  | 49  |  | Executive Vice
     President, General Counsel and
   
   Corporate Secretary                                 |  | 2000                 
|Carolyn
     Williams-Goldman |  | 38  |  | Executive Vice
     President and Director of
   
   Administration                                           |  | 1998                 
|Jeffrey O.
     Butcher       |  | 35  |  | First Vice
     President and Controller                                                                      |  | 2000                 




The business experience of each of our
   executive officers is as follows:





Mr. Sondker has served as a Director,
   President and Chief Executive Officer of Bay View Capital Corporation since
   1995. Previously, he served as President and Chief Executive Officer of
   Independence One Bank of California, FSB, a subsidiary of Michigan National
   Corporation. From 1985 to 1990, he was the President and Chief Executive
   Officer of La Jolla Bank & Trust Company. Prior to 1985, Mr. Sondker
   held executive and management positions with a community bank holding
   company in Kansas City, Missouri.





Mr. Arnold, Executive Vice President, has
   served as Director of Sales and Banking Administration since 1997.
   Previously, he served as Executive Vice President of First Interstate Bank
   and was responsible for all branch banking activities in northern
   California. Prior to joining First Interstate Bank in 1990, he held
   executive and management positions at Security Pacific Bank in a career that
   spanned over 30 years.





Mr. Buckley, Executive Vice President, has
   served as Chief Credit Officer since 1995 and Manager of Credit
   Administration and Asset Management since 1994. He joined Bay View Capital
   Corporation in September 1993. Previously, he served at Bank of America in
   various capacities from 1985 to 1993. His last position was Vice President
   and Regional Credit Administrator for the Real Estate Industries Division at
   Bank of America.





Mr. Carpenter has served as President and
   Chief Executive Officer of our subsidiary Bay View Commercial Finance Group
   since 1999. Prior to becoming President and Chief Executive Officer, Mr.
   Carpenter served as Chief Operating Officer of Bay View Commercial Finance
   Group from the time of its acquisition by Bay View Capital Corporation in
   1997. Prior to the acquisition, Mr. Carpenter served as Chief Financial
   Officer of Concord Growth Corporation, the predecessor of Bay View
   Commercial Finance Group, from 1991 to 1997, and as President of EXXE Data
   Corporation, the holding company of Concord Growth Corporation, from 1993 to
   1997.





Mr. Heaberlin has served as President of Bay
   View Bank since 1999 and Chief Operating Officer of Bay View Bank since
   1997. He served as Executive Vice President and Chief Financial Officer of
   Bay View Capital
 Corporation from 1995 to January 2000. Previously, Mr. Heaberlin served as
   Senior Vice President and Chief Financial Officer for First
   California/Mortgage Service America. During 1993 and 1994, he was Executive
   Vice President and Treasurer of ITT Residential Capital Corporation. Prior
   to his service with ITT, he was a financial executive for various entities
   including Bowery Bank, Exchange National Bank of Chicago, Financial
   Corporation of Santa Barbara, and Numerica Financial. Mr. Heaberlin is a
   Certified Public Accountant and has over 20 years experience in commercial
   banking, savings banks and the financial services industry.





Mr. Knyal has served as a Director of Bay View
   Capital Corporation and President of Bay View Franchise Mortgage Acceptance
   Company since Bay View Capital Corporations acquisition of FMAC in
   November 1999. Mr. Knyal was previously President and Chief Executive
   Officer of FMAC from the founding of its predecessor in 1991 until the
   acquisition of FMAC by Bay View Capital Corporation. Prior to his service
   with FMAC, he founded and owned CBI Insurance Services, Inc. and
   concurrently served as President of CBI Mortgage Company, a residential
   mortgage banker. From 1968 to 1980, Mr. Knyal was an Executive Vice
   President of Krupp/Taylor Advertising and served clients in the fast food
   industry. He is also a Director of New Riders, Inc., a restaurant
   company.





Mr. Ray, Executive Vice President, was
   appointed Chief Financial Officer in January 2000. Since joining Bay View
   Capital Corporation in 1998, Mr. Ray has served as Chief Financial Officer
   of Bay View Bank and Controller of Bay View Capital Corporation. Previously,
   he served as Executive Vice President and Chief Financial Officer for
   Silicon Valley Bancshares. Mr. Ray is a Certified Public Accountant and has
   15 years of professional experience in both public accounting and private
   industry, mostly within the financial services industry.





Mr. Reed, Executive Vice President, has served
   as Director of Management Information Systems and Loan Servicing since 1997.
   Previously, he served as Chief Information Officer for Weyerhaeuser and WMC
   Mortgage Corporation. He has over 30 years of corporate management,
   information technology and servicing experience and has also held senior
   management positions with Technology Management Corporation, American
   Savings Bank and Home Savings of America / HF Ahmanson.





Mr. Wallis, Executive Vice President, was
   appointed General Counsel of Bay View Capital Corporation in January 2000.
   Mr. Wallis joined Bay View Capital Corporation in 1999 as General Counsel
   for Bay View Bank. Previously, he served as Executive Vice President and
   General Counsel for California Federal Bank. Mr. Wallis is a member of the
   State Bars of California and Missouri. He has over 25 years of experience
   within the banking industry.





Ms. Williams-Goldman, Executive Vice
   President, has served as Director of Administration since 1998 and Director
   of Human Resources since 1995. She joined Bay View Capital Corporation as
   Associate Counsel in 1994. Previously, she served as Vice President and
   Counsel at First Nationwide Bank in San Francisco. Prior to her service with
   First Nationwide Bank, she was an Associate in the Business Law and Banking
   Practice Groups of Winthrop, Stimson, Putnam & Roberts. She is a member
   of the State Bars of California and New York.





Mr. Butcher was appointed Controller in
   January 2000. Previously, he served as Vice President and Manager of
   Financial Reporting and Investor Relations. Prior to joining Bay View in
   1997, he was a Senior Manager with KPMG LLP serving clients in the financial
   services industry. Mr. Butcher is a Certified Public Accountant.





There is no family relationship among the
   above officers. All executive officers serve at the discretion of the Board
   of Directors.





Item 2.    Properties





At December 31, 1999, we occupied a total of
   113 offices plus our administrative corporate office under operating lease
   agreements expiring at various dates through the year 2016. In most
   instances, these lease arrangements include options to renew or extend the
   lease at market rates. Bay View Bank owns the property on
 which four of its branches are located. We also own leasehold improvements,
   furniture and equipment at our offices and branches, all of which are used
   in our business activities.





Item 3.    Legal Proceedings





There were no legal proceedings requiring
   disclosure pursuant to this item at December 31, 1999, or at the date of
   this report.





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





At a special meeting of our stockholders held
   on October 14, 1999, our stockholders considered the following
   proposals:





I.    Approval and
   adoption of the Agreement and Plan of Merger and Reorganization, dated March
   11, 1999, as amended, by and between Bay View Capital Corporation and
   Franchise Mortgage Acceptance Company and the transactions contemplated
   thereby and approval of the issuance of Bay View common stock in connection
   therewith. The vote on the proposal was as follows:





|For        |  | Against |  | Abstain |  | Broker
   
   Non-Vote
|---------- |  | ------- |  | ------- |  | ----------------------
|14,597,725 |  | 677,999 |  | 40,964  |  | 2,561,052             




II.    Approval and
   adoption of an amendment to our 1995 Stock Option and Incentive Plan to
   increase the number of shares reserved thereunder from 2,000,000 to
   2,500,000. The vote on the proposal was as follows:





|For        |  | Against   |  | Abstain |  | Broker
   
   Non-Vote
|---------- |  | --------- |  | ------- |  | ----------------------
|14,613,689 |  | 2,933,722 |  | 330,329 |  | 0                     




PART
   II





Item 5.    Market for Registrants Common Equity and
   Related Stockholder Matters





At December 31, 1999, our common stock was
   traded on the New York Stock Exchange under the stock symbol BVC.
    At December 31, 1999, 32,562,942 shares of our common stock were
   outstanding, which were owned by 1,497 stockholders of record.





The following table illustrates quarterly
   stock price activity and dividends declared for 1999 and 1998.





|                        |  | 1999          
|----------------------- |  | --------------
|
|Stock price
     high  |  | $21.06        
|Stock price
     low   |  | $17.44        
|Dividends               |  | $ 
      0.10 
|                        | 
|
|
|Stock price
      high |  | $37.25        
|Stock price
      low  |  | $29.38        
|Dividends               |  | $ 
       0.10




Our ability to pay dividends is subject to
    certain restrictions and limitations pursuant to applicable laws and
    regulations. See Supervision and Regulation at Item 1.
    Business and Note 14 to the Consolidated Financial Statements,
    Stockholders Equity and Regulatory Capital Requirements,
    at Item 8. Financial Statements and Supplementary Data.
    





Item 6.    Selected Financial DataFive-Year
    Financial Information





|                                                                                |  | At December
      31, 
|------------------------------------------------------------------------------- |  | ----------------------
|
|
|Selected
      Balance Sheet Information(1)                                     |  |                       
|Total
      assets                                                              |  | $6,498,700            
|Mortgage-backed
      securities                                                |  | 654,713               
|Loans and leases,
      net                                                     |  | 4,361,493             
|Investment in
      operating leased assets, net                                |  | 463,088               
|Deposits                                                                        |  | 3,729,780             
|Borrowings                                                                      |  | 1,935,517             
|Capital
      Securities                                                        |  | 90,000                
|Stockholders
      equity                                                      |  | 631,194               
|
|
|
|Selected
      Results of Operations                                            |  |                       
|Information(1)                                                                  |  |                       
|Interest
      income                                                           |  | $   
       421,656   
|Interest
      expense                                                          |  | (251,172              
|                                                                                |  |                       
|Net interest
      income                                                       |  | 170,484               
|Provision for
      losses on loans and leases                                  |  | (28,311               
|Leasing
      income                                                            |  | 58,558                
|Gain (loss) on
      sale of loans and leases and
    
         securities, net |  | 10,058                
|Other income,
      net                                                         |  | 22,916                
|General and
      administrative expenses                                       |  | (117,116              
|Leasing
      expense                                                           |  | (40,188               
|Dividend expense
      on Capital Securities                                    |  | (8,935                
|SAIF
      recapitalization assessment                                          |  |                      
|Net recoveries on
      real estate operations                                  |  | 274                   
|(Provision for)
      recovery of losses on real
    
         estate           |  | (36                   
|Amortization of
      intangible assets                                         |  | (13,687               
|                                                                                |  |                       
|Income (loss)
      before income tax (expense)
    
         benefit           |  | 54,017                
|Income tax
      (expense) benefit                                              |  | (25,053               
|Extraordinary
      items, net of tax                                           |  |                      
|                                                                                |  |                       
|Net income
      (loss)                                                         |  | $   
         28,964  
|                                                                                |  |                       
|Earnings (loss)
      per diluted share:                                       
|Income (loss) before
      extraordinary
    
                
         items   |  | $   
             1.36
|Net income (loss)                                                               |  | $   
             1.36
|Dividends declared
      per share                                              |  | $   
             0.30




|                                                                                                     |  | At and For the
      Year Ended December 31,
|---------------------------------------------------------------------------------------------------- |  | --------------------------------------------
|
|
|Selected Other
      Information(1)                                                                  |  |                                             
|Net interest
      margin                                                                            |  | 3.23                                        
|Efficiency
      ratio                                                                               |  | 54.44                                       
|Return on average
      assets                                                                       |  | 0.49                                        
|Return on average
      equity                                                                       |  | 7.00                                        
|Ratio of total
      equity to total assets                                                          |  | 9.71                                        
|Book value per
      share                                                                           |  | $ 
       19.38                             
|Dividend payout
      ratio                                                                          |  | 19.26                                       
|Nonperforming
      assets                                                                           |  | $25,939                                     
|Ratio to total assets,
      excluding loans and leases
    
                
         held-for-sale |  | 0.40                                        
|Troubled debt
      restructurings                                                                   |  | $ 
       1,009                             
|Ratio to total assets,
      excluding loans and leases
    
                
         held-for-sale |  | 0.02                                        




|(1) | Includes the
      acquisitions of Bay View Credit effective June 1, 1996, Bay View
      Commercial Finance Group effective April 1, 1997, Ultra Funding effective
      October 1, 1997, America First Eureka Holdings effective January 2, 1998,
      and Franchise Mortgage Acceptance Company effective November 1,
      1999.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Item 7.    Managements Discussion and Analysis of
    Financial Condition and Results of Operations





INDEX





|Strategic
      Overview                                   |  | 24
|---------------------------------------------------------- |  | --
|Our Mission and
      Strategy                             |  | 24
|Banking Platform
      Strategy                            |  | 24
|Home Equity Platform
      Strategy                        |  | 25
|Auto Platform
      Strategy                               |  | 25
|Commercial Platform
      Strategy                         |  | 25
|Acquisition of FMAC                                        |  | 26
|Results of
      Operations                                |  | 26
|Contribution by
      Platform                             |  | 26
|Net Interest Income and Net
      Interest Margin          |  | 28
|Interest Income                                            |  | 33
|Interest Expense                                           |  | 35
|Provision for Losses on Loans
      and Leases             |  | 37
|Noninterest Income                                         |  | 37
|Noninterest Expense                                        |  | 37
|Income Taxes                                               |  | 41
|Non-GAAP
      Performance Measures                        |  | 41
|Earnings Excluding Amortization
      of Intangible Assets |  | 42
|Normalized Net Interest
      Margin                       |  | 43
|Balance Sheet
      Analysis                               |  | 45
|Securities                                                 |  | 45
|Loans and Leases                                           |  | 47
|Deposits                                                   |  | 54
|Borrowings                                                 |  | 55
|Liquidity                                                  |  | 57
|Capital
      Resources                                    |  | 57
|Year
      2000                                            |  | 59
|Impact of
      Inflation and Changing Prices              |  | 60




Strategic
    Overview





Bay View Capital Corporation is a diversified
    financial services company that operates distinct business platforms. Each
    platform is comprised of interest-earning assets with similar
    characteristics including, among other things, marketing and distribution
    channels, pricing, credit risk, and interest rate sensitivity.





Throughout 1998, we reported on three
    business platforms: a Banking Platform, a Consumer Platform and a
    Commercial Platform. The Banking Platform included single-family,
    multi-family and commercial mortgage loans, mortgage-backed securities, and
    retail and business banking deposit products and services. The Consumer
    Platform included auto loans and leases and home equity loans. The
    Commercial Platform included asset-based lending, factoring and commercial
    leasing activities.





Effective January 1, 1999, we expanded our
    business platforms in order to facilitate a more effective presentation and
    analysis of our different business activities. These platforms are as
    follows:





| | · | A Banking Platform
      comprised of single-family, multi-family and commercial real estate
      loans, franchise loans and asset-based commercial participation loans,
      mortgage-backed securities and other investments, and retail and business
      banking deposit products and services. The franchise lending operations
      and related assets were added to the Banking Platform through our
      acquisition of FMAC, along with the assets and operations of FMACs
      wholly owned division, Bankers Mutual, a multi-family loan originator and
      seller-servicer.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | A Home Equity
      Platform comprised of home equity loans and lines of credit.
| | - | --------------------------------------------------------------------------------




| | · | An Auto Platform
      comprised of auto loans and leases.
| | - | ----------------------------------------------------------




| | · | A Commercial
      Platform comprised of asset-based lending, factoring and commercial
      leasing activities.
| | - | ----------------------------------------------------------------------------------------------------------------




Our Mission and Strategy





Our mission is to build a diversified
    financial services company by investing in niche businesses with
    risk-adjusted returns that enhance shareholder value. Our strategy centers
    around our continued transition to commercial banking activities and
    changing-out our balance sheet to expand our net interest margin. In order
    to realize this objective, our actions include the following:





| | · | Replacing
      lower-yielding mortgage loans and mortgage-backed securities on our
      balance sheet with consumer and commercial loans and leases with higher
      risk-adjusted returns, shorter maturities and less sensitivity to
      interest rate changes.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | Enhancing and
      expanding Bay View Banks deposit base by attracting and retaining
      lower-cost transaction accounts, including commercial and business
      checking accounts, offering competitively priced certificates of deposit
      and capitalizing on strategic branch or deposit acquisition
      opportunities.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | Maintaining the
      capital levels of both Bay View Bank and Bay View Capital Corporation at
      or above the well-capitalized level, as defined for regulatory
      purposes.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Banking Platform Strategy





One of the principal businesses of the
    Banking Platform is Bay View Banks 57 full service retail and
    business banking branch network. A primary objective of the Banking
    Platform is to enhance the value of our deposit franchise by focusing on
    deposit growth, expanding and enhancing products and services and
    capitalizing on strategic branch and deposit acquisition opportunities. A
    primary component of the Banking Platforms deposit growth strategy is
    to focus on lower-cost transaction accounts (e.g., checking, savings and
    money market accounts) as a source of financing. Transaction accounts at
    Bay View Bank as a percentage of total retail deposits increased to 51.0%
    at December 31, 1999 as compared with 49.8% at December 31, 1998 and 34.6%
    at December 31, 1997.





On September 25, 1999, in keeping with the
    platforms strategy, we acquired two Luther Burbank Savings branches.
    These two branches represented approximately $117 million in deposits. In
    accordance with the agreement, we paid a 5.25% deposit premium. The amount
    of goodwill recorded as of the acquisition date was $6 million.





The Banking Platform also includes our
    multi-family and commercial real estate lending and the franchise lending
    operations acquired from FMAC in November 1999. The strategy is not only to
    concentrate on enhancing the profitability, efficiency and production
    capabilities of these operations, but also to develop a whole loan market
    for future franchise loan sales.





Effective March 1, 1999, Bay View Bank
    converted from a savings institution regulated by the Office of Thrift
    Supervision to a national bank regulated by the Office of the Comptroller
    of the Currency and Bay View Capital Corporation converted from a savings
    and loan holding company regulated by the Office of Thrift Supervision to a
    bank holding company regulated by the Federal Reserve Board. These
    conversions represented a critical step in our transformation to a
    commercial bank. Our new national bank charter provides us with the ability
    to continue, as well as expand, our focus on traditional commercial banking
    activities.





Home Equity Platform Strategy





The Home Equity Platform originates and
    purchases home equity loans and lines of credit. The Home Equity Platform
    s portfolio included $434 million in high loan-to-value home equity
    loans at December 31, 1999 as compared with $485 million at December 31,
    1998 and $67 million at December 31, 1997. We do not anticipate increasing
    our exposure to uninsured high loan-to-value home equity loans beyond their
    current levels. Our future home equity loan originations will generally be
    limited to conventional home equity loans and lines of credit originated
    through our branch banking network.





Auto Platform Strategy





The Auto Platform underwrites and purchases
    high-quality, fixed-rate loans and leases secured by new and used autos.
    The platform commenced its leasing activities effective April 1,
    1998.





In executing its strategy, the Auto Platform
    identifies product niches which are not the primary focus of traditional
    competitors in the auto lending area, such as banks and captive finance
    companies. One such niche includes auto loans where a highly qualified
    borrower desires a higher relative loan amount and/or a longer term than is
    offered by many other more traditional auto financing sources. In return
    for the flexibility of the product it offers, the Auto Platform charges
    higher interest rates while still applying its traditional underwriting
    criteria to mitigate any potential loan losses.





In December 1999, the Auto Platform completed
    a $247 million auto loan securitization, which resulted in a $5.2 million
    gain recorded as noninterest income. This securitization helped us achieve
    our asset and liability management strategy of reducing shorter duration
    loans while retaining longer duration loan originations for our portfolio.
    The securitization also benefited our regulatory risk-based capital ratios
    and reduced our auto concentration risk.





Our strategic alliance with Lendco Financial
    Services for the purchase of auto loans and leases, which began in the
    second quarter of 1998, provided us with an option to acquire Lendco
    Financial Services. While we did not exercise this option, we intend to
    continue purchasing auto loans and leases from Lendco Financial Services
    through June 30, 2000, when our contractual agreement expires.





Commercial Platform Strategy





The Commercial Platforms strategy
    focuses on being a nationwide provider of customized financing solutions to
    small and middle-market businesses. The Commercial Platform offers
    asset-based lending, factoring
  and equipment leasing. During 1998, the Commercial Platform also began
    originating asset-based commercial participation loans for the Banking
    Platform. These loans totaled approximately $72 million at December 31,
    1999 and $18 million at December 31, 1998.





Acquisition of FMAC





Our strategy to change-out our balance sheet
    from lower-yielding mortgage loans and mortgage-backed securities to
    consumer and commercial loans and leases with higher risk-adjusted returns
    led to our acquisition of Franchise Mortgage Acceptance Company and its
    wholly owned division, Bankers Mutual, collectively referred to as FMAC, on
    November 1, 1999.





FMAC is one of the nations leading
    small business lenders specializing in franchise lending. Bankers Mutual, a
    division of FMAC which was acquired by FMAC in April 1998, is one of the
    nations leading multi-family lenders. Since the merger, FMAC and
    Bankers Mutual have operated as separate subsidiaries of Bay View Bank. FMAC
    s insurance agency service operates as a separate subsidiary of our
    holding company, Bay View Capital Corporation. The acquisition provides us
    with significant asset generation capabilities focused on franchised
    quick-service restaurants, such as Burger King, Wendys, Pizza Hut,
    and KFC, casual dining restaurants, such as TGI Fridays, Applebees
    and Dennys, retail energy businesses (service stations, convenience
    stores, truck stops, car washes, and quick lube businesses) and funeral
    home and cemetery owners. We intend to portfolio a portion of the
    commercial franchise loans originated, accelerating the transformation of
    our balance sheet to consumer and commercial assets with higher
    risk-adjusted yields, and securitize and/or sell the remainder. Bankers
    Mutual has historically sold its multi-family loan production through
    seller-servicer programs administered by Fannie Mae and Freddie Mac, which
    we intend to continue and expand prospectively.





See Note 2 to the Consolidated Financial
    Statements, Merger and Acquisition-Related Activity, at Item 8.
    Financial Statements and Supplementary Data for further
    discussion of the acquisition including pro forma financial statement
    disclosures.





Results of
    Operations





Consolidated net income was $29.0 million, or
    $1.36 per diluted share, for the year ended December 31, 1999 as compared
    with $22.7 million, or $1.12 per diluted share, for 1998 and $14.0 million,
    or $1.06 per diluted share, for 1997. The increases in net income and
    earnings per diluted share, as compared with the respective prior periods,
    were primarily driven by the continued expansion of our net interest margin
    and higher noninterest income, largely as a result of our acquisitions. Our
    results reflect the acquisitions of Franchise Mortgage Acceptance Company
    and its wholly owned division Bankers Mutual effective November 1, 1999,
    America First Eureka Holdings, Inc. effective January 2, 1998, Ultra
    Funding, Inc. effective October 1, 1997, and Bay View Commercial Finance
    Group effective April 1, 1997.





Contribution by Platform





Each of our business platforms contributes to
    our overall profitability. Contribution by platform is defined as each
    platforms net interest income and noninterest income less each
    platforms allocated provision for losses on loans and leases, direct
    general and administrative expenses, including certain direct expense
    allocations, and other noninterest expense, including the amortization of
    intangible assets.





In computing net interest income by platform,
    funding costs are allocated to each platform based on the duration of its
    interest-earning assets and auto-related operating leased assets and,
    specifically, by matching these assets with interest-bearing liabilities
    with similar durations. Accordingly, the Auto Platforms and the
    Commercial Platforms funding costs were determined based upon our
    average cost of transaction accounts for the appropriate period. The
    Banking Platforms and the Home Equity Platforms funding costs
    were determined based upon the average cost of our remaining funding
    sources, including the noninterest expense associated with our Capital
    Securities issued on December 21, 1998.





All indirect general and administrative
    expenses not specifically identifiable with, or allocable to, our business
    platforms are included in indirect corporate overhead. Indirect corporate
    overhead includes both recurring items, such as our administrative and
    support functions, and certain special mention items, as discussed
    elsewhere herein.





Our prior period platform results were
    revised to reflect the expanded number of business platforms and to reflect
    the methodology discussed above. We continue to enhance our cost allocation
    methodology and anticipate further enhancements during future periods.
    Intercompany revenues and expenses are eliminated in the measurement of
    platform contribution.





The following tables illustrate each platform
    s contribution for the periods indicated. The tables also illustrate
    the reconciliation of total contribution by platform to our net income for
    the periods indicated. Reconciling items generally include indirect
    corporate overhead and income tax expense.





|                                                                  |  | For the Year
      Ended December 31, 1999
|----------------------------------------------------------------- |  | ------------------------------------------
|
|
|Net interest
      income(1)                                      |  | $ 
       97,579                          
|Provision for
      losses on loans and
    
         leases      |  |                                          
|Noninterest
      income(1)(2)                                    |  | 24,775                                    
|Direct general and
      administrative
    
         expenses(1) |  | (68,063                                   
|Leasing
      expenses(2)                                         |  |                                          
|Dividend expense
      on Capital
    
         Securities        |  | (7,518                                    
|Net income on real
      estate owned                             |  | 238                                       
|Amortization of
      intangible assets                           |  | (10,947                                   
|                                                                  |  |                                           
|Contribution by
      platform                                    |  | $ 
       36,064                          
|                                                                  |  |                                           
|Indirect corporate
      overhead(1)                              |  |                                           
|Income tax
      expense                                          |  |                                           
|                                                                  |  |                                           
|Net
      income                                                  |  |                                           
|                                                                  |  |                                           




|                                                                  |  | For the Year
      Ended December 31, 1998
|----------------------------------------------------------------- |  | ------------------------------------------
|
|
|                                                                 
|Net interest
      income                                         |  | $ 
       93,796                          
|Provision for
      losses on loans and
    
         leases      |  |                                          
|Noninterest
      income(2)                                       |  | 16,621                                    
|Direct general and
      administrative
    
         expenses(1) |  | (61,055                                   
|Leasing
      expenses(2)                                         |  |                                          
|Dividend expense
      on Capital
    
         Securities        |  | (210                                      
|Net income on real
      estate owned                             |  | 131                                       
|Amortization of
      intangible assets                           |  | (8,754                                    
|                                                                  |  |                                           
|Contribution by
      platform                                    |  | $ 
       40,529                          
|                                                                  |  |                                           
|Indirect corporate
      overhead(1)                              |  |                                           
|Income tax
      expense                                          |  |                                           
|                                                                  |  |                                           
|Net
      income                                                  |  |                                           
|                                                                  |  |                                           




|                                                                  |  | For the Year
      Ended December 31, 1997
|----------------------------------------------------------------- |  | ------------------------------------------
|
|
|Net interest
      income                                         |  | $ 
       60,369                          
|Provision for
      losses on loans and leases                    |  | (229                                      
|Noninterest
      income(1)                                       |  | 7,906                                     
|Direct general and
      administrative
    
         expenses(1) |  | (47,346                                   
|Net income on real
      estate owned                             |  | 1,128                                     
|Amortization of
      intangible assets                           |  | (2,073                                    
|                                                                  |  |                                           
|Contribution by
      platform                                    |  | $ 
       19,755                          
|                                                                  |  |                                           
|Indirect corporate
      overhead(1)                              |  |                                           
|Income tax
      expense                                          |  |                                           
|                                                                  |  |                                           
|Net income                                                        |  |                                           
|                                                                  |  |                                           




|(1) | Amounts include
      certain special mention items which are discussed at Net Interest
      Income and Net Interest Margin, Noninterest Income and
      General and Administrative Expenses. Special mention items
      generally include income and expense items recognized during the period
      that we believe are significant and/or unusual in nature and therefore
      useful to you in evaluating our performance and trends. These items may
      or may not be nonrecurring in nature.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) | The Auto Platform
      commenced its leasing activities effective April 1, 1998.
|--- | ---------------------------------------------------------------------------------




A discussion of each of the significant
    components of contribution by platform follows:





Net Interest Income and Net Interest Margin





Net interest income represents the difference
    between interest earned on loans, leases and investments and interest paid
    on funding sources, including deposits and borrowings, and has historically
    been our principal source of revenue. Net interest margin is the amount of
    net interest income expressed as a percentage of average interest-earning
    assets.





Net interest income was $170.5 million for
    the year ended December 31, 1999 as compared with $154.6 million for 1998
    and $87.3 million for 1997. Net interest margin was 3.23% for the year
    ended December 31, 1999 as compared with 3.03% for 1998 and 2.86% for 1997.
    The increases in net interest income and net interest margin were
    attributable to our strategic development into a commercial bank and the
    related continuing shift from traditional mortgage-based assets to consumer
    and commercial assets with higher risk-adjusted yields combined with a
    decline in our funding costs.





The following table illustrates net interest
    income and net interest margin, by platform, for the years
    indicated:





|                             |  | For the Year
      Ended December 31,
|---------------------------- |  | -------------------------------------
|
|
|
|Banking
      Platform       |  | $ 
       97,579                     
|Home Equity
      Platform   |  | 33,008                               
|Auto
      Platform(1)       |  | 24,944                               
|Commercial
      Platform(2) |  | 14,953                               
|                             |  |                                      
|Total                        |  | $170,484                             
|                             |  |                                      




|(1) | The Auto Platform
      commenced its leasing activities effective April 1, 1998. The Auto
      Platforms net interest margin compression is largely attributable
      to funding costs associated with the platforms leasing activities.
      The platforms net interest margin presented above does not include
      the revenue impact of its auto leasing activities, which was included in
      noninterest income, but does include the associated funding
      costs.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) | Excludes
      asset-based participation loans included in the Banking
      Platform.
|--- | --------------------------------------------------------------------------------------




The following table illustrates
    interest-earning assets, excluding our auto-related operating leased
    assets, by platform, as of the dates indicated:





|                             |  | At December
      31,
|---------------------------- |  | ---------------------
|
|
|Banking
      Platform       |  | $4,026,891           
|Home Equity
      Platform   |  | 678,735              
|Auto
      Platform(1)       |  | 527,317              
|Commercial
      Platform(2) |  | 182,240              
|                             |  |                      
|Total                        |  | $5,415,183           
|                             |  |                      




|(1) | Amounts exclude
      auto-related operating leased assets totaling $463.1 million at December
      31, 1999 and $183.5 million at December 31, 1998.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) | Amounts exclude
      asset-based commercial participation loans originated by the Commercial
      Platform for the Banking Platform totaling $72.0 million at December 31,
      1999 and $18.3 million at December 31, 1998.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The following table illustrates average
    interest-earning assets, excluding our auto-related operating leased
    assets, by platform, for the years indicated:





|                             |  | Average
      Balances for the Year Ended
    
    December 31,
|---------------------------- |  | ---------------------------------------------------------------
|
|
|Banking
      Platform       |  | $3,805,153                                                     
|Home Equity
      Platform   |  | 676,149                                                        
|Auto
      Platform(1)       |  | 659,312                                                        
|Commercial
      Platform(2) |  | 130,897                                                        
|                             |  |                                                                
|Total                        |  | $5,271,511                                                     
|                             |  |                                                                




|(1) | Amounts exclude
      auto-related operating leased assets beginning in April 1998. The average
      balance of these assets was $332.0 million for the year ended December
      31, 1999 and $65.8 million for the year ended December 31,
      1998.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) | Amounts exclude
      asset-based commercial participation loans originated by the Commercial
      Platform for the Banking Platform beginning in June 1998. The average
      balance of these loans was $49.0 million for the year ended December 31,
      1999 and $5.9 million for the year ended December 31, 1998.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Banking Platform





The Banking Platforms net interest
    income was $97.6 million for the year ended December 31, 1999 as compared
    with $93.8 million for 1998 and $60.4 million for 1997. The Banking Platform
    s net interest margin was 2.56% for the year ended December 31, 1999
    as compared with 2.28% for 1998 and 2.19% for 1997.





The increase in net interest income for 1999,
    as compared with 1998, was attributable to an increase in net interest
    margin partially offset by a decline in average interest-earning assets.
    The increase in net interest margin
  was primarily due to lower funding costs. Our funding costs declined due to
    an increase in lower cost transaction accounts, deposit pricing strategies,
    a decline in the interest rate environment during the first half of 1999
    and the managed run-off of higher cost certificates of deposit. The decline
    in average interest-earning assets was due to real estate loan sales and
    asset repayments exceeding asset originations and purchases. The Banking
    Platforms asset yields remained relatively constant as the impact of
    the continued change-out of our balance sheet from relatively
    lower-yielding mortgage-based assets to commercial assets with higher
    risk-adjusted yields, including franchise loans, was offset by the
    declining interest rate environment during the first six months of
    1999.





The increase in net interest income for 1998,
    as compared with 1997, was attributable to both an increase in average
    interest-earning assets and an increase in net interest margin. The
    increase in average interest-earning assets was largely a result of our
    acquisition of America First Eureka Holdings, Inc. and its wholly owned
    subsidiary EurekaBank, sometimes referred to as AFEH. The increase in net
    interest margin was due to a decline in our funding costs partially offset
    by lower asset yields. The decline in funding costs was due to an increase
    in lower cost transaction accounts, our deposit pricing strategies, the
    interest rate environment, and the run-off of jumbo and brokered
    certificates of deposit. The decline in asset yields was a result of
    various factors, including the impact of EurekaBanks lower-yielding
    portfolio of mortgage loans we acquired effective January 2, 1998, $200
    million of lower-yielding mortgage loans we acquired in June 1998,
    primarily to assist Bay View Bank in meeting its CRA requirements, and
    repayments of higher-yielding mortgage loans and mortgage-backed
    securities.





Home Equity Platform





The Home Equity Platforms net interest
    income was $33.0 million for the year ended December 31, 1999 as compared
    with $22.0 million for 1998 and $3.2 million for 1997. The Home Equity
    Platforms net interest margin was 4.88% for the year ended December
    31, 1999 as compared with 5.15% for 1998 and 4.83% for 1997.





The increase in net interest income for 1999,
    as compared with 1998, was due to higher average interest-earning assets,
    largely resulting from home equity loan purchases, partially offset by a
    decrease in net interest margin. The decrease in net interest margin was
    primarily due to lower asset yields, partially offset by lower funding
    costs. The decrease in asset yields was associated with replacing high
    loan-to-value home equity loans, which we began purchasing in August 1997,
    with purchases of higher-quality, yet lower-yielding loans, including 100%
    insured high loan-to-value home equity loans and conventional home equity
    loans, that is loans with a combined loan-to-value ratio of less than
    100%.





The increase in net interest income for 1998,
    as compared with 1997, was due to higher average interest-earning assets
    and an increase in net interest margin, due to both higher asset yields and
    lower funding costs. The increases in average interest-earning assets and
    asset yields were due to continued purchases of high loan-to- value home
    equity loans with higher risk-adjusted yields.





Auto Platform





The Auto Platforms net interest income
    was $24.9 million for the year ended December 31, 1999 as compared with
    $27.8 million for 1998 and $15.3 million for 1997. The Auto Platforms
    net interest margin was 3.84% for the year ended December 31, 1999 as
    compared with 6.01% for 1998 and 8.00% for 1997.





The decrease in net interest income for 1999,
    as compared with 1998, was due to a decrease in the net interest margin
    partially offset by higher average interest-earning assets. The decrease in
    net interest margin was primarily attributable to higher funding costs,
    including the costs associated with the platforms auto leasing
    activities, as discussed below, and increases in the cost of our
    transaction accounts. The increase in interest-earning assets was due to
    continued originations and purchases of auto loans. The increase in net
    interest income for 1998, as compared with 1997, was due to higher average
    interest-earning assets partially offset by decreases in net interest
    margin, as discussed above. The net interest margin for 1999, as compared
    with 1998, was also negatively impacted by lower asset yields resulting
    from the platforms migration to higher-quality, but lower-yielding
    loans and the yield compression associated with competition.





The Auto Platforms net interest margin
    excludes the revenue generated from operating leases. Because the auto
    leases are accounted for as operating leases, the rental income and related
    expenses, including depreciation expense, are reflected in noninterest
    income and noninterest expense, respectively, in accordance with generally
    accepted accounting principles, sometimes referred to as GAAP. As a result,
    the Auto Platforms net interest income and margin do not include the
    revenue impact of our auto leasing activities, but do include the
    associated funding costs. As the platforms auto leasing activities
    have continued to increase, the corresponding funding costs have also
    continued to increase, negatively impacting net interest income and margin.
    Additionally, the Auto Platforms net interest margin does not reflect
    the tax benefit associated with its leasing activities related to the
    losses generated for income tax purposes during the early lease periods.
    The yields associated with the Auto Platforms leasing activities will
    increase over time as the related asset is depreciated down to its residual
    value. For a discussion of normalized net interest income and net interest
    margin, which include the revenue impact of our auto leasing activities,
    see Non-GAAP Performance MeasuresNormalized Net Interest Income
    and Net Interest Margin.





Commercial Platform





The Commercial Platforms net interest
    income was $15.0 million for the year ended December 31, 1999 as compared
    with $11.0 million for 1998 and $8.5 million for 1997. The Commercial
    Platforms net interest margin was 11.49% for the year ended December
    31, 1999 as compared with 15.66% for 1998 and 21.39% for 1997. This
    platform was created as a result of our acquisition of Bay View Commercial
    Finance Group effective April 1, 1997.





The increases in net interest income, as
    compared with the respective prior periods, were due to increases in the
    platforms average interest-earning assets, attributable to continued
    growth within the platform, partially offset by decreases in net interest
    margin. The decreases in net interest margin were largely attributable to
    most of the platforms growth being comprised of asset-based loans and
    equipment leases, which generate lower yields relative to the platform
    s factoring activities, combined with the yield compression
    associated with competition. The platforms net interest margin was
    also negatively impacted by increases in the cost of our transaction
    accounts.





Average Balance Sheet





The following table illustrates certain
    information relating to our consolidated statements of financial condition
    and reflects the average yields on interest-earning assets and average
    rates on interest-bearing liabilities for the years indicated. Such yields
    and rates are derived by dividing interest income or interest expense by
    the average balances of interest-earning assets or interest-bearing
    liabilities, respectively, for the years indicated. Average balances of
    interest-earning assets and interest-bearing liabilities were calculated by
    averaging the relevant month-end amounts for the respective
    years.





|                                                                          |  | For the Year
      Ended December 31,
|------------------------------------------------------------------------- |  | -------------------------------------
|
|
|
|                                                                          | 
|ASSETS                                                                    |  |                                      
|                                                                          |  |                                      
|                                                                          | 
|Interest-earning
        assets:                                          |  |                                      
|Loans                                                                     |  | $4,444,079                           
|Mortgage-backed
        securities(1)                                     |  | 583,286                              
|Investments(1)                                                            |  | 244,146                              
|                                                                          |  |                                      
|Total
        interest-earning assets                                     |  | 5,271,511                            
|                                                                          |  |                                      
|Other
        assets                                                      |  | 611,301                              
|                                                                          |  |                                      
|Total
        assets                                                      |  | $5,882,812                           
|                                                                          |  |                                      
|                                                                          | 
|
|                                                                          | 
|Interest-bearing liabilities:                                             |  |                                      
|Deposits                                                                  |  | $3,462,048                           
|Borrowings(2)                                                             |  | 1,882,278                            
|                                                                          |  |                                      
|Total
          interest-bearing liabilities                              |  | 5,344,326                            
|                                                                          |  |                                      
|Other
          liabilities                                               |  | 124,640                              
|                                                                          |  |                                      
|Total
          liabilities                                               |  | 5,468,966                            
|Stockholders
           equity                                           |  | 413,846                              
|                                                                          |  |                                      
|Total
          liabilities and stockholders
        
            equity |  | $5,882,812                           
|                                                                          |  |                                      
|Net interest
          income/net interest
        
            spread    |  |                                      
|                                                                          |  |                                      
|Net
          interest-earning assets
        
            (liabilities)  |  | $  
            (72,815              
|                                                                          |  |                                      
|Net interest
          margin(3)                                          |  |                                      
|                                                                          |  |                                      




|(1) | Average
          balances and yields for securities and other investments classified
          as available-for-sale are based on historical amortized
          cost.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) | Interest
          expense for borrowings includes interest expense on interest rate
          swaps of $3.1 million, $2.4 million and $2.8 million for the years
          ended December 31, 1999, 1998 and 1997, respectively. Interest
          expense for borrowings excludes dividend expense on our Capital
          Securities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) | Net interest
          income divided by average interest-earning assets.
|--- | -------------------------------------------------------------------------




Interest Income





| | Loans and
          Leases
| | --------------------------




Our interest income on loans and
        leases was $369.8 million for the year ended December 31, 1999 as
        compared with $347.1 million for 1998 and $197.9 million for 1997. The
        average yield on loans and leases was 8.32% for the years ended
        December 31, 1999 and 1998 as compared with 8.35% for 1997.





The increase in interest income on
        loans and leases for 1999, as compared with 1998, was due primarily to
        higher average balances of loans and leases resulting from loan and
        lease originations and purchases, primarily consumer and commercial
        loans and leases, exceeding repayments and sales. The average yield on
        loans and leases remained relatively unchanged as our ability to
        replace lower-yielding mortgage-based assets with higher-yielding
        consumer and commercial assets, including franchise loans, was offset
        by a combination of factors. These factors included the impact of the
        declining interest rate environment during the first six months of
        1999, the yield compression associated with competition, higher premium
        amortization attributable to higher prepayment speeds on our high
        loan-to-value home equity loans, and our continued emphasis on
        higher-quality loans and leases.





The increase in interest income on
        loans and leases for 1998, as compared with 1997, was attributable to
        higher average balances of loans and leases partially offset by a
        slight decrease in yield on loans and leases. The increase in average
        balances of loans and leases was largely a result of the acquisitions
        of AFEH in 1998 and Ultra Funding, Inc. and Bay View Commercial Finance
        Group in 1997, combined with internally generated platform loan growth.
        The slight decrease in yield on loans and leases was due to a
        combination of factors, including the impact of the declining interest
        rate environment, the yield compression associated with competition,
        and our continued emphasis on higher-quality loans and leases,
        partially offset by our ability to replace relatively lower-yielding
        mortgage-based assets with higher-yielding consumer and commercial
        assets.





The following table illustrates
        interest income on loans and leases, by platform, for the years
        indicated:





|                                 |  | Year Ended
          December 31,
|-------------------------------- |  | ---------------------------------
|
|
|
|Banking
          Platform       |  | $229,713                         
|Home Equity
          Platform   |  | 65,600                           
|Auto
          Platform          |  | 55,429                           
|Commercial
          Platform(1) |  | 19,099                           
|                                 |  |                                  
|Total                            |  | $369,841                         
|                                 |  |                                  




|(1) | Excludes
          asset-based participation loans included in the Banking
          Platform.
|--- | ----------------------------------------------------------------------------------------------




| | Banking
          Platform
| | --------------------------




The Banking Platforms average
        loan yield was 7.70% for the year ended December 31, 1999 as compared
        with 7.69% for 1998 and 7.81% for 1997. The platforms average
        yield remained relatively constant for 1999, as compared with 1998, as
        the impact of the continued change-out of our balance sheet from
        relatively lower-yielding mortgage-based loans to commercial loans and
        leases with higher risk-adjusted yields, including franchise loans, was
        offset by the declining interest rate environment during the first six
        months of 1999. The decrease in the platforms average loan yield
        for 1998, as compared with 1997, was due to various factors, including
        the impact of EurekaBanks lower-yielding portfolio of mortgage
        loans, acquired effective January 2, 1998, combined with the purchase
        of $200 million of lower-yielding mortgage loans in June 1998,
        primarily to assist Bay View Bank in meeting its CRA obligations, and
        the continued repayments of higher-yielding mortgage loans.





| | Home
          Equity Platform
| | ------------------------------




The Home Equity Platforms
        average loan yield was 9.70% for the year ended December 31, 1999, as
        compared with 10.27% for 1998 and 10.09% for 1997. The decrease in the
        platforms average loan yield for 1999, as compared with 1998, was
        primarily due to our emphasis on higher-quality, yet lower-yielding,
        home equity loans, including 100% insured high loan-to-value home
        equity loans, combined with continued origination of lower-yielding
        conventional home equity loans through our branches and higher premium
        amortization attributable to higher prepayment speeds on our high
        loan-to-value home equity loans. The increase in the platforms
        average loan yield for 1998, as compared with 1997, was due to
        purchases of high loan-to-value home equity loans with higher
        risk-adjusted yields.





| | Auto
          Platform
| | -----------------------




The Auto Platforms average
        loan yield was 8.47% for the year ended December 31, 1999 as compared
        with 9.44% for 1998 and 10.46% for 1997. The decreases in the platform
        s average loan yield, as compared with the respective prior
        periods, were primarily due to lower asset yields on auto loan
        originations and purchases. The lower yields were largely attributable
        to the yield compression associated with increased competition within
        the industry along with the platforms continuing migration to
        higher-quality, yet lower-yielding loans.





| | Commercial
          Platform
| | -----------------------------




The Commercial Platforms
        average loan and lease yield was 14.59% for the year ended December 31,
        1999 as compared with 18.76% for 1998 and 24.20% for 1997. The
        decreases in the platforms average loan and lease yield, as
        compared with the respective prior periods, were a result of most of
        the platforms growth being comprised of asset-based loans and
        equipment leases which generate lower yields relative to the platform
        s factoring activities combined with yield compression associated
        with competition.





| | Mortgage-Backed Securities
| | --------------------------




Interest income on our
        mortgage-backed securities was $37.4 million for the year ended
        December 31, 1999 as compared with $48.2 million for 1998 and $34.3
        million for 1997. The average yield on mortgage-backed securities was
        6.41% for the year ended December 31, 1999 as compared with 6.50% for
        1998 and 6.46% for 1997. The decreases in interest income and yield on
        mortgage-backed securities for 1999, as compared with 1998, were due to
        continued repayments of higher-yielding mortgage-backed securities
        partially offset by purchases of investment grade collateralized
        mortgage obligations, or CMOs during the latter half of 1998 and
        Government National Mortgage Association mortgage-backed securities
        during the second quarter of 1999. The increases in interest income and
        yield on mortgage-backed securities for 1998, as compared with 1997,
        were primarily attributable to the acquisition of EurekaBanks
        mortgage-backed securities portfolio, which reflected yields higher
        than Bay View Banks pre-acquisition mortgage-backed securities
        portfolio, combined with purchases of higher-yielding CMOs during 1998,
        as discussed above, partially offset by prepayments of higher-yielding
        mortgage-backed securities.





| | Investment
          Securities
| | -------------------------------




Interest and dividend income on our
        investment securities was $14.4 million for the year ended December 31,
        1999 as compared with $11.1 million for 1998 and $10.0 million for
        1997. The average yield on investment securities was 5.91% for the year
        ended December 31, 1999 as compared with 6.17% for 1998 and 6.51% for
        1997. The increase in interest and dividend income on investment
        securities for 1999, as compared with 1998, was largely due to higher
        average balances resulting from our liquidity and investment management
        activities partially offset by a decrease in average yield related to
        the impact of changes in the interest rate environment. The increase in
        interest and dividend income on investment securities for 1998, as
        compared with 1997, was primarily due to higher average short-term
        investment balances related to our acquisition of AFEH partially offset
        by lower yields due to the declining interest rate
        environment.





Interest Expense





| | Deposits
| | --------




Interest expense on our deposits
        was $142.4 million for the year ended December 31, 1999 as compared
        with $149.7 million for 1998 and $76.5 million for 1997. The average
        cost of deposits was 4.11% for the year ended December 31, 1999 as
        compared with 4.44% for 1998 and 4.64% for 1997.





The decrease in interest expense on
        deposits for 1999, as compared with 1998, was due to a decrease in the
        cost of deposits partially offset by higher average deposit balances.
        The decrease in the cost of deposits resulted from a combination of
        factors, including our continued emphasis on lower-cost transaction
        accounts, our deposit pricing strategies and the declining interest
        rate environment during the first six months of 1999, partially offset
        by an increase in higher-cost brokered certificates of deposit. The
        increase in average deposit balances was due to higher transaction
        account balances and brokered certificates of deposit balances
        partially offset by lower retail certificates of deposit.





The increase in interest expense on
        deposits for 1998, as compared with 1997, was due to the acquisition of
        EurekaBanks deposit portfolio, partially offset by a decrease in
        deposit costs due to an increase in lower-cost transaction accounts,
        deposit pricing strategies, the declining interest rate environment
        during the year, and the run-off of higher cost jumbo and brokered
        certificates of deposits. The increase in transaction accounts and
        run-off of higher cost jumbo and brokered certificates of deposits were
        consistent with the Banking Platforms strategic objective during
        1998 to grow lower-cost transaction accounts, instead of higher-cost
        certificates of deposit, as a source of our funding.





The following table summarizes our
        deposit costs by type and our transaction accounts as a percentage of
        retail deposits for the periods indicated:





|                                                                  |  | For the
          Months Ended
        
        December 31,
|----------------------------------------------------------------- |  | ------------------------------------------------------------
|
|Transaction
          accounts                                    |  | 3.26                                                        
|Retail
          certificates of deposit                          |  | 4.92                                                        
|                                                                  |  |                                                             
|Total retail
          deposits                                   |  | 4.07                                                        
|Brokered
          certificates of deposit                        |  | 6.18                                                        
|                                                                  |  |                                                             
|Total
          deposits                                          |  | 4.30                                                        
|                                                                  |  |                                                             
|Transaction
          accounts as a percentage of retail deposits |  | 51.0                                                        
|                                                                  |  |                                                             




| | Borrowings
| | ----------




Interest expense on our borrowings,
        excluding the Capital Securities issued in December 1998, was $108.7
        million for the year ended December 31, 1999 as compared with $102.1
        million for 1998 and $78.4 million for 1997. The average cost of
        borrowings was 5.78% for the year ended December 31, 1999 as compared
        with 6.15% for 1998 and 6.31% for 1997.





The increase in interest expense on
        borrowings for 1999, as compared with 1998, was primarily due to higher
        average borrowing balances. Higher balances were required to fund the
        growth in our balance sheet. This volume-related increase in interest
        expense was partially offset by a decline in the cost of borrowings,
        attributable to our refinancing and extending of maturities on a
        significant portion of our Federal Home Loan Bank advances in October
        1998 and the maturity of $50 million of 8.42% Senior Debentures on June
        1, 1999. The impact of these factors was partially offset by the
        utilization of new funding sources during 1999, including a LIBOR-based
        warehouse line with an all-in cost of approximately 7.92% and $50
        million of 10% Subordinated Notes due 2009 issued by Bay View Bank on
        August 18, 1999. A significant portion of our Federal Home Loan Bank
        advances repriced in October 1999 and were therefore impacted by the
        recent rising interest rate environment. As our level
      of Federal Home Loan Bank advance borrowing capacity continues to decline
        due to the decrease in eligible mortgage-based collateral, we will
        continue to become more dependent on other funding sources, such as
        deposits and warehouse lines, to fund our balance sheet.





The increase in interest expense on
        borrowings for 1998, as compared with 1997, was primarily due to higher
        average balances resulting from funding strategies we employed
        subsequent to our acquisition of AFEH, combined with a full year of
        interest expense on $100 million in Subordinated Notes issued in August
        1997, partially offset by a decrease in borrowing costs primarily due
        to lower market interest rates on Federal Home Loan Bank advances due
        to the declining interest rate environment.





The following tables illustrate the
        changes in net interest income due to changes in the rate and volume of
        our interest-earning assets and interest-bearing liabilities. The
        variances include the effects of our acquisitions. Changes in rate and
        volume which cannot be segregated (i.e., changes in weighted-average
        interest rate multiplied by average portfolio balance) have been
        allocated proportionately to the change in rate and the change in
        volume.





|                                        |  | For the
          Year Ended December 31,
        
        1999 vs. 1998
|--------------------------------------- |  | ------------------------------------------------------------------------
|
|
|Interest
          income:              |  |                                                                         
|Loans and
          leases              |  | $  
                                                                   
|Mortgage-backed
          securities    |  | (655                                                                    
|Investments                             |  | (449                                                                    
|                                        |  |                                                                         
|                                        |  | (1,104                                                                  
|                                        |  |                                                                         
|Interest
          expense:             |  |                                                                         
|Deposits                                |  | (11,017                                                                 
|Borrowings                              |  | (5,623                                                                  
|                                        |  |                                                                         
|                                        |  | (16,640                                                                 
|                                        |  |                                                                         
|Change in net
          interest income |  | $ 
           15,536                                                    
|                                        |  |                                                                         
|
|
|
|Interest
          income:              |  |                                                                         
|Loans and
          leases              |  | $  
              (707                                                  
|Mortgage-backed
          securities    |  | 213                                                                     
|Investments                             |  | (472                                                                    
|                                        |  |                                                                         
|                                        |  | (966                                                                    
|                                        |  |                                                                         
|Interest
          expense:             |  |                                                                         
|Deposits                                |  | (2,324                                                                  
|Borrowings                              |  | (1,913                                                                  
|                                        |  |                                                                         
|                                        |  | (4,237                                                                  
|                                        |  |                                                                         
|Change in net
          interest income |  | $  
            3,271                                                   
|                                        |  |                                                                         




Provision For Losses on Loans and Leases





The provision for losses on loans
        and leases was $28.3 million for the year ended December 31, 1999 as
        compared with $9.1 million for 1998 and $2.0 million for 1997. The
        increases in the provision for losses on loans and leases were
        primarily a result of our acquisitions combined with our internal loan
        and lease growth, principally in consumer and commercial loans and
        leases. The provision levels reflect the continued change-out of the
        balance sheet to consumer and commercial assets with higher gross
        yields relative to traditional mortgage assets, but also higher
        charge-offs and therefore higher provision expense. Higher net
        charge-offs in the Home Equity Platform for 1999, as compared with
        1998, related to uninsured high loan-to-value home equity loans. We do
        not anticipate increasing our exposure to uninsured high loan-to-value
        home equity loans beyond their current levels. Higher net charge-offs
        in the Commercial Platform for 1999, as compared with 1998, related to
        a seasoning of the commercial loan and lease portfolio. See
        Balance Sheet AnalysisAllowance for Loan and Lease Losses
         for further discussion.





Noninterest Income





Noninterest income was $91.5
        million for the year ended December 31, 1999 as compared with $31.1
        million for 1998 and $12.8 million for 1997. Noninterest income
        included net gains on sales of loans and leases and securities of $10.1
        million for the year ended December 31, 1999, $1.1 million for 1998 and
        $925,000 for 1997.





The increase in noninterest income
        for 1999, as compared with 1998, was largely attributable to higher
        leasing income in the Auto Platform resulting from the continued growth
        in our auto leasing activities which began in April 1998, combined with
        higher net gains on the securitization and/or sale of loans and
        increases in the Banking Platforms account fees, loan fees and
        charges and investment sales commissions. Net gains on the
        securitization and/or sale of loans included a $5.2 million gain in the
        Auto Platform from our $247 million auto loan securitization in
        December 1999 and $4.9 million in net gains on loan sales in the
        Banking Platform. The Banking Platforms net gains were comprised
        of $3.4 million from the sales of single-family, multi-family and home
        equity loans and $1.5 million from Bankers Mutuals sale of
        multi-family loans into the secondary market. Noninterest income for
        1999 also included a $1.1 million refund resulting from a favorable tax
        ruling.





The increase in noninterest income
        for 1998, as compared with 1997, was attributable to various factors,
        including higher account fees and investment product sales commissions
        related to the acquisition of AFEH, higher loan prepayment fees and
        higher leasing income. Net gains on the sales of securities for the
        year ended December 31, 1998 reflected approximately $2.0 million in
        gains on sales of mortgage-backed securities and a $940,000 loss during
        the third quarter of 1998 on the settlement of forward sale contracts
        relating to mortgage-backed securities. In January 1997, Bay View
        Credit securitized and sold $253 million of motor vehicle loans and
        recognized a gain of $925,000 representing the improvement in the fair
        value of the loans as a result of changes in market interest rates
        between the acquisition date and the sale date.





Through our acquisition of FMAC, we
        also acquired two large off-balance sheet servicing portfolios relating
        to FMACs franchise loans and Bankers Mutuals multi-family
        loans. We expect each servicing portfolio to contribute a significant
        amount of fees to our noninterest income. FMACs servicing income
        for November and December of 1999 was $341,000 on a franchise loan
        servicing portfolio totaling $2.2 billion at December 31, 1999. Bankers
        Mutuals servicing income for November and December of 1999 was
        $169,000 on a mortgage loan servicing portfolio totaling $3.2 billion
        at December 31, 1999.





Noninterest Expense





| | General and
          Administrative
| | ------------------------------------




General and administrative expenses
        for the year ended December 31, 1999 were $117.1 million as compared
        with $113.6 million for 1998 and $71.9 million for 1997. Excluding
        special mention items, which we discuss below, the increase in general
        and administrative expenses for 1999, as compared with 1998, was
        primarily related to the incremental general and administrative
        expenses associated with our acquisition of
      FMAC, increases associated with inflationary pressures, including annual
        salary increases, and our continued business growth. During 1999, we
        were able to significantly offset inflationary pressures by effectively
        implementing various cost savings initiatives and other operating
        efficiencies. Going forward, we will continue to focus on identifying
        opportunities to realize additional operating efficiencies and cost
        savings. The increases in general and administrative expenses for 1998,
        as compared with 1997, were largely a result of our growth, including
        our acquisitions of AFEH in 1998 and Ultra Funding, Inc. and Bay View
        Commercial Finance Group in 1997, combined with inflationary pressures,
        including annual salary increases.





Our general and administrative
        expenses for the year ended December 31, 1999 included $5.3 million in
        special mention items, as compared with $10.4 million in special
        mention items for 1998 and $8.8 million for 1997. Special mention items
        generally include items recognized during the period that we believe
        are significant and/or unusual in nature and therefore useful to you in
        evaluating our performance and trends. These items may or may not be
        nonrecurring in nature.





Special mention items for 1999
        included approximately $1.1 million in severance payments, $1.0 million
        in acquisition and integration costs (largely FMAC-related), $779,000
        in Auto Platform restructuring charges, $705,000 in third-party Year
        2000 compliance-related costs, and $598,000 in costs associated with
        repurchasing out-of-the-money stock options for possible future
        reissuance. Special mention items for 1999 also included approximately
        $377,000 in collection-based fees associated with the previously
        mentioned $1.1 million state tax refund, $278,000 in costs associated
        with a debt offering which we did not consummate, $239,000 in costs
        associated with branch relocations and closures, and $180,000 in
        initial fees related to the listing of our securities on the New York
        Stock Exchange.





Special mention items for 1998
        included approximately $6.9 million in acquisition and integration
        expenses related to our acquisition of AFEH, $1.35 million in expenses
        related to the cancellation of our proposed acquisition of PSB Lending
        Corporation, $814,000 in Auto Platform restructuring charges, $600,000
        for a legal settlement related to the termination of a third-party data
        processing service contract, $253,000 in third-party Year 2000
        compliance related costs, $240,000 in branch closure expenses, and
        $233,000 in other expenses.





Special mention items for 1997
        included approximately $7.4 million in pre-merger charges related to
        the acquisition of AFEH, which were comprised of approximately $5.8
        million in related systems, operations and reengineering projects, a
        $1.1 million payment to our Senior Debenture holders for debt covenant
        modifications and a $450,000 write-off of deferred expenses related to
        a shelf registration statement. Special mention items for 1997 also
        included approximately $1.2 million in charges related to the expansion
        and reorganization of the Auto and Commercial Platforms and an $800,000
        expense accrual for long-term incentive plan awards due to an increase
        in our stock price. The impact of these items was partially offset by a
        $650,000 benefit associated with the decision to remain with the
        current data processor for Bay View Bank and EurekaBank.





The following table illustrates
        general and administrative expenses, by platform, for the periods
        indicated:





|                                         |  | For the
          Year Ended December 31,
|---------------------------------------- |  | -----------------------------------------
|
|
|Banking
          Platform(1)            |  | $ 
           68,063                     
|Home Equity
          Platform           |  | 4,111                                    
|Auto
          Platform                  |  | 14,953                                   
|Commercial
          Platform            |  | 8,623                                    
|                                         |  |                                          
|Subtotal                                 |  | 95,750                                   
|Indirect
          corporate overhead(2) |  | 21,366                                   
|                                         |  |                                          
|Total                                    |  | $117,116                                 
|                                         |  |                                          




|(1) | Amount
          includes $9.5 million in incremental FMAC general and administrative
          expenses for the year ended December 31, 1999.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------




|(2) | Amount
          represents indirect corporate expenses not specifically identifiable
          with, or allocable to, our business platforms.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------




The following table illustrates
        general and administrative expenses, excluding the special mention
        items as previously discussed, by platform, for the periods
        indicated:





|                                         |  | Excluding
          Special Mention Items
        
        for the Year Ended December 31,
|---------------------------------------- |  | ------------------------------------------------------------------------------------------
|
|
|Banking
          Platform(1)            |  | $ 
           66,275                                                                      
|Home Equity
          Platform           |  | 4,111                                                                                     
|Auto
          Platform                  |  | 13,664                                                                                    
|Commercial
          Platform            |  | 8,483                                                                                     
|                                         |  |                                                                                           
|Subtotal                                 |  | 92,533                                                                                    
|Indirect
          corporate overhead(2) |  | 19,280                                                                                    
|                                         |  |                                                                                           
|Total                                    |  | $111,813                                                                                  
|                                         |  |                                                                                           




|(1) | Amount
          includes $8.9 million in FMAC general and administrative expenses,
          excluding special mention items, for the year ended December 31,
          1999.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) | Amount
          represents indirect corporate expenses not specifically identifiable
          with, or allocable to, our business platforms.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------




Banking Platform





The increase in the Banking Platform
        s general and administrative expenses, excluding special mention
        items, for 1999, as compared with 1998, was primarily due to $8.9
        million in incremental general and administrative expenses related to
        FMAC, platform growth and inflationary pressures, including annual
        salary increases, partially offset by cost savings initiatives and
        efficiencies. The increase in the Banking Platforms general and
        administrative expenses, excluding special mention items, for 1998, as
        compared with 1997, was largely attributable to the acquisition of
        AFEH, continued growth in the platform and inflationary pressures,
        including annual salary increases.





Home Equity
        Platform





The increases in the Home Equity
        Platforms general and administrative expenses, excluding special
        mention items, as compared with the respective prior periods, were
        directly attributable to the increased costs associated with the
        platforms growth during these periods.





Auto Platform





The decrease in the Auto Platform
        s general and administrative expenses, excluding special mention
        items, for 1999, as compared with 1998, was due to efficiencies
        realized from restructuring and consolidating operations of the
        platform, partially offset by the impact of platform growth and
        inflationary pressures. The increase in the Auto Platforms
        general and administrative expenses, excluding special mention items,
        for 1998, as compared with 1997, was attributable to continued growth
        in the platform, including the acquisition of Ultra Funding, Inc. in
        October 1997, our auto leasing activities which began in April 1998,
        additional allocations of certain indirect general and administrative
        expenses, and inflationary pressures.





Commercial Platform





The decrease in the Commercial
        Platforms general and administrative expenses, excluding special
        mention items, for 1999, as compared with 1998, was due to cost savings
        initiatives and efficiencies, partially offset by the impact of
        platform growth and inflationary pressures. The increase in the
        Commercial Platforms general and administrative expenses,
        excluding special mention items, for 1998, as compared with 1997, was
        largely the
      result of the platform being created with the acquisition of Bay View
        Commercial Finance Group in April 1997 combined with continued growth
        in the platform, including the expansion of the asset-based lending
        segment of the platform, additional allocations of certain indirect
        general and administrative expenses, and inflationary
        pressures.





The following table illustrates the
        ratio of general and administrative expenses to average
        interest-earning assets, including our auto-related operating leased
        assets and auto-related securitized assets, by platform, for the
        periods indicated. The fluctuations in the general and administrative
        expense ratios are largely driven by the fluctuations in general and
        administrative expenses as previously discussed.





|                                                                                                                                                 |  | For the
          Year Ended December 31,
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------
|
|
|General and
          administrative expenses                                                                                                    |  | $  
            117,116                  
|Average total
          assets, including auto-related securitized
        
             assets                                                  |  | $5,955,213                               
|                                                                                                                                                 |  |                                          
|General and
          administrative expenses to average total
        
             assets, including auto-related
          securitized assets |  | 1.97                                     
|                                                                                                                                                 |  |                                          




The following table illustrates the
        ratio of general and administrative expenses to average
        interest-earning assets, including our auto-related operating leased
        assets and auto-related securitized assets, by platform, on an
        annualized basis for the periods indicated:





|                               |  | For the
          Year Ended
        
        December 31,
|------------------------------ |  | ----------------------------------------------------------
|
|Banking
          Platform     |  | 1.79                                                      
|Home Equity
          Platform |  | 0.61                                                      
|Auto
          Platform        |  | 1.41                                                      
|Commercial
          Platform  |  | 6.59                                                      




Efficiency Ratio





Another measure that management
        uses to monitor our level of general and administrative expenses is the
        efficiency ratio. The efficiency ratio is calculated by dividing the
        amount of general and administrative expenses by operating revenues,
        defined as net interest income, as adjusted to include expenses
        associated with the Capital Securities, the excess of our
        leasing-related rental income over leasing-related depreciation
        expense, and other noninterest income, excluding securities gains and
        losses. Effective November 1, 1999, in connection with our acquisition
        of FMAC, gains and losses from loan sales and securitizations are
        included in operating revenues as this will be a recurring operating
        activity. This ratio reflects the level of general and administrative
        expenses required to generate $1 of operating revenue. The following
        table illustrates the efficiency ratio for the periods
        indicated:





|                                              |  | For the
          Year Ended December 31,
|--------------------------------------------- |  | -----------------------------------------
|
|
|General and
          administrative expenses |  | $117,116                                 
|Operating
          revenues, as defined      |  | $215,112                                 
|                                              |  |                                          
|Efficiency
          ratio                    |  | 54.4                                     
|                                              |  |                                          




The improvement in the efficiency
        ratio for 1999, as compared with 1998, was due to higher net interest
        income, higher net leasing-related rental income, and higher other
        noninterest income, including the $1.1 million state tax refund
        recognized during the first quarter of 1999, partially offset by higher
        general and administrative
      expenses and the expenses associated with our Capital Securities. The
        improvement in the efficiency ratio for 1998, as compared with 1997,
        was largely due to efficiencies resulting from our acquisition of
        AFEH.





Capital Securities





On December 21, 1998, we issued $90
        million in Capital Securities through Bay View Capital I, a business
        trust formed to issue the securities. The Capital Securities, which
        were sold in an underwritten public offering, pay quarterly cumulative
        cash distributions at an annual rate of 9.76% of the liquidation value
        of $25 per share. Dividend expense on the Capital Securities was $8.9
        million for the year ended December 31, 1999 as compared with $244,000
        for the year ended December 31, 1998.





Leasing Expense





Leasing expense represents expenses
        related to our auto leasing activities which began in April 1998.
        Because the leases are accounted for as operating leases, the
        corresponding assets are capitalized and depreciated to their estimated
        residual values over their lease terms. This depreciation expense is
        included in leasing expenses, along with the amortization of
        capitalized initial direct lease costs. Leasing expenses for the year
        ended December 31, 1999 were $40.2 million as compared with $7.7
        million for the year ended December 31, 1998.





Real Estate Owned





Income from our real estate loan
        operations and our net losses or recoveries on real estate owned were a
        combined $238,000 for the year ended December 31, 1999 as compared with
        $240,000 for 1998 and $1.1 million for 1997. The decrease for 1998, as
        compared with 1997, was primarily due to higher real estate owned
        balances in 1997, resulting in higher gains on sales and higher income
        from operations.





Amortization of Intangible
        Assets





Amortization expense related to
        intangible assets was $13.7 million for the year ended December 31,
        1999 as compared with $11.4 million for 1998 and $4.1 million for 1997.
        The increases in amortization of intangible assets were due to the
        additional amortization of goodwill and core deposit intangibles
        generated in conjunction with our aforementioned acquisitions, all of
        which were accounted for under the purchase method of
        accounting.





Income Taxes





Income tax expense was $25.1
        million for the year ended December 31, 1999 as compared with $21.2
        million for 1998 and $9.2 million for 1997. Our effective tax rate was
        46.4% for 1999 as compared with 48.3% for 1998 and 39.7% for 1997. The
        decrease in the effective tax rate for 1999, as compared with 1998, was
        primarily due to a decrease in the impact of nondeductible goodwill
        amortization resulting from a higher level of pre-tax income. The
        increase in the effective income tax rate for 1998, as compared with
        1997, was primarily due to an increase in nondeductible goodwill
        amortization.





Non-GAAP
        Performance Measures





The following measures of earnings
        excluding amortization of intangible assets, normalized net interest
        income and normalized net interest margin, and their corresponding
        ratios, are not measures of performance in accordance with GAAP. These
        measures should not be considered alternatives to net income, net
        interest income and net interest margin as indicators of our operating
        performance. These measures are included because we believe they are
        useful tools to assist you in assessing our performance and trends.
        These measures may not be comparable to similarly titled measures
        reported by other companies.





Earnings Excluding Amortization of Intangible
        Assets





Earnings excluding amortization of
        intangible assets represent net income excluding charges related to the
        amortization of intangible assets, largely goodwill. This illustration
        is intended to approximate what our earnings would have been excluding
        the non-cash expense associated with amortization of goodwill and other
        intangible assets generated from our acquisitions, all of which have
        been accounted for under the purchase method of accounting.





Goodwill is generated from
        acquisitions accounted for under the purchase method of accounting.
        Under the purchase method of accounting, the assets acquired and
        liabilities assumed are recorded at their fair values. The excess of
        the consideration paid for the acquisition, including certain
        acquisition-related costs, over the fair value of net assets acquired
        is recorded as goodwill. This goodwill is then amortized as an expense
        in the acquiring companys income statement over a period not
        exceeding 40 years, and generally not exceeding 25 years for financial
        institutions.





The purchase method of accounting
        differs significantly from the pooling-of-interests method of
        accounting for acquisitions. Under the pooling-of-interests method of
        accounting, the assets and liabilities of the company being acquired
        are combined with the assets and liabilities of the acquiring company
        at their recorded cost and as a result, no goodwill is generated. As no
        goodwill is generated, a company that has accounted for its
        acquisitions under the pooling-of-interests method of accounting incurs
        no goodwill amortization expense.





The purchase and the
        pooling-of-interests methods of accounting are not alternatives for
        accounting for acquisitions. Instead, generally accepted accounting
        principles prescribe which method must be applied depending upon the
        characteristics of the underlying acquisition. Our acquisitions of
        FMAC, AFEH, Ultra Funding, Inc., Bay View Commercial Finance Group, and
        Bay View Credit were all accounted for under the purchase method of
        accounting.





As a result of the two distinct
        methods of accounting for acquisitions discussed above, it may be
        difficult for investors and other interested parties to compare the
        operating results of companies that have accounted for acquisitions
        under the purchase method of accounting with companies that have
        accounted for acquisitions under the pooling-of-interests method of
        accounting.





In response to this situation, we
        have illustrated what our earnings would have been excluding the
        non-cash expense associated with amortization of the intangible assets
        generated from our acquisitions. While this disclosure is not intended
        to represent what our operating results would have been had our
        acquisitions been accounted for under the pooling-of-interests method
        of accounting, due to other differences between the two methods, we do
        believe it represents a reasonable approximation of what our results
        would have been.





The following table illustrates the
        reconciliation of net income to earnings excluding amortization of
        intangible assets, and the corresponding annualized performance return
        measures, for the periods indicated:





|                                                                                         |  | Year Ended
          December 31,
|---------------------------------------------------------------------------------------- |  | ---------------------------------
|
|
|Net
          income(1)                                                                  |  | $28,964                          
|Amortization
          of intangible assets, net of tax                                  |  | 11,982                           
|                                                                                         |  |                                  
|Earnings
          excluding amortization                                                |  | $40,946                          
|                                                                                         |  |                                  
|Earnings per
          diluted share                                                     |  | $  
            1.36             
|                                                                                         |  |                                  
|Earnings
          excluding amortization per diluted share                              |  | $  
            1.92             
|                                                                                         |  |                                  
|Return on
          average assets(2)                                                    |  | 0.49                             
|                                                                                         |  |                                  
|Return on
          average equity(2)                                                    |  | 7.00                             
|                                                                                         |  |                                  
|Earnings
          excluding amortizationreturn on average assets(3)                    |  | 0.70                             
|                                                                                         |  |                                  
|Earnings
          excluding amortizationreturn on average equity(3)                    |  | 9.89                             
|                                                                                         |  |                                  
|Earnings
          excluding amortizationreturn on average tangible
          assets(4) |  | 0.71                             
|                                                                                         |  |                                  
|Earnings
          excluding amortizationreturn on average tangible
          equity(4) |  | 15.80                            
|                                                                                         |  |                                  




|(1) | Net income for
          the periods indicated includes certain special mention items, as
          discussed above.
|--- | --------------------------------------------------------------------------------------------------------------------




|(2) | Return on
          average assets is defined as net income divided by average assets.
          Return on average equity is defined as net income divided by average
          equity.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) | Earnings
          excluding amortizationreturn on average assets is defined as
          earnings excluding amortization of intangible assets divided by
          average assets. Earnings excluding amortizationreturn on
          average equity is defined as earnings excluding amortization of
          intangible assets divided by average equity.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(4) | Earnings
          excluding amortizationreturn on average tangible assets is
          defined as earnings excluding amortization of intangible assets
          divided by average tangible assets. Earnings excluding amortization
          return on average tangible equity is defined as earnings
          excluding amortization of intangible assets divided by average
          tangible equity. Average tangible assets are defined as average
          assets less average intangible assets. Average tangible equity is
          defined as average equity less average intangible assets.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Normalized Net Interest Margin





Normalized net interest income and
        net interest margin include net rental income from our auto leasing
        activities (that is, the excess of rental income over depreciation
        expense on auto-related leased assets), which are principally funded by
        our deposits, and also include expenses related to our Capital
        Securities. Because our auto leases are accounted for as operating
        leases, the rental income is reflected as noninterest income and the
        related expenses, including depreciation expense, are reflected as
        noninterest expenses, in accordance with GAAP. Normalized net interest
        income also excludes certain nonrecurring interest income and interest
        expense items.





Normalized net interest income for
        the year ended December 31, 1999 was $184.7 million as compared with
        $159.1 million for 1998 and $87.3 million for 1997. Normalized net
        interest margin for the year ended December 31, 1999 was 3.30% as
        compared with 3.08% for 1998 and 2.86% for 1997.





The following table illustrates
        normalized net interest income and net interest margin, by platform,
        for the periods indicated:





|                               |  | For the
          Year Ended December 31,
|------------------------------ |  | -----------------------------------------
|
|
|
|Banking
          Platform     |  | $ 
           90,761                     
|Home Equity
          Platform |  | 31,268                                   
|Auto
          Platform(1)     |  | 47,728                                   
|Commercial
          Platform  |  | 14,941                                   
|                               |  |                                          
|Total                          |  | $184,698                                 
|                               |  |                                          




|(1) | The Auto
          Platform commenced its leasing activities effective April 1, 1998.
          The Auto Platforms margin does not reflect the tax benefits
          associated with its leasing activities (that is, the losses generated
          for income tax purposes during the early lease periods).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The increases in normalized net
        interest income and net interest margin, as compared with the
        respective prior periods, were largely attributable to similar factors
        previously discussed at Net Interest Income and Net Interest
        Margin combined with higher net rental income from our auto
        leasing activities, partially offset by the impact of our Capital
        Securities issued on December 21, 1998.





Our cost of borrowings, in
        accordance with GAAP, does not include the impact of the cost
        associated with the $90 million of Capital Securities issued on
        December 21, 1998. Had this expense been included, our cost of
        borrowings would have been 5.97% for the year ended December 31, 1999,
        representing an increase of 19 basis points.





The following table illustrates
        interest-earning assets, including our auto-related operating leased
        assets, by platform, as of the dates indicated:





|                                 |  | At
        
        December 31,
        
        1999 |  | At
        
        December 31,
        
        1998
|-------------------------------- |  | ------------------------------------------------------ |  | ------------------------------------------------------
|
|Banking
          Platform       |  | $4,026,891                                             |  | $3,816,993                                            
|Home Equity
          Platform   |  | 678,735                                                |  | 657,148                                               
|Auto
          Platform          |  | 990,405                                                |  | 753,581                                               
|Commercial
          Platform(1) |  | 182,240                                                |  | 94,888                                                
|                                 |  |                                                        |  |                                                       
|Total                            |  | $5,878,271                                             |  | $5,322,610                                            
|                                 |  |                                                        |  |                                                       




|(1) | Amounts
          exclude asset-based commercial participation loans originated by the
          Commercial Platform for the Banking Platform totaling $72.0 million
          at December 31, 1999 and $18.3 million at December 31,
          1998.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The following table illustrates
        average interest-earning assets, including our auto-related operating
        leased assets, by platform, for the years indicated:





|                               |  | Average
          Balances for the Year Ended
        
        December 31,
|------------------------------ |  | ---------------------------------------------------------------------------
|
|
|Banking
          Platform     |  | $3,805,153                                                                 
|Home Equity
          Platform |  | 676,149                                                                    
|Auto
          Platform        |  | 991,329                                                                    
|Commercial
          Platform  |  | 130,897                                                                    
|                               |  |                                                                            
|Total                          |  | $5,603,528                                                                 
|                               |  |                                                                            




|(1) | Amounts
          exclude asset-based commercial participation loans originated by the
          Commercial Platform for the Banking Platform beginning in June 1998.
          The average balance of these loans was $49.0 million for the year
          ended December 31, 1999 and $5.9 million for the year ended December
          31, 1998.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Balance Sheet
        Analysis





Bay View Capital Corporations
        total assets were $6.5 billion at December 31, 1999 as compared with
        $5.6 billion at December 31, 1998 and $3.2 billion at December 31,
        1997. The increase in our assets from 1998 to 1999 was largely related
        to the purchase of $814 million in franchise loans during 1999 and the
        acquisition of FMAC. The increase in assets from 1997 to 1998 was
        largely attributable to the $2.3 billion in total assets acquired
        through our acquisition of AFEH.





Securities





Our securities activities are
        primarily conducted by Bay View Bank. Bay View Bank has historically
        purchased securities to supplement our loan production. The majority of
        the securities purchased are high-quality mortgage-backed securities,
        including securities issued by the Government National Mortgage
        Association, sometimes referred to as GNMA, Fannie Mae and Freddie Mac
        and senior tranches of private issue collateralized mortgage
        obligations, or CMOs. Since mortgage-backed securities are
        collateralized by mortgages, these assets qualified as mortgage-related
        assets under the OTS regulations which, until Bay View Banks
        conversion to a national bank effective March 1, 1999, required Bay
        View Bank to hold certain levels of mortgage-related assets. In
        addition to these securities we also hold retained interests in loan
        and lease securitizations and hold investment securities such as U.S.
        government agency notes and other short-term securities.





The following table illustrates our
        securities portfolio as of the dates indicated:





|                                                                                                     |  | At December
          31,
|---------------------------------------------------------------------------------------------------- |  | -------------------------
|
|
|Available-for-sale                                                                                   |  |                          
|Investment
          securities                                                                      |  | $ 
           49,063     
|Mortgage-backed securities:
        
                  GNMA,
          Fannie Mae and Freddie Mac    |  | 10,143                   
|CMOs                                                                                                 |  | 336                      
|                                                                                                     |  |                          
|Total                                                                                                |  | $ 
           59,542     
|                                                                                                     |  |                          
|                                                                                                     | 
|Held-to-maturity                                                                                     |  |                          
|Investment
           securities                                                                     |  | $  
             9,997   
|Mortgage-backed securities:
         
                   GNMA,
           Fannie Mae and Freddie Mac |  | 472,019                  
|Other financial
           intermediaries                                                            |  | 20,633                   
|CMOs                                                                                                 |  | 151,582                  
|                                                                                                     |  |                          
|Total                                                                                                |  | $654,231                 
|                                                                                                     |  |                          




During 1999, we purchased $10.0
         million in Federal Home Loan Bank callable notes which we use as
         collateral for borrowings. In connection with our acquisition of FMAC,
         we acquired $35.0 million in retained interests in franchise loan and
         lease securitizations and asset-backed securities. In December of
         1999, we securitized and sold $247 million in auto loans and retained
         an interest in this securitization of $10.0 million. During 1998, we
         sold $2 million in investment securities available-for-sale and a $5.0
         million Federal Farm Credit Bank callable bank note was
         called.





We purchased $172.0 million in
         mortgage-backed securities during 1999. There were no sales of
         mortgage-backed securities from our available-for-sale portfolio in
         1999. In 1998, we sold $237.7 million in mortgage-backed securities
         from our available-for-sale portfolio, including securities acquired
         in connection with our acquisition of AFEH. A portion of these
         mortgage-backed securities was replaced by $201.7 million in CMOs
         purchased during 1998, which were classified as held-to-maturity.
         During 1997, we sold $20.5 million in mortgage-backed securities from
         our available-for-sale portfolio. There were no purchases of
         mortgage-backed securities in 1997. We do not maintain a trading
         portfolio. The unrealized loss on securities classified as
         available-for-sale included in stockholders equity (net of tax)
         was $293,000 at December 31, 1999, $202,000 at December 31, 1998 and
         $72,000 at December 31, 1997.





At December 31, 1999, 1998 and
         1997 we did not hold any securities that were issued by a single
         party, excluding securities issued by the U.S. government or U.S.
         government agencies and corporations, which exceeded 10% of our
         stockholders equity balance.





Mortgage-backed securities pose
         risks not associated with fixed maturity bonds, primarily related to
         the ability of the borrower to prepay the underlying loan with or
         without penalty. This risk, known as prepayment risk, may cause the
         mortgage-backed securities to remain outstanding for a period of time
         different than that assumed at the time of purchase. When interest
         rates decline, prepayments generally tend to increase, causing the
         average expected remaining maturity of the mortgage-backed securities
         to decline. Conversely, if interest rates rise, prepayments tend to
         decrease, lengthening the average expected remaining maturity of the
         mortgage-backed securities.





The following table illustrates
         the remaining contractual principal maturities and weighted-average
         yields on our mortgage-backed securities held at December 31, 1999.
         The weighted-average yield is computed using the amortized cost of
         available-for-sale securities, which are reported at fair value.
         Expected remaining maturities of mortgage-backed securities will
         generally differ from their contractual maturities because borrowers
         may have the right to prepay obligations with or without
         penalties.





|                                                                            |  | Within One
           Year |  | After One
           Year
         
         Through Five Years |   | After Five
           Years
         
         Through Ten Years |                  | After Ten
           Years |      | Total
|--------------------------------------------------------------------------- |  | -------------------------- |  | --------------------------------------------------------------- | - | ---------------------------------------------------------------- | ---------------- | -------------------------- | ---- | -----
|
|
|                                                                           
|Available-for-sale:                                                        
|                                                                           
|GNMA, Fannie Mae                                                            |  | $                         |  |                                                                |   |                                                                  | $               |                            |     |      
|CMOs                                                                        |  |                           |  |                                                                |   |                                                                  |                 |                            |     |      
|                                                                            |  |                            |  |                                                                 |   |                                                                  |                  |                            |      |      
|Total
           amortized cost                                             |  | $  
                      |  |                                                                |   |                                                                  | $  
            |                            |     |      
|                                                                            |  |                            |  |                                                                 |   |                                                                  |                  |                            |      |      
|Fair
           value                                                       |  | $  
                      |  |                                                                 |   |                                                                  | $  
            |                            |      |      
|                                                                            |  |                            |  |                                                                 |   |                                                                  |                  |                            |      |      
|Held-to-maturity:                                                          
|GNMA, Fannie Mae and
         
                    
            Freddie Mac |  | $325                       |  | 7.98                                                            | % |                                                                  | $673             |                            | 9.24 | %    
|Other financial
         
                    
            Intermediaries   |  | 39                         |  | 8.88                                                            |   |                                                                  |                 |                            |     |      
|CMOs                                                                        |  |                           |  |                                                                |   |                                                                  |                 |                            |     |      
|                                                                            |  |                            |  |                                                                 |   |                                                                  |                  |                            |      |      
|Total
           amortized cost                                             |  | $364                       |  | 8.08                                                            | % |                                                                  | $673             |                            | 9.24 | %    
|                                                                            |  |                            |  |                                                                 |   |                                                                  |                  |                            |      |      
|Fair
           value                                                       |  | $363                       |  |                                                                 |   |                                                                  | $686             |                            |      |      
|                                                                            |  |                            |  |                                                                 |   |                                                                  |                  |                            |      |      




Loans and Leases





Loan and Lease Portfolio
         Composition





We account for the activity and
         balances of our loan and lease portfolio by our four business
         segments, or platforms. The Banking Platform consists of
         single-family, multi-family and commercial real estate loans, small
         business loans, asset-based commercial participation loans, and
         franchise loans. We ceased our single-family loan origination
         operations in 1996 in conjunction with our strategic plan to
         change-out these assets for commercial bank-like assets with higher
         risk-adjusted yields. The Auto Platform engages in high-quality
         indirect auto lending and leasing. The Home Equity Platform originates
         and purchases conventional home equity loans and lines and maintains a
         portfolio of purchased high loan-to-value home equity loans. The
         Commercial Platform engages in asset-based lending, factoring and
         equipment leasing.





The following table shows the
         composition of our gross loan and lease portfolio and illustrates our
         successful efforts to change-out our mortgage-based loans, especially
         single-family loans, with commercial and consumer assets, as of the
         dates indicated:





|                                                                                                |  | At
           December 31,
|----------------------------------------------------------------------------------------------- |  | --------------------------
|
|
|
|Banking
           Platform(1)                                                                  |  |                           
|Mortgage Loans Single-
         
         family (one to four
         
                 units) |  | $  
             940,235  
|Multi-family (five or
         
                    
            more units)                    |  | 622,835                   
|Commercial real
         
                    
            estate                               |  | 317,068                   
|                                                                                                |  |                           
|Total mortgage loans                                                                            |  | 1,880,138                 
|Franchise loans                                                                                 |  | 1,040,608                 
|Asset-based commercial
         
                 participation
           loans                |  | 72,014                    
|Business loans                                                                                  |  | 33,345                    
|                                                                                                |  |                           
|Total Banking
           Platform                                                               |  | 3,026,105                 
|Home Equity
           Platform                                                                 |  | 648,676                   
|Auto
           Platform(1)(2)                                                                  |  | 496,901                   
|Commercial
           Platform(1)                                                               |  | 182,657                   
|                                                                                                |  |                           
|Total gross
           loans and
         
             leases(3)                               |  | $4,354,339                
|                                                                                                |  |                           




|(1) | Our Auto
           Platform was formed in June 1996. Our Commercial Platform was formed
           in April 1997. We acquired AFEH in January 1998 and Franchise
           Mortgage Acceptance Company in November 1999, which were included in
           our Banking Platform.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) | Operating
           leased assets are excluded from the Auto Platform.
|--- | -----------------------------------------------------------------------




|(3) | Gross loans
           and leases exclude premiums and discounts, deferred fees and costs,
           and the allowance for losses on loans and leases.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------




We ceased originating
         single-family loans in 1996. Accordingly, single-family mortgage loans
         decreased in 1999, as compared with 1998, due primarily to loan
         repayments and scheduled amortization. We also sold $105 million in
         single-family COFI-based loans in 1999 to reduce our exposure to this
         lagging index. The decrease in multi-family loans from 1999, as
         compared with 1998, was primarily related to our sale of $450 million
         in multi-family COFI-based loans, again, to reduce our exposure to
         COFI, reduce our geographic concentration risk, and also to realize
         our strategy of changing-out our assets from real estate-based loans
         to commercial and consumer assets. The increase in the Banking Platform
         s single-family mortgage loans in 1998, as compared with 1997,
         was due to the acquisition of EurekaBanks mortgage loan
         portfolio in conjunction with the purchase of AFEH, partially offset
         by mortgage loan repayments. We began purchasing franchise loans in
         February 1999 in anticipation of our acquisition of FMAC, and we began
         originating franchise loans when our acquisition of FMAC was
         consummated in November 1999. The increases in the Home Equity, Auto
         and Commercial Platforms were consistent with our strategy to
         change-out our balance sheet, as previously discussed. Within the Auto
         Platform, we securitized and sold $247 million in auto loans in 1999
         and $253 million in auto loans in 1997.





The following table illustrates
         the composition of our fixed- and adjustable-rate gross loan and lease
         portfolio (before premiums and discounts, deferred fees and costs and
         the allowance for losses on loans and leases) as of the dates
         indicated:





|                                        |  | At
           December 31,
|--------------------------------------- |  | --------------------------
|
|
|Fixed-rate
           loans and leases:
|Mortgage                                |  | $  
             308,381  
|Home
           Equity                  |  | 564,333                   
|Auto                                    |  | 496,901                   
|Commercial                              |  | 96,499                    
|Franchise                               |  | 832,486                   
|Business                                |  | 33,345                    
|                                        |  |                           
|                                        |  | 2,331,945                 
|Adjustable-rate loans and leases:      
|Mortgage                                |  | 1,571,757                 
|Home
           Equity                  |  | 84,343                    
|Auto                                    |  |                          
|Commercial                              |  | 158,172                   
|Franchise                               |  | 208,122                   
|                                        |  |                           
|                                        |  | 2,022,394                 
|                                        |  |                           
|Total                                   |  | $4,354,339                
|                                        |  |                           







The following table illustrates
         the remaining contractual maturity distribution of our fixed- and
         adjustable-rate gross loan and lease portfolio (before premiums and
         discounts, deferred fees and costs and the allowance for losses on
         loans and leases) at December 31, 1999:





|                                        |  | At
           December 31, 1999
|--------------------------------------- |  | -------------------------------
|
|
|Fixed-rate
           loans and leases:
|Mortgage                                |  | $  
               373         
|Home
           Equity                  |  | 3                              
|Auto                                    |  | 2,207                          
|Commercial                              |  | 96,499                         
|Franchise                               |  | 3,876                          
|Business                                |  | 8,197                          
|                                        |  |                                
|                                        |  | 111,155                        
|Adjustable-rate loans and leases:      
|Mortgage                                |  | 13,124                         
|Home
           Equity                  |  | 205                            
|Commercial                              |  | 98,558                         
|Franchise                               |  | 3,728                          
|                                        |  |                                
|                                        |  | 115,615                        
|                                        |  |                                
|Total                                   |  | $226,770                       
|                                        |  |                                




Loan and Lease Originations and
         Purchases





Our strategy has been to
         supplement our loan and lease production with purchases of
         high-quality loans and leases. The following table illustrates gross
         loans and leases, including operating leased assets, originated and
         purchased for the years indicated:





|                                            |  | For the
           Year Ended December 31,
|------------------------------------------- |  | ------------------------------------------
|
|
|Loan and
           lease originations:    
|Mortgage(1)                                 |  | $  
             250,562                  
|Home
           Equity                      |  | 64,624                                    
|Auto                                        |  | 682,827                                   
|Commercial                                  |  | 164,297                                   
|Franchise(2)                                |  | 142,241                                   
|Other                                       |  | 68,690                                    
|                                            |  |                                           
|Total
           originations               |  | 1,373,241                                 
|                                            |  |                                           
|Loan
           purchases:                 
|Mortgage                                    |  | 26,472                                    
|Home
           Equity                      |  | 178,815                                   
|Auto                                        |  | 135,504                                   
|Franchise                                   |  | 813,988                                   
|                                            |  |                                           
|Total purchases                             |  | 1,154,779                                 
|                                            |  |                                           
|Total originations and
           purchases |  | $2,528,020                                
|                                            |  |                                           




|(1) | Excludes
           $78.5 million in multi-family loans originated and sold by Bankers
           Mutual during November and December of 1999.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------




|(2) | Represents
           franchise loans originated subsequent to the acquisition of FMAC on
           November 1, 1999.
|--- | ----------------------------------------------------------------------------------------------------------------------




Our loan and lease origination and
         purchase activity is consistent with our strategy of focusing on
         generating consumer and commercial assets which provide higher
         risk-adjusted yields compared to the traditional mortgage-based
         assets. Real estate loan originations and purchases consist primarily
         of multi-family and commercial real estate loans. Single-family
         mortgage loan originations ceased during 1996. The real estate loan
         purchases in 1998 included $200 million of loans acquired primarily to
         assist Bay View Bank in meeting its CRA regulatory
         requirements.





Credit Quality





We define nonperforming assets as
         nonaccrual loans and leases, real estate owned, defaulted
         mortgage-backed securities, and other repossessed assets. We define
         nonaccrual loans and leases as loans and leases 90 days or more
         delinquent as to principal and interest payments (unless the principal
         and interest are well secured and in the process of collection) and
         loans and leases less than 90 days delinquent designated as
         nonperforming when we determine that the full collection of principal
         and/or interest is doubtful. Troubled debt restructurings are defined
         as loans that have been modified (due to borrower financial
         difficulties) to allow a stated interest rate and/or a monthly payment
         rate lower than those prevailing in the market. We do not record
         interest on nonaccrual loans and leases.





Overall credit quality has
         continued to remain strong as evidenced by the low nonperforming
         assets and delinquencies presented below. The following table
         illustrates our nonperforming assets and troubled debt restructurings
         as of the dates indicated:





|                                                |  | At
           December 31,
|----------------------------------------------- |  | --------------------------
|
|
|Nonaccrual
           loans(1)                  |  | $22,918                   
|Real estate
           owned(1)                 |  | 2,467                     
|Defaulted
           mortgage-backed securities |  |                          
|Other
           repossessed assets             |  | 554                       
|                                                |  |                           
|Nonperforming
           assets                 |  | 25,939                    
|Troubled debt
           restructurings         |  | 1,009                     
|                                                |  |                           
|Total                                           |  | $26,948                   
|                                                |  |                           




|(1) | Includes $8.7
           million of nonaccrual franchise loans and leases and $1.4 million of
           franchise real estate owned at December 31, 1999.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------




The following table illustrates,
         by platform, nonperforming assets and nonperforming assets as a
         percentage of consolidated assets, excluding loans and leases
         held-for-sale:





|                                |  | Nonperforming Assets as a Percentage
         
         of Consolidated Total Assets
|------------------------------- |  | ------------------------------------------------------------------------------------
|
|
|Banking
           Platform(1)  |  | $20,074                                                                             
|Home Equity
           Platform |  | 2,919                                                                               
|Auto
           Platform        |  | 1,307                                                                               
|Commercial
           Platform  |  | 1,639                                                                               
|                                |  |                                                                                     
|Total                           |  | $25,939                                                                             
|                                |  |                                                                                     




|(1) | Includes
           $10.1 million of nonperforming franchise assets at December 31,
           1999.
|--- | ----------------------------------------------------------------------------------------------------




The following table illustrates,
         by platform, loans and leases delinquent 60 days or more as a
         percentage of gross loans and leases, excluding loans and leases
         held-for-sale:





|                     |  | Loans and
           Leases Delinquent 60 Days or More as a
         
         Percentage of Gross Loans and Leases
|-------------------- |  | -------------------------------------------------------------------------------------------------------------------
|
|
|Banking Platform (1) |  | $16,967                                                                                                            
|Home Equity Platform |  | 7,957                                                                                                              
|Auto Platform        |  | 1,852                                                                                                              
|Commercial Platform  |  | 1,639                                                                                                              
|                     |  |                                                                                                                    
|Total                |  | $28,415                                                                                                            
|                     |  |                                                                                                                    




|(1) | Includes $7.1
           million of franchise loans and leases delinquent 60 days or more at
           December 31, 1999.
|--- | --------------------------------------------------------------------------------------------------------------------------




Allowance for Losses on Loans and
         Leases





Credit risk is defined as the
         possibility of sustaining a loss because other parties to the
         financial instrument fail to perform in accordance with the terms of
         the contract. While we follow underwriting and credit monitoring
         procedures which we believe are appropriate in both growing and
         managing the loan and lease portfolio, in the event of nonperformance
         by these other parties, our potential exposure to credit losses could
         significantly affect our consolidated financial position and results
         of operations.





Lending money involves an inherent
         risk of nonpayment. Management seeks to reduce such credit risk by
         administering lending policies and underwriting procedures combined
         with its monitoring of the loan and lease portfolio. The allowance for
         losses on loans and leases represents managements estimate of
         probable inherent losses which have occurred as of the date of the
         financial statements. The process of determining the necessary levels
         of allowances for loan and lease losses is subjective and requires
         considerable judgement. In accordance with applicable guidelines, this
         process results in an allowance for losses on loans and leases that
         consists of three components as described below:





| | 1.   
            Reserves for loans and leases that have been individually
           evaluated and identified as loans or leases which have probable
           losses.    These loans and leases are
           generally larger-balance commercial or income producing real estate
           loans or leases which are evaluated on an individual basis. Reserves
           for these loans and leases are attributable to specific weaknesses
           in these loans or leases evidenced by factors such as a
           deterioration in the borrowers ability to meet its
           obligations, a deterioration in the quantity or quality of the
           collateral securing the loan or lease, payment delinquency, or other
           events of default under the terms of the loan or lease agreement or
           promissory note.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 2.   
            Reserves for groups of smaller-balance homogenous loans and
           leases that are collectively evaluated for impairment and for groups
           of performing larger-balance loans and leases which currently
           exhibit no identifiable weaknesses.    The
           smaller-balance homogenous loans and leases generally consist of
           single-family mortgage loans and consumer loans, including auto
           loans, home equity loans and lines of credit and unsecured personal
           loans. The larger-balance loans and leases generally consist of
           commercial or income producing real estate loans and leases. These
           loans and leases have specific characteristics which indicate that
           it is probable that a loss has been incurred in a group of loans or
           leases with those similar characteristics. Reserves for these groups
           of loans and leases are determined based on a combination of factors
           including historical loss experience, asset concentrations, levels
           and trends of classified assets, and loan and lease delinquencies.
           Reserves for these groups of loans and leases also include an
           additional reserve for certain products we have introduced more
           recently, such as high loan-to-value home equity loans, where we do
           not have extensive historical data, other than industry experience,
           upon which to base its reserve levels. This additional reserve is
           intended to provide for those situations where our experience may be
           different than industry experience.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3.   
            Unallocated Reserves.    Management
           determines the unallocated portion of the allowance for losses on
           loans and leases based on factors that are not necessarily
           associated with a specific credit, group of loans or leases or loan
           or lease category. These factors include, but are not limited to,
           managements evaluation of economic conditions in regions where
           we lend money, loan and lease concentrations, lending policies or
           underwriting procedures, and trends in delinquencies and
           nonperforming assets. The unallocated portion of the allowance for
           losses on loans and leases reflects managements efforts to
           ensure that the overall allowance appropriately reflects the
           probable losses inherent in the loan and lease
           portfolio.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The allowance for losses on loans
         and leases at December 31, 1999 was $52.2 million as compared with
         $45.4 million at December 31, 1998 and $38.5 million at December 31,
         1997. The increase in the allowance for losses on loans and leases at
         December 31, 1999 compared with December 31, 1998, was largely due to
         reserves acquired in connection with the acquisition of FMAC,
         partially offset by reserve reductions related to transfers of loans
         held-for-sale. The increase in the allowance for losses on loans and
         leases at December 31, 1998, as compared with December 31, 1997, was
         largely due to the reserves acquired in conjunction with our
         acquisition of AFEH. The allowance for losses on loans and leases is
         maintained at a level that we believe is appropriate
       based on our estimate of probable losses in the portfolio of loans and
         leases held-for-investment. This assessment is based on many factors
         including prevailing economic conditions, identified losses within the
         portfolio, historical loss experience, asset concentrations, levels
         and trends in classified assets, loan and lease delinquencies, and
         industry data.





The following table illustrates
         the allowance for losses on loans and leases as a percentage of
         nonperforming assets and gross loans and leases, excluding loans and
         leases held-for-sale:





|                                  |  | Allowance
            for Losses on Loans and Leases as
            a Percentage of Specified
            Assets
|--------------------------------- |  | ----------------------------------------------------------------------------------------------------------------
|
|
|
|Nonperforming
           assets   |  | $  
               25,939                                                                                       
|Gross loans
           and leases |  | $4,288,092                                                                                                      




The decrease in the allowance for
         losses on loans and leases as a percentage of nonperforming assets at
         December 31, 1999, as compared with December 31, 1998, was largely a
         result of our acquisition of FMAC and their corresponding $10.1
         million of additional franchise nonperforming assets at December 31,
         1999. The increase in the allowance for losses on loans and leases as
         a percentage of gross loans and leases at December 31, 1999, as
         compared with December 31, 1998, was due to our continuing evaluation
         of the allowance and the corresponding increase needed to bring the
         allowance to the desired level in response to 1999 net charge-off
         levels and the continued change-out of the balance sheet to more
         commercial bank-like assets. The decrease in the allowance for losses
         on loans and leases as a percentage of gross loans and leases at
         December 31, 1998, as compared with December 31, 1997, was largely a
         result of our acquisition of AFEH. EurekaBanks $1.5 billion loan
         portfolio consisted primarily of single-family and multi-family
         residential mortgage loans which have lower credit risk as compared
         with consumer and commercial assets, and thus had a corresponding
         lower allowance for loan losses.





The following table illustrates
         the allowance for losses on loans and leases for the years
         indicated:





|                                                                                     |  | For the
           Year Ended December 31,
|------------------------------------------------------------------------------------ |  | ------------------------------------------
|
|
|Beginning
           balance                                                         |  | $ 
            45,405                     
|Reserves
           related to acquisitions(1)                                       |  | 8,256                                     
|Transfers of
           loans to held-for-sale                                       |  | (2,656                                    
|Charge-offs:                                                                        
|Mortgage and
           other(1)                                                     |  | (827                                      
|Home
           Equity                                                               |  | (19,568                                   
|Auto(1)                                                                              |  | (7,674                                    
|Commercial(1)                                                                        |  | (3,176                                    
|                                                                                     |  |                                           
|                                                                                     |  | (31,245                                   
|Recoveries:                                                                         
|Mortgage and
           other(1)                                                     |  | 607                                       
|Home
           Equity                                                               |  | 1,530                                     
|Auto(1)                                                                              |  | 1,722                                     
|Commercial(1)                                                                        |  | 231                                       
|                                                                                     |  |                                           
|                                                                                     |  | 4,090                                     
|Net
           charge-offs                                                           |  | (27,155                                   
|Provision for
           loan and lease losses                                       |  | 28,311                                    
|                                                                                     |  |                                           
|Ending
           balance                                                            |  | $ 
            52,161                     
|                                                                                     |  |                                           
|Net
           charge-offs to average total loans and
         
              leases |  | 0.61                                      
|                                                                                     |  |                                           




|(1) | Our Auto
           Platform was formed in June 1996. Our Commercial Platform was formed
           in April 1997. We acquired America First Eureka Holdings in January
           1998 and Franchise Mortgage Acceptance Company in November
           1999.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Deposits





As a primary part of our business,
         we generate deposits for the purpose of funding loans, leases and
         securities. The following table illustrates deposits as of the dates
         indicated:





|                                                                                           |  | At
           December 31,
|------------------------------------------------------------------------------------------ |  | --------------------------
|
|
|
|Transaction
           accounts                                                            |  | $1,703,123                
|Retail
           certificates of deposit                                                  |  | 1,637,127                 
|                                                                                           |  |                           
|Total retail
           deposits                                                           |  | 3,340,250                 
|Brokered
           certificates of deposit                                                |  | 389,530                   
|                                                                                           |  |                           
|Total                                                                                      |  | $3,729,780                
|                                                                                           |  |                           
|Transaction
           accounts as a percentage
         
              of retail deposits |  |                           
|                                                                                           |  |                           




The increase in retail deposits at
         December 31, 1999, as compared with December 31, 1998, was due
         primarily to the growth of our transaction accounts. In 1999, we also
         relied on brokered certificates of deposit to help fund our growth.
         The increase in total deposits at December 31, 1998, as compared with
         December 31, 1997, was primarily due to the acquisition of EurekaBank
         s deposit portfolio effective January 2, 1998.





Increasing the value of Bay View
         Banks retail branch franchise is one of our primary objectives.
         We believe that expanding Bay View Banks retail deposit base,
         particularly transaction accounts, will enhance our results of
         operations by lowering our consolidated cost of funds, increasing fee
         income and expanding opportunities for selling products and services,
         although there can be no assurance in this regard. Through Bay View
         Bank, we increased our percentage of transaction accounts in relation
         to total retail deposits to 51.0% at December 31, 1999 as compared
         with 49.8% for 1998 and 34.6% for 1997. The increase in the percentage
         of transaction accounts as a percentage of total retail deposits from
         year to year was consistent with managements strategy of
         reducing higher-cost deposits and expanding lower-cost transaction
         accounts as funding sources for our business activities.





Retail certificates of deposit of
         $100,000 or more, by time remaining until maturity, were as
         follows:





|                                          |  | At
           December 31,
|----------------------------------------- |  | --------------------------
|
|
|Three months
           or less           |  | $ 
            96,916     
|Over three
           through six months  |  | 151,179                   
|Over six
           through twelve months |  | 130,930                   
|Over twelve
           months             |  | 44,961                    
|                                          |  |                           
|Total                                     |  | $423,986                  
|                                          |  |                           




Borrowings





In addition to deposits, we
         utilize collateralized advances from the Federal Home Loan Bank of San
         Francisco and other borrowings, such as senior and subordinated debt,
         capital securities, warehouse lines, and securities sold under
         agreements to repurchase (also known as reverse repurchase
         agreements), on a collateralized and noncollateralized basis, for
         various purposes including the funding of loans, leases and securities
         as well as to support the execution of our business
         strategies.





During 1999, two warehouse lines
         with initial committed amounts totaling $600 million were secured.
         Both lines have maturities of one year or less. One warehouse line was
         established to provide financing for franchise loans, while the other
         will be used to fund Bankers Mutual multi-family loan production. The
         aggregate balance of the warehouse lines was $397.5 million at
         December 31, 1999.





On August 18, 1999, Bay View Bank
         issued $50 million of 10% Subordinated Notes, which mature in August
         2009, a portion of which was used to partially finance the acquisition
         of FMAC. In December 1998, we issued $90 million in Capital Securities
         yielding 9.76%, which mature on December 31, 2028. A portion of the
         proceeds from the Capital Securities were used to redeem our $50
         million of 8.42% Senior Debentures which matured on June 1, 1999 and
         the remainder for general corporate purposes. In August 1997 we issued
         $100 million in Subordinated Notes with a stated coupon of 9.125% and
         a yield of 9.225%. A portion of the proceeds from the Subordinated
         Notes was used to partially finance the acquisition of AFEH effective
         January 2, 1998.





The following table illustrates
         outstanding borrowings as of the dates indicated:





|                                                                                             |  | At
           December 31,
|-------------------------------------------------------------------------------------------- |  | --------------------------
|
|
|Advances from
           the Federal Home Loan Bank of
         
              San Francisco |  | $1,367,300                
|Securities
           sold under agreements to repurchase                                    |  | 17,883                    
|Warehouse
           lines                                                                   |  | 397,538                   
|Subordinated
           Notes, net                                                           |  | 149,502                   
|Senior
           Debentures                                                                 |  |                          
|Other
           borrowings                                                                  |  | 3,294                     
|Capital
           Securities                                                                |  | 90,000                    
|                                                                                             |  |                           
|Total                                                                                        |  | $2,025,517                
|                                                                                             |  |                           




The lower Federal Home Loan Bank
         advances level at December 31, 1999, as compared with 1998, was
         primarily related to the sale of $450 million in multi-family
         COFI-based loans that were pledged as underlying collateral, higher
         retail deposit balances, largely attributable to the acquisition of
         the Luther Burbank Savings branches, internal deposit growth, and the
         use of brokered certificates of deposit as an alternative funding
         source. We anticipate that the balances of our Federal Home Loan Bank
         advances will continue to decline due to the decrease in eligible
         mortgage-based collateral resulting from the continued change-out of
         our balance sheet. As a result, we expect that the balances of our
         deposits, warehouse lines and other sources of funding will continue
         to increase. The higher borrowing level at December 31, 1998, as
         compared with 1997, was due to funding requirements associated with
         our acquisitions and the issuance of the Capital Securities on
         December 21, 1998.





Short-term borrowings are defined
         as borrowings due within one year or less. The following table
         illustrates our short-term borrowings as of the dates
         indicated:





|                                                                                                                           |  | At
           December 31,
|-------------------------------------------------------------------------------------------------------------------------- |  | --------------------------
|
|
|Advances from
           the Federal Home Loan Bank of
         
              San Francisco                               |  | $  
             722,500  
|Securities
           sold under agreements to repurchase                                                                  |  | 17,883                    
|Warehouse
           lines                                                                                                 |  | 397,538                   
|                                                                                                                           |  |                           
|Total                                                                                                                      |  | $1,137,921                
|                                                                                                                           |  |                           
|Weighted-average interest rate of total short-term
         
              borrowings outstanding at period
           end |  | 6.47                      
|                                                                                                                           |  |                           




The following table illustrates
         the maximum outstanding balance for each type of short-term borrowing
         at any month end during 1999, 1998 and 1997, and the average balances
         and weighted-average interest rates on short-term borrowings for 1999,
         1998 and 1997:





|                                                                                                                             |  | Year Ended
           December 31,
|---------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------
|
|
|Advances from
           the Federal Home Loan Bank of
         
              San Francisco                                 |  | $1,900,400                        
|Securities
           sold under agreements to repurchase                                                                    |  | 24,784                            
|Warehouse
           lines                                                                                                   |  | 397,538                           
|Average
           amount of total short-term borrowings
         
              outstanding during the year                 |  | $  
             858,226          
|Weighted-average interest rate of total short-term
         
              borrowings outstanding during the
           year |  | 5.10                              
|                                                                                                                             |  |                                   




Liquidity





The objective of our liquidity
         management program is to ensure that funds are available in a timely
         manner to meet loan demand and depositors needs, and to service
         other liabilities as they come due, without causing an undue amount of
         cost or risk, and without causing a disruption to normal operating
         conditions.





We regularly assess the amount and
         likelihood of projected funding requirements through a review of
         factors such as historical deposit volatility and funding patterns,
         present and forecasted market and economic conditions, and existing
         and planned business activities. Our Asset and Liability Committee
         provides oversight to the liquidity management process and recommends
         policy guidelines, subject to Board of Directors approval, and courses
         of action to address our actual and projected liquidity
         needs.





The ability to attract a stable,
         low-cost base of deposits is a significant source of liquidity. Other
         sources of liquidity available to us include short-term borrowings,
         which consist of advances from the Federal Home Loan Bank of San
         Francisco, reverse repurchase agreements, warehouse lines and other
         short-term borrowing arrangements. Our liquidity requirements can also
         be met through the use of our portfolio of liquid assets. Liquid
         assets, as defined by us, include cash and cash equivalents in excess
         of the minimum levels necessary to carry out normal business
         operations, federal funds sold, commercial paper, and other short-term
         investments.





To assist you in analyzing our
         liquidity, you should review our Consolidated Statements of Cash Flows
         at Item 8. Financial Statements and Supplementary Data.
         





At December 31, 1999, we had
         federal and state net operating loss carryforwards of $172.4 million
         and $13.1 million, respectively. To the extent we have future taxable
         income, these net operating loss carryforwards may be utilized to
         reduce our current federal and state income tax liability and thus
         enhance future liquidity levels.





Capital
         Resources





Management seeks to maintain
         adequate capital to support anticipated asset growth and credit risks,
         and to ensure that Bay View Capital Corporation and Bay View Bank are
         in compliance with all regulatory capital guidelines. The primary
         sources of new capital during 1999 were the retention of earnings,
         common stock issued in conjunction with the our acquisition of FMAC
         and $50 million in Subordinated Notes issued by Bay View Bank, our
         wholly owned subsidiary, on August 18, 1999. The Subordinated Notes,
         which mature in August 2009, qualify as Tier 2 capital for regulatory
         purposes. The proceeds from the notes were used for, among other
         things, the payment of dividends to us to partially fund our
         acquisition of FMAC and for our general corporate
         purposes.





On December 21, 1998, we issued
         $90 million in Capital Securities through Bay View Capital I. The
         Capital Securities pay quarterly cumulative cash distributions at an
         annual rate of 9.76% of the liquidation value of $25 per share. We
         used $50 million of the proceeds to repay our 8.42% Senior Debentures
         upon their maturity in June 1999 and the remainder for general
         corporate purposes. The Capital Securities have the added benefit of
         qualifying as Tier 1 capital for regulatory purposes. The Capital
         Securities are presented as a separate line item in our consolidated
         balance sheet under the caption Guaranteed Preferred Beneficial
         Interest in the Companys Junior Subordinated Debentures.
         For additional related discussion, see Note 12 to the Consolidated
         Financial Statements, Capital Securities at Item 8.
         Financial Statements and Supplementary Data.





Stockholders equity totaled
         $631.2 million at December 31, 1999 as compared with $377.8 million at
         December 31, 1998. This increase was largely due to common stock
         issued in conjunction with the FMAC acquisition combined with our
         earnings, partially offset by dividends declared and common stock
         repurchased. Tangible stockholders equity, which excludes
         intangible assets, was $302.2 million at December 31, 1999 as compared
         with $243.7 million at December 31, 1998. This increase was due to
         common stock issued in conjunction with the acquisition of FMAC, our
         earnings and the amortization of intangible assets, partially offset
         by dividends declared, common stock repurchased and additional
         intangible assets generated in conjunction with the FMAC acquisition
         and the acquisition of deposits from Luther Burbank Savings. We do not
         have any material commitments for capital expenditures at December 31,
         1999.





The following table illustrates
         the reconciliation of our stockholders equity to tangible
         stockholders equity as of the dates indicated:





|                                         |  | At
           December 31,
|---------------------------------------- |  | --------------------------
|
|
|Stockholders
            equity         |  | $ 
            631,194    
|Intangible
           assets             |  | (329,005                  
|                                         |  |                           
|Tangible
           stockholders equity |  | $ 
            302,189    
|                                         |  |                           
|Book value
           per share          |  | $  
               19.38  
|                                         |  |                           
|Tangible book
           value per share |  | $  
                 9.28 
|                                         |  |                           




The following table illustrates
         the changes in our tangible stockholders equity for the periods
         indicated:





|                                                                                                                                                  |  | For the
           Year Ended December 31,
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------
|
|
|Beginning
           tangible stockholders equity                                                                                                |  | $ 
            243,723                    
|Net
           income                                                                                                                             |  | 28,964                                    
|Equity issued
           in connection with acquisitions                                                                                          |  | 237,022                                   
|Intangible
           assets generated from acquisitions accounted for under
         
              the purchase method of
           accounting |  | (199,344                                  
|Intangible
           assets generated from branch acquisitions                                                                                   |  | (6,154                                    
|Amortization
           of intangible assets                                                                                                      |  | 13,687                                    
|Repurchase of
           common stock                                                                                                             |  | (8,381                                    
|Exercise of
           stock options                                                                                                              |  | 498                                       
|Cash
           dividends declared                                                                                                                |  | (5,579                                    
|Other                                                                                                                                             |  | (2,247                                    
|                                                                                                                                                  |  |                                           
|Ending
           tangible stockholders equity                                                                                                   |  | $ 
            302,189                    
|                                                                                                                                                  |  |                                           




Intangible assets generated from
         our acquisitions accounted for under the purchase method of accounting
         are deducted from stockholders equity in the above calculation
         to arrive at tangible stockholders equity. Conversely, the
         amortization of intangible assets increases tangible stockholders
          equity as well as Bay View Capital Corporations and Bay
         View Banks Tier 1 regulatory capital.





Bay View Bank is subject to
         various regulatory capital guidelines administered by the Office of
         the Comptroller of the Currency. Under these capital guidelines, the
         minimum total risk-based capital ratio and Tier 1 risk-based capital
         ratio requirements are 8.00% and 4.00%, respectively, of risk-weighted
         assets and certain off-balance sheet items. The minimum Tier 1
         leverage ratio requirement is 4.00% of quarterly average assets, as
         adjusted.





Additionally, the Federal Deposit
         Insurance Corporation Improvement Act of 1991 defines five capital
         tiers: well-capitalized, adequately capitalized, undercapitalized,
         significantly undercapitalized, and critically undercapitalized,
         depending upon the capital level of the institution. Each federal
         banking agency, including the Office of the Comptroller of the
         Currency, is required to implement prompt corrective actions for
         undercapitalized institutions that it
         regulates.





Bay View Banks regulatory
         capital levels at December 31, 1999 exceeded both the minimum
         requirements as well as the requirements necessary to be considered
         well-capitalized as illustrated in the following table:





|                             |  | At
           December 31, 1999
|---------------------------- |  | -------------------------------
|
|
|
|Tier 1
           leverage   |  | $406,001                       
|Tier 1
           risk-based |  | $406,001                       
|Total
           risk-based  |  | $507,516                       




Bay View Capital Corporation
         s regulatory capital levels at December 31, 1999 also exceeded
         both the Federal Reserve Boards minimum requirements as well as
         the requirements necessary to be considered well-capitalized as
         illustrated in the following table:





|                             |  | At
           December 31, 1999
|---------------------------- |  | -------------------------------
|
|
|
|Tier 1
           leverage   |  | $386,110                       
|Tier 1
           risk-based |  | $386,110                       
|Total
           risk-based  |  | $587,773                       




Stock Repurchase
         Program





Our outstanding shares of common
         stock were 32,562,942 at December 31, 1999 and 19,113,637 at December
         31, 1998. The year-over-year increase in the number of outstanding
         shares of common stock was principally attributable to the issuance of
         shares in conjunction with our acquisition of FMAC. The
         weighted-average shares outstanding (including potential dilutive
         common shares) used for computing earnings per diluted share increased
         to 21.3 million shares for the year ended December 31, 1999 as
         compared with 20.3 million shares for the year ended December 31,
         1998.





In August 1998, our Board of
         Directors authorized the repurchase of up to $50 million in shares of
         our common stock. During 1998, we repurchased $24.1 million in shares,
         representing 1,196,500 shares of our common stock at an average price
         of $20.11 per share. During 1999 we repurchased $8.3 million in
         shares, representing 460,000 shares of our common stock at an average
         price of $18.22 per share. At December 31, 1999, we had approximately
         $17.6 million in remaining authorization available for future share
         repurchases. In November 1999, all of our treasury shares were
         reissued in conjunction with the acquisition of FMAC. We intend to
         continue share repurchases prospectively, subject to our projected and
         actual capital needs, and to measure acquisition and other investment
         opportunities relative to the risk-free returns associated with share
         repurchases.





Year
         2000





We did not experience problems
         related to the commencement of the Year 2000. All systems functioned
         normally through the date change with no breaks or delays in service.
         Our comprehensive compliance and testing program met its objective and
         resulted in this successful outcome. Our total pre-tax costs
         associated with modifications to become Year 2000 compliant are
         estimated at approximately $2.0 million, $1.9 million of which was
         incurred through December 31, 1999. A portion of these costs
         represents a reallocation of internal resources and, therefore, does
         not represent incremental expense to us.





Impact of
         Inflation and Changing Prices





Our consolidated financial
         statements presented herein have been prepared in accordance with
         generally accepted accounting principles, which generally require the
         measurement of financial position and operating results in terms of
         historical dollars, without considering changes in the relative
         purchasing power of money over time. Due to the fact that most assets
         and liabilities of a financial institution are monetary in nature,
         interest rates have a more significant impact on a financial
         institutions performance than do general levels of inflation.
         Interest rates do not necessarily move in the same direction or
         magnitude as the prices of goods and services.





Item 7A.    Quantitative and Qualitative Disclosures
         About Market Risk





Asset/Liability Management





The objective of our asset and
         liability management activities is to improve our earnings by
         adjusting the type and mix of assets and liabilities to effectively
         address changing conditions and risks. Through overall management of
         our balance sheet and by controlling various risks, we seek to
         optimize our financial returns within safe and sound parameters. Our
         operating strategies for attaining this objective include managing net
         interest margin through appropriate risk/return pricing of assets and
         liabilities and emphasizing growth in retail deposits, as a percentage
         of interest-bearing liabilities, to reduce our cost of funds. Our
         strategy includes originating and purchasing quality assets with
         higher risk-adjusted yields and selling assets with lower
         risk-adjusted yields or repricing characteristics that do not meet our
         objectives for interest rate risk. We also seek to improve earnings
         through controlling noninterest expense, enhancing noninterest income
         and utilizing improved information systems to facilitate our analysis
         of the profitability of our business platforms. We also utilize
         interest rate derivative financial instruments to hedge mismatches in
         the rate and maturity of our assets and their funding sources and to
         reduce interest rate risk on anticipated transactions. Finally, we
         perform internal analyses to measure, evaluate and monitor
         risk.





Interest Rate Risk





A key objective of asset and
         liability management is to manage interest rate risk associated with
         changing asset and liability cash flows and market interest rate
         movements. Interest rate risk occurs when interest rate sensitive
         assets and liabilities do not reprice simultaneously and in equal
         volumes. Our Asset and Liability Committee provides oversight to our
         interest rate risk management process and recommends policy guidelines
         regarding exposure to interest rates for approval by our Board of
         Directors. Adherence to these policies is monitored on an ongoing
         basis, and decisions related to the management of interest rate
         exposure are made when appropriate in accordance with our
         policies.





Financial institutions are subject
         to interest rate risk to the degree that interest-bearing liabilities
         reprice or mature on a different basis and at different times than
         interest-earning assets. Our strategy has been to reduce the
         sensitivity of our earnings to interest rate fluctuations by more
         closely matching the effective maturities or repricing characteristics
         of our assets and liabilities. Certain assets and liabilities,
         however, may react in different degrees to changes in market interest
         rates. Further, interest rates on certain types of assets and
         liabilities may fluctuate prior to changes in market interest rates,
         while rates on other types may lag behind. Additionally, certain
         assets, such as adjustable rate mortgages, have features, including
         payment and rate caps, which restrict changes in their interest rates.
         We consider the anticipated effects of these factors when implementing
         our interest rate risk management objectives.





We pursue both on- and off-balance
         sheet strategies that should, in the long run, mitigate our exposure
         to fluctuations in interest rates. Our interest rate risk should
         continue to be reduced in the future as we continue to transition to
         less interest rate sensitive consumer and commercial assets and as we
         continue to grow transaction accounts.





Interest Rate Exchange
         Agreements (Swaps)





We use interest rate exchange
         agreements, or swaps, to hedge mismatches in the rate and maturity of
         certain of our assets and their funding sources. Interest rate swaps
         involve the exchange of fixed-rate and floating-rate interest payment
         obligations without the exchange of the underlying notional amounts.
         We were a party to interest rate swaps with notional principal amounts
         of $256.5 million at December 31, 1999 and $365.5 million at December
         31, 1998 which involve the receipt of floating interest rates (based
         on three-month LIBOR) and payment of fixed interest rates on the
         underlying notional amounts.





Treasury Futures
         Contracts





We periodically securitize and
         sell fixed- and variable-rate loans and leases. To mitigate the risk
         of the effects of interest rate fluctuations on the value of our
         fixed-rate loans held-for-sale, we will in certain cases hedge our
         interest rate risk related to loans held-for-sale by entering into
         United States Treasury futures contracts. At December 31, 1999, we had
         open positions with a notional amount of $32.5 million related to the
         United States Treasury futures contracts used to hedge fixed-rate
         franchise loans held-for-sale.





Forward Sales of Mortgage-Backed
         Securities





In the past, we have utilized
         forward sales contracts of mortgage-backed securities to hedge
         portfolios of mortgage loans because of their historical effectiveness
         as a hedge. In connection with the market and interest rate volatility
         experienced during the third quarter of 1998, the correlation between
         our outstanding forward sale contracts and the underlying portfolio of
         loans was disrupted, triggering the settlement of the forward sale
         contracts and resulting in a $940,000 recognized loss for the year
         ended December 31, 1998. There were no forward sale contracts in
         effect at December 31, 1998 or December 31, 1999.





Treasury Rate Lock
         Agreements





During 1997, we entered into $105
         million in Treasury rate lock agreements to hedge the anticipated
         issuance of $100 million in Subordinated Notes. These agreements
         guaranteed a stated rate of interest for a stated period of time and
         we paid the difference between the lock rate and the effective
         Treasury rate on the settlement date. In conjunction with the Treasury
         rate lock agreements, approximately $307,000 was deferred and is being
         recognized as an adjustment to interest expense over the ten year life
         of the Subordinated Notes.





Interest rate risk is the most
         significant market risk impacting us; however, other types of market
         risk also affect us in the normal course of our business activities.
         The impact on us resulting from other market risks is deemed
         immaterial and no separate quantitative information related to such
         market risks is necessary. We do not maintain a portfolio of trading
         securities and do not intend to engage in such activities in the
         foreseeable future.





Interest Rate Sensitivity





Our monitoring activities related
         to managing interest rate risk include both interest rate sensitivity
         gap analysis and the use of a simulation model. While
         traditional gap analysis provides a simple picture of the interest
         rate risk embedded in the balance sheet, it provides only a static
         view of interest rate sensitivity at a specific point in time and does
         not measure the potential volatility in forecasted results relating to
         changes in market interest rates over time. Accordingly, we combine
         the use of gap analysis with the use of a simulation model which
         provides a dynamic assessment of interest rate
         sensitivity.





The interest rate sensitivity gap
         is defined as the difference between the amount of interest-earning
         assets anticipated to reprice within a specific time period and the
         amount of interest-bearing liabilities anticipated to reprice within
         that same time period. A gap is considered positive when the amount of
         interest rate sensitive assets repricing within a specific time period
         exceeds the amount of interest-bearing liabilities repricing within
         that same time period. Positive cumulative gaps suggest that earnings
         will increase when interest rates rise. Negative cumulative gaps
         suggest that earnings will increase when interest rates
         fall.





The following table illustrates
         our combined asset and liability repricing as of December 31,
         1999:





|                                                                                                  |  | Repricing
           Period
|------------------------------------------------------------------------------------------------- |  | ---------------------------
|
|
|
|Cash and
           investments                                                                   |  | $  
             287,597   
|Mortgage-backed securities and loans and
         
              leases(1)                        |  | 2,607,017                  
|                                                                                                  |  |                            
|Total
           interest rate sensitive assets                                                   |  | $2,894,614                 
|                                                                                                  |  |                            
|
|Deposits:                                                                                        
|Transaction
           accounts                                                                   |  | $1,030,686                 
|Certificates of
           deposit                                                                |  | 1,427,493                  
|Brokered
           certificates of deposit                                                       |  | 389,530                    
|Borrowings(2)                                                                                     |  | 1,157,590                  
|                                                                                                  |  |                            
|Total
           interest rate sensitive liabilities                                              |  | $4,005,299                 
|                                                                                                  |  |                            
|Repricing
           gap-positive (negative) before
         
              impact of derivatives |  | $(1,110,685                
|                                                                                                  |  |                            
|Impact of
           derivatives                                                                  |  | 124,000                    
|                                                                                                  |  |                            
|                                                                                                  |  | (986,685                   
|                                                                                                  |  |                            
|Cumulative
           repricing gap-positive
         
              (negative)                   |  | $ 
            (986,685    
|                                                                                                  |  |                            




|(1) | Based on
           assumed annual prepayment and amortization rates which approximate
           our historical experience.
|--- | ----------------------------------------------------------------------------------------------------------------------------




|(2) | Includes
           Capital Securities.
|--- | ---------------------------------------




The simulation model discussed
         above also provides the Asset and Liability Committee with the ability
         to simulate our net interest income. In order to measure, at December
         31, 1999, the sensitivity of our forecasted net interest income to
         changing interest rates, both a rising and falling interest rate
         scenario were projected and compared to a base market interest rate
         forecast derived from the current treasury yield curve. For the rising
         and falling interest rate scenarios, the base market interest rate
         forecast was increased or decreased, on an instantaneous and sustained
         basis, by 100 and 200 basis points. At December 31, 1999, our net
         interest income exposure related to these hypothetical changes in
         market interest rates was within our policy guidelines as illustrated
         in the following table:





|                                                                                                                                                                                                                                                                      |  | Increase/(Decrease) in Net Interest Income |    | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------ | -- | 
|
|Projected
           effect:                                                                                                                                                                                                                                          |  |                                            |    | 
|NII without
           derivatives                                                                                                                                                                                                                                    |  | $212,040                                   |    | 
|NII with
           derivatives                                                                                                                                                                                                                                       |  | $207,099                                   |    | 
|Impact of
           derivatives                                                                                                                                                                                                                                      |  | $ 
            (4,941                      | )  | 
|% Increase
           (decrease) from base NII, with
         
                    
               derivatives                                                                                                                                                        |  | 7.75                                       | %  | 
|Policy
           guideline                                                                                                                                                                                                                                           |  | (15.00                                     | )% | 
|                                                                                                                                                                                                                                                                      | 
|One application of our
            simulation model measures the impact of market interest rate
            changes on the net present value of estimated cash flows from our
            assets, liabilities and off-balance sheet items, defined as
            our

market value
           of equity. This analysis assesses the changes in market values of
           interest rate sensitive financial instruments that would occur in
           response to an instantaneous and sustained increase or decrease in
           market interest rates of 100 and 200 basis points. At December 31,
           1999, our market value of equity exposure related to these changes
           in market interest rates was within our policy guidelines as
           illustrated in the following table:





|                                                                                                                            |  | Changes
             in Market Value of Equity
|--------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|
|Projected
             effect:                                                                                              |  |                                               
|MVE without
             derivatives                                                                                        |  | $808,068                                      
|MVE with
             derivatives                                                                                           |  | $795,216                                      
|Impact of
             derivatives                                                                                          |  | $(12,852                                      
|Change in MVE with
             derivatives as a percentage of
           
                      
                 base MVE |  | 19.81                                         
|Policy
             guideline                                                                                               |  | (15.00                                        




The computation of prospective
           effects of hypothetical interest rate changes are based on numerous
           assumptions, including relative levels of market interest rates,
           asset prepayments and deposit decay, and should not be relied upon
           as indicative of actual results. Further, the computations do not
           contemplate any actions we may undertake in response to changes in
           interest rates. Actual amounts may differ from those projections set
           forth above should market conditions vary from the underlying
           assumptions used.





Item 8.    Financial Statements and Supplementary
           Data





BAY VIEW
           CAPITAL CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF FINANCIAL
           CONDITION





|                                                                                                                                                                                                                                            |  | At
             December 31,
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------
|
|
|ASSETS                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                            |  |                             
|Cash and
             cash equivalents:                                                                                                                                                                                                    
|Cash and due from
             depository institutions                                                                                                                                                                                      |  | $ 
                155,600  
|Short-term
             investments                                                                                                                                                                                                         |  | 188,305                     
|                                                                                                                                                                                                                                            |  |                             
|                                                                                                                                                                                                                                            |  | 343,905                     
|Securities
             available-for-sale:                                                                                                                                                                                                
|Investment
             securities                                                                                                                                                                                                          |  | 49,063                      
|Mortgage-backed
             securities                                                                                                                                                                                                     |  | 10,479                      
|Securities
             held-to-maturity:                                                                                                                                                                                                  
|Investment
             securities                                                                                                                                                                                                          |  | 9,997                       
|Mortgage-backed
             securities                                                                                                                                                                                                     |  | 644,234                     
|Loans and
             leases held-for-sale                                                                                                                                                                                                 |  | 66,247                      
|Loans and
             leases held-for-investment, net                                                                                                                                                                                      |  | 4,295,246                   
|Investment
             in operating leased assets, net                                                                                                                                                                                     |  | 463,088                     
|Investment
             in stock of the Federal Home Loan Bank of San Francisco                                                                                                                                                             |  | 77,835                      
|Investment
             in stock of the Federal Reserve Bank                                                                                                                                                                                |  | 13,476                      
|Real estate
             owned, net                                                                                                                                                                                                         |  | 2,467                       
|Premises
             and equipment, net                                                                                                                                                                                                    |  | 27,216                      
|Intangible
             assets                                                                                                                                                                                                              |  | 329,005                     
|Other
             assets                                                                                                                                                                                                                   |  | 166,442                     
|                                                                                                                                                                                                                                            |  |                             
|Total assets                                                                                                                                                                                                                                |  | $6,498,700                  
|                                                                                                                                                                                                                                            |  |                             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                       
|                                                                                                                                                                                                                                            |  |                             
|Deposits:                                                                                                                                                                                                                                  
|Transaction
             accounts                                                                                                                                                                                                           |  | $1,703,123                  
|Certificates of
             deposit                                                                                                                                                                                                        |  | 2,026,657                   
|                                                                                                                                                                                                                                            |  |                             
|                                                                                                                                                                                                                                            |  | 3,729,780                   
|Advances
             from the Federal Home Loan Bank of San Francisco                                                                                                                                                                      |  | 1,367,300                   
|Short-term
             borrowings                                                                                                                                                                                                          |  | 415,421                     
|Subordinated Notes, net                                                                                                                                                                                                                     |  | 149,502                     
|Senior
             Debentures                                                                                                                                                                                                              |  |                            
|Other
             borrowings                                                                                                                                                                                                               |  | 3,294                       
|Other
             liabilities                                                                                                                                                                                                              |  | 112,209                     
|                                                                                                                                                                                                                                            |  |                             
|Total liabilities                                                                                                                                                                                                                           |  | 5,777,506                   
|                                                                                                                                                                                                                                            |  |                             
|Guaranteed Preferred
             Beneficial Interest in our Junior Subordinated Debentures (
             Capital Securities)                                                                                                            |  | 90,000                      
|                                                                                                                                                                                                                                            | 
|Stockholders equity:                                                                                                                                                                                                                      
|Serial preferred
              stock; authorized, 7,000,000 shares; outstanding, none                                                                                                                                                       |  |                            
|Common stock
              ($.01 par value); authorized, 60,000,000 shares; issued, 1999
              32,629,056 shares; 199820,376,251 shares;
              outstanding, 199932,562,942 shares; 1998 19,113,637
              shares |  | 326                         
|Additional
              paid-in capital                                                                                                                                                                                                    |  | 455,964                     
|Retained earnings
              (substantially restricted)                                                                                                                                                                                  |  | 179,100                     
|Treasury stock,
              at cost, 199966,114 shares; 19981,262,614
              shares                                                                                                                                              |  | (1,094                      
|Accumulated other
              comprehensive income:                                                                                                                                                                                      
|Unrealized loss on securities
              available-for-sale, net of tax                                                                                                                                                                  |  | (293                        
|Debt of Employee
              Stock Ownership Plan                                                                                                                                                                                         |  | (2,809                      
|                                                                                                                                                                                                                                            |  |                             
|Total stockholders
              equity                                                                                                                                                                                                    |  | 631,194                     
|                                                                                                                                                                                                                                            |  |                             
|Total liabilities and
              stockholders equity                                                                                                                                                                                    |  | $6,498,700                  
|                                                                                                                                                                                                                                            |  |                             




The
            accompanying notes are an integral part of these consolidated
            financial statements.





BAY VIEW
            CAPITAL CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
            INCOME





|                                                                                                                                                                                                                                                             |  | For the
              Year Ended
            
            December 31,
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------
|
|
|Interest
              income:                                                                                                                                                                                                                               |  |                                                                       
|Interest on loans and
              leases                                                                                                                                                                                                                   |  | $369,841                                                              
|Interest on
              mortgage-backed securities                                                                                                                                                                                                         |  | 37,376                                                                
|Interest and dividends
              on investment securities                                                                                                                                                                                                |  | 14,439                                                                
|                                                                                                                                                                                                                                                             |  |                                                                       
|                                                                                                                                                                                                                                                             |  | 421,656                                                               
|Interest
              expense:                                                                                                                                                                                                                             
|Interest on
              deposits                                                                                                                                                                                                                           |  | 142,427                                                               
|Interest on
              borrowings                                                                                                                                                                                                                         |  | 95,345                                                                
|Interest on Senior
              Debentures and Notes                                                                                                                                                                                                        |  | 13,400                                                                
|                                                                                                                                                                                                                                                             |  |                                                                       
|                                                                                                                                                                                                                                                             |  | 251,172                                                               
|Net
              interest income                                                                                                                                                                                                                            |  | 170,484                                                               
|Provision
              for losses on loans and leases                                                                                                                                                                                                       |  | 28,311                                                                
|                                                                                                                                                                                                                                                             |  |                                                                       
|Net
              interest income after provision for losses on loans and
              leases                                                                                                                                                               |  | 142,173                                                               
|Noninterest income:                                                                                                                                                                                                                                          |  |                                                                       
|Leasing
              income                                                                                                                                                                                                                                 |  | 58,558                                                                
|Loan fees and
              charges                                                                                                                                                                                                                          |  | 8,833                                                                 
|Account fees                                                                                                                                                                                                                                                 |  | 7,007                                                                 
|Sales
              commissions                                                                                                                                                                                                                              |  | 4,801                                                                 
|Gain on sale of loans
              and leases and securities, net                                                                                                                                                                                           |  | 10,058                                                                
|Other, net                                                                                                                                                                                                                                                   |  | 2,275                                                                 
|                                                                                                                                                                                                                                                             |  |                                                                       
|                                                                                                                                                                                                                                                             |  | 91,532                                                                
|Noninterest expense:                                                                                                                                                                                                                                         |  |                                                                       
|General and
              administrative:                                                                                                                                                                                                                    |  |                                                                       
|Compensation and employee
              benefits                                                                                                                                                                                                             |  | 64,064                                                                
|Occupancy and equipment                                                                                                                                                                                                                                      |  | 22,531                                                                
|Professional services                                                                                                                                                                                                                                        |  | 5,959                                                                 
|Marketing                                                                                                                                                                                                                                                    |  | 3,854                                                                 
|Data processing                                                                                                                                                                                                                                              |  | 3,438                                                                 
|Deposit insurance premiums and regulatory
              fees                                                                                                                                                                                                 |  | 2,740                                                                 
|Other, net                                                                                                                                                                                                                                                   |  | 14,530                                                                
|                                                                                                                                                                                                                                                             |  |                                                                       
|                                                                                                                                                                                                                                                             |  | 117,116                                                               
|Leasing
              expense                                                                                                                                                                                                                                |  | 40,188                                                                
|Dividend
              expense on Capital Securities                                                                                                                                                                                                         |  | 8,935                                                                 
|Income
              from real estate owned operations, net                                                                                                                                                                                                  |  | (274                                                                  
|Net losses
              (recoveries) on real estate                                                                                                                                                                                                         |  | 36                                                                    
|Amortization of intangible assets                                                                                                                                                                                                                            |  | 13,687                                                                
|                                                                                                                                                                                                                                                             |  |                                                                       
|                                                                                                                                                                                                                                                             |  | 179,688                                                               
|Income
              before income tax expense                                                                                                                                                                                                               |  | 54,017                                                                
|Income tax
              expense                                                                                                                                                                                                                             |  | 25,053                                                                
|                                                                                                                                                                                                                                                             |  |                                                                       
|Net
              income                                                                                                                                                                                                                                     |  | $ 
               28,964                                              
|                                                                                                                                                                                                                                                             |  |                                                                       
|Basic
              earnings per share                                                                                                                                                                                                                       |  | $ 
                   1.37                                            
|                                                                                                                                                                                                                                                             |  |                                                                       
|Diluted
              earnings per share                                                                                                                                                                                                                     |  | $ 
                   1.36                                            
|                                                                                                                                                                                                                                                             |  |                                                                       
|Weighted-average basic shares outstanding                                                                                                                                                                                                                    |  | 21,169                                                                
|                                                                                                                                                                                                                                                             |  |                                                                       
|Weighted-average diluted shares outstanding                                                                                                                                                                                                                  |  | 21,315                                                                
|                                                                                                                                                                                                                                                             |  |                                                                       
|Net
              income                                                                                                                                                                                                                                     |  | $ 
               28,964                                              
|Other
              comprehensive income, net of tax:                                                                                                                                                                                                        |  |                                                                       
|Change in unrealized
              (loss) gain on securities available-for-sale, net of tax
              (benefit) expense of
            
                       
               ($64), ($92) and $464 for 1999, 1998 and 1997,
              respectively |  | (91                                                                   
|                                                                                                                                                                                                                                                             |  |                                                                       
|Comprehensive income                                                                                                                                                                                                                                         |  | $ 
               28,873                                              
|                                                                                                                                                                                                                                                             |  |                                                                       




The
            accompanying notes are an integral part of these consolidated
            financial statements.





BAY VIEW
            CAPITAL CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF STOCKHOLDERS
            EQUITY





|                                                                           |  | Number
            
            of
            
            Shares
            
            Issued |  | Common
            
            Stock |  | Additional
            
            Paid-in
            
            Capital |  | Retained
            
            Earnings(1) |   | Treasury
            
            Stock |                          | Unrealized Gain
            
            (Loss) on Securities
            
            Available-for-Sale,
            
            Net of Tax |  | Debt of
            
            Employee
            
            Stock
            
            Ownership
            
            Plan |   | Total
            
            Stockholders
            
            Equity
|-------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | ------------------------------------- |  | ---------------------------------------------------------------------------- |  | --------------------------------------------- | - | --------------------------------------- | ------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------- | - | ----------------------------------------------------------------------------
|
|Balance at
              December 31, 1996                                 |  | 15,005                                                                                             |  | $150                                  |  | $100,436                                                                     |  | $131,324                                      |   |                                         | $(26,497                 | )                                                                                                                                              |  | $(713                                                                                                                                     | ) |                                                                             
|Repurchase
              of common stock                                   |  |                                                                                                   |  |                                      |  |                                                                             |  |                                              |   |                                         | (39,855                  | )                                                                                                                                              |  |                                                                                                                                          |   |                                                                             
|Exercise
              of stock options, including tax benefits            |  | 121                                                                                                |  | 1                                     |  | 2,616                                                                        |  |                                              |   |                                         |                         |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|Cash
              dividends declared ($0.34 per share)                    |  |                                                                                                   |  |                                      |  |                                                                             |  | (4,280                                        | ) |                                         |                         |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|Unrealized
              gain on securities available-for-sale, net of tax |  |                                                                                                   |  |                                      |  |                                                                             |  |                                              |   |                                         |                         |                                                                                                                                                |  | 641                                                                                                                                       |   |                                                                             
|Repayment
              of debt                                            |  |                                                                                                   |  |                                      |  |                                                                             |  |                                              |   |                                         |                         |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|Net
              income                                                   |  |                                                                                                   |  |                                      |  |                                                                             |  | 14,021                                        |   |                                         |                         |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|                                                                           |  |                                                                                                    |  |                                       |  |                                                                              |  |                                               |   |                                         |                          |                                                                                                                                                |  |                                                                                                                                           |   |                                                                             
|Balance at
              December 31, 1997                                 |  | 15,126                                                                                             |  | 151                                   |  | 103,052                                                                      |  | 141,065                                       |   |                                         | (66,352                  | )                                                                                                                                              |  | (72                                                                                                                                       | ) |                                                                             
|Issuance
              of common stock (AFEH acquisition):                 |  |                                                                                                    |  |                                       |  |                                                                              |  |                                               |   |                                         |                          |                                                                                                                                                |  |                                                                                                                                           |   |                                                                             
|From shares held
              in treasury                                 |  |                                                                                                   |  |                                      |  |                                                                             |  |                                              |   |                                         | 65,258                   |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|From authorized
              but unissued shares                          |  | 5,087                                                                                              |  | 51                                    |  | 144,691                                                                      |  |                                              |   |                                         |                         |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|Repurchase
              of common stock                                   |  |                                                                                                   |  |                                      |  |                                                                             |  |                                              |   |                                         | (24,063                  | )                                                                                                                                              |  |                                                                                                                                          |   |                                                                             
|Exercise
              of stock options, including tax benefits            |  | 163                                                                                                |  | 2                                     |  | 3,267                                                                        |  |                                              |   |                                         |                         |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|Cash
              dividends declared ($0.40 per share)                    |  |                                                                                                   |  |                                      |  |                                                                             |  | (8,069                                        | ) |                                         |                         |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|Unrealized
              loss on securities available-for-sale, net of tax |  |                                                                                                   |  |                                      |  |                                                                             |  |                                              |   |                                         |                         |                                                                                                                                                |  | (130                                                                                                                                      | ) |                                                                             
|Repayment
              of debt                                            |  |                                                                                                   |  |                                      |  |                                                                             |  |                                              |   |                                         |                         |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|Net
              income                                                   |  |                                                                                                   |  |                                      |  |                                                                             |  | 22,719                                        |   |                                         |                         |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|                                                                           |  |                                                                                                    |  |                                       |  |                                                                              |  |                                               |   |                                         |                          |                                                                                                                                                |  |                                                                                                                                           |   |                                                                             
|Balance at
              December 31, 1998                                 |  | 20,376                                                                                             |  | 204                                   |  | 251,010                                                                      |  | 155,715                                       |   |                                         | (25,157                  | )                                                                                                                                              |  | (202                                                                                                                                      | ) |                                                                             
|Issuance
              of common stock (FMAC acquisition):                 |  |                                                                                                    |  |                                       |  |                                                                              |  |                                               |   |                                         |                          |                                                                                                                                                |  |                                                                                                                                           |   |                                                                             
|From shares held
              in treasury                                 |  |                                                                                                   |  |                                      |  |                                                                             |  |                                              |   |                                         | 32,444                   |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|From authorized
              but unissued shares                          |  | 12,212                                                                                             |  | 122                                   |  | 204,456                                                                      |  |                                              |   |                                         |                         |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|Repurchase
              of common stock                                   |  |                                                                                                   |  |                                      |  |                                                                             |  |                                              |   |                                         | (8,381                   | )                                                                                                                                              |  |                                                                                                                                          |   |                                                                             
|Exercise
              of stock options, including tax benefits            |  | 41                                                                                                 |  |                                      |  | 498                                                                          |  |                                               |   |                                         |                         |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|Cash
              dividends declared ($0.30 per share)                    |  |                                                                                                   |  |                                      |  |                                                                             |  | (5,579                                        | ) |                                         |                         |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|Unrealized
              loss on securities available-for-sale, net of tax |  |                                                                                                   |  |                                      |  |                                                                             |  |                                              |   |                                         |                         |                                                                                                                                                |  | (91                                                                                                                                       | ) |                                                                             
|Repayment
              of debt                                            |  |                                                                                                   |  |                                      |  |                                                                             |  |                                              |   |                                         |                         |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|Net
              income                                                   |  |                                                                                                   |  |                                      |  |                                                                             |  | 28,964                                        |   |                                         |                         |                                                                                                                                                |  |                                                                                                                                          |   |                                                                             
|                                                                           |  |                                                                                                    |  |                                       |  |                                                                              |  |                                               |   |                                         |                          |                                                                                                                                                |  |                                                                                                                                           |   |                                                                             
|Balance at
              December 31, 1999                                 |  | 32,629                                                                                             |  | $326                                  |  | $455,964                                                                     |  | $179,100                                      |   |                                         | $ 
               (1,094 | )                                                                                                                                              |  | $(293                                                                                                                                     | ) |                                                                             
|                                                                           |  |                                                                                                    |  |                                       |  |                                                                              |  |                                               |   |                                         |                          |                                                                                                                                                |  |                                                                                                                                           |   |                                                                             




(1)
            Substantially restricted.





The
            accompanying notes are an integral part of these consolidated
            financial statements.





BAY VIEW
            CAPITAL CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS





|                                                                                                                                                     |  | For the
              Year Ended December 31,
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------
|
|
|                                                                                                                                                    
|CASH FLOWS
              FROM OPERATING ACTIVITIES                                                                                                   |  |                                              
|Net
              income                                                                                                                             |  | $ 
                   28,964                 
|Adjustments to reconcile net income to net cash provided
              by operating
            
                 activities:                        |  |                                              
|Amortization of intangible assets                                                                                                                    |  | 13,687                                       
|Proceeds
              from securitizations and/or sales of loans and leases
              held-for-sale                                             |  | 937,457                                      
|Provision
              for losses on loans and leases and real estate owned                                                                         |  | 28,347                                       
|Depreciation and amortization of premises and
              equipment                                                                                |  | 7,860                                        
|Depreciation and amortization of investment in operating
              leased
            
                       
                  assets          |  | 35,590                                       
|Amortization of premiums, net of discount
              accretion                                                                                    |  | 24,072                                       
|Gain on
              sale of loans and leases and securities, net                                                                                   |  | (10,058                                      
|Decrease
              (increase) in other assets                                                                                                    |  | 36,415                                       
|Increase
              (decrease) in other liabilities                                                                                               |  | 9,074                                        
|Other,
              net                                                                                                                             |  | (2,526                                       
|                                                                                                                                                     |  |                                              
|Net cash
              provided by operating activities                                                                                              |  | 1,108,882                                    
|                                                                                                                                                     |  |                                              
|CASH FLOWS
              FROM INVESTING ACTIVITIES                                                                                                   |  |                                              
|Acquisition of subsidiaries, net of cash and cash
              equivalents (paid)
            
                 received                            |  | (15,453                                      
|Acquisition of deposits, net of premium paid                                                                                                         |  | 110,807                                      
|Net
              (increase) decrease in loans and leases resulting from
              originations,
            
                 net of repayments |  | (152,297                                     
|Purchases
              of loans and leases, net                                                                                                     |  | (1,136,658                                   
|Purchases
              of mortgage-backed securities                                                                                                |  | (172,304                                     
|Purchases
              of investment securities                                                                                                     |  | (20,035                                      
|Principal
              payments on mortgage-backed securities                                                                                       |  | 149,494                                      
|Proceeds
              from sale of mortgage-backed securities
              available-for-sale                                                      |  |                                             
|Proceeds
              from sale of investment securities available-for-sale                                                                         |  |                                             
|Proceeds
              from maturities/calls of investment securities available-for-
            
            sale                                   |  |                                             
|Proceeds
              from maturities/calls of investment securities held-to-
            
            maturity                                     |  |                                             
|Proceeds
              from sale of real estate owned                                                                                                |  | 4,127                                        
|Additions
              to premises and equipment                                                                                                    |  | (3,922                                       
|Decrease
              (increase) in investment in stock of the Federal Home Loan
            
                 Bank of San Francisco                |  | 13,043                                       
|Increase
              in investment in stock of the Federal Reserve Bank                                                                            |  | (13,476                                      
|                                                                                                                                                     |  |                                              
|Net cash
              used in investing activities                                                                                                  |  | (1,236,674                                   
|                                                                                                                                                     |  |                                              




BAY VIEW
            CAPITAL CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS
            (Continued)





|                                                                                                                                         |  | For the
              Year Ended December 31,
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------
|
|
|CASH FLOWS
              FROM FINANCING ACTIVITIES                                                                                      
|Net
              increase (decrease) in deposits                                                                                        |  | 343,182                                      
|Proceeds
              from advances from the Federal Home Loan Bank of
            
                 San Francisco                      |  | 3,725,100                                    
|Repayment
              of advances from the Federal Home Loan Bank of
            
                 San Francisco                       |  | (4,011,100                                   
|Proceeds
              from reverse repurchase agreements                                                                                |  | 268,461                                      
|Repayment
              of reverse repurchase agreements                                                                                 |  | (275,880                                     
|Issuance
              of Subordinated Notes, net of discount                                                                            |  | 50,000                                       
|Repayment
              of Senior Debentures                                                                                             |  | (50,000                                      
|Net
              increase in warehouse lines outstanding                                                                                |  | 234,129                                      
|Net
              decrease in other borrowings                                                                                           |  | (1,783                                       
|Issuance
              of Capital Securities                                                                                             |  |                                             
|Repurchase
              of common stock                                                                                                 |  | (8,381                                       
|Proceeds
              from issuance of common stock                                                                                     |  | 498                                          
|Dividends
              paid to stockholders                                                                                             |  | (7,715                                       
|                                                                                                                                         |  |                                              
|Net cash
              provided by (used in) financing activities                                                                        |  | 266,511                                      
|                                                                                                                                         |  |                                              
|Net
              increase (decrease) in cash and cash equivalents                                                                       |  | 138,719                                      
|Cash and
              cash equivalents at beginning of year                                                                             |  | 205,186                                      
|                                                                                                                                         |  |                                              
|Cash and
              cash equivalents at end of year                                                                                   |  | $ 
                343,905                   
|                                                                                                                                         |  |                                              
|Cash paid
              during the year for:                                                                                            
|Interest                                                                                                                                 |  | $ 
                255,814                   
|Income
              taxes                                                                                                               |  | $ 
                                         
|Supplemental non-cash investing and financing
              activities:                                                                 
|Loans
              transferred to real estate owned                                                                                     |  | $ 
                    3,319                 
|Loans
              transferred from held-for-investment to held-for-sale                                                                |  | $ 
                915,146                   
|Loans
              originated to sell real estate owned                                                                                 |  | $ 
                                         
|The
              acquisitions of subsidiaries involved the following:                                                                   |  |                                              
|Common
              stock issued                                                                                                        |  | $ 
                237,022                   
|Liabilities
              assumed                                                                                                        |  | 238,722                                      
|Fair value
              of assets acquired, other than cash and cash
            
                       
                  equivalents |  | (291,853                                     
|Goodwill                                                                                                                                 |  | (199,344                                     
|                                                                                                                                         |  |                                              
|Net cash
              and cash equivalents (paid) received                                                                              |  | $ 
                 (15,453                  
|                                                                                                                                         |  |                                              

---




The
            accompanying notes are an integral part of these consolidated
            financial statements.





BAY VIEW
            CAPITAL CORPORATION AND SUBSIDIARIES





NOTES TO
            CONSOLIDATED FINANCIAL STATEMENTS





December
            31, 1999





Note 1.
                Summary of Significant Accounting
            Policies





Nature of Operations





Bay View Capital Corporation is
            a diversified bank holding company headquartered in San Mateo,
            California. Our principal subsidiary is Bay View Bank, N.A. Bay
            View Bank operates 57 full service branches throughout the San
            Francisco Bay Area and loan production offices throughout the
            United States. Bay View Bank offers personal and business banking
            services and deposit accounts through its branch network and
            provides multi-family and commercial real estate loans, consumer
            loans and leases and commercial lending throughout the United
            States. Bay View Securitization Corporation was formed for the
            purpose of issuing asset-backed securities through a trust. Bay
            View Capital I was formed for the purpose of issuing Capital
            Securities through a trust. FMAC Insurance Services operates as an
            insurance agency throughout the United States.





Principles of Consolidation





The accompanying consolidated
            financial statements include the accounts of Bay View Capital
            Corporation, a bank holding company incorporated under the laws of
            the state of Delaware, and our wholly owned subsidiaries: Bay View
            Bank, N.A., a national bank; Bay View Securitization Corporation, a
            Delaware corporation; Bay View Capital I, a Delaware business
            trust; and FMAC Insurance Services, a Delaware corporation. Bay
            View Bank includes its wholly owned subsidiaries: Bay View
            Acceptance Corporation, a Nevada corporation; Bay View Commercial
            Finance Group, a California corporation; Bay View Franchise
            Mortgage Acceptance Company, a California corporation; Bankers
            Mutual, a California corporation; MoneyCare, Inc., a California
            corporation; and Bay View Auxiliary Corporation, a California
            corporation. Bay View Acceptance Corporation includes its wholly
            owned subsidiary, LFS-BV, Inc., a Nevada corporation. Effective
            March 1, 1999, Bay View Capital Corporation contributed the capital
            stock of Bay View Commercial Finance Group to Bay View Bank in
            conjunction with the March 1, 1999 conversion of Bay View Bank from
            a federally chartered capital stock savings bank to a national
            bank. Bay View Commercial Finance Group was previously a wholly
            owned subsidiary of Bay View Capital Corporation. Effective June
            14, 1999, Bay View Credit and Ultra Funding, Inc., previously
            wholly owned subsidiaries of Bay View Acceptance Corporation, were
            merged into Bay View Acceptance Corporation. All significant
            intercompany accounts and transactions have been
            eliminated.





Basis of Financial Presentation and Use of
            Estimates





The preparation of financial
            statements in conformity with generally accepted accounting
            principles, sometimes referred to as GAAP, requires management to
            make estimates and assumptions that affect the reported amounts of
            assets and liabilities at the date of the financial statements, and
            the reported amounts of revenues and expenses during the reporting
            period. Actual results could differ from those estimates. A
            material estimate that is particularly susceptible to possible
            change in the near term relates to the determination of the
            allowance for losses on loans and leases. An estimate of possible
            changes or range of possible changes cannot be made.





Cash and Cash Equivalents





Cash and cash equivalents, as
            reported in the consolidated statements of financial condition and
            statements of cash flows, consist of highly liquid financial
            instruments, with maturities of 90 days or less at the time of
            purchase, that are readily convertible into cash and are so near
            their maturity that they present insignificant risk of changes in
            value.





Generally, our banking
            depositories either pay interest on deposits or apply an imputed
            interest credit to deposit balances which is used as an offset to
            charges for banking services rendered. We have no compensating
          balance arrangements or lines of credit with banks. Bay View Bank is
            required to maintain reserves against customer deposits by keeping
            balances with the Federal Reserve Bank of San Francisco in a
            noninterest-earning cash account. Cash balances for Bay View Bank
            required to be held in reserve at the Federal Reserve Bank of San
            Francisco totaled approximately $850,000 at December 31, 1999 and
            $1.1 million at December 31, 1998. The average required reserve
            balance for Bay View Bank totaled $850,000 in 1999 and $6.1 million
            in 1998.





Securities





Statement of Financial
            Accounting Standards No. 115, Accounting for Certain
            Investments in Debt and Equity Securities, establishes the
            classification of investments into three categories:
            held-to-maturity, available-for-sale and trading. Securities
            classified as held-to-maturity are recorded at amortized cost,
            adjusted for the amortization of premiums and accretion of
            discounts, because we have the ability and intent to hold these
            securities to maturity. Securities that are held to meet investment
            objectives such as interest rate risk and liquidity management, but
            which may be sold as necessary to implement management strategies,
            are classified as available-for-sale and are reported at fair
            value. Fair value for these securities is obtained principally from
            published information or quotes by registered securities brokers.
            Securities for which quotes are not readily available are valued
            based on the present value of discounted estimated future cash
            flows. Retained interests and assets-backed securities related to
            our loan and lease securitizations are classified as securities
            available-for sale. We are not aware of an active market for the
            purchase and sale of these retained interests and asset-backed
            securities at this time, and accordingly, we estimated the fair
            value of the retained interests by calculating the present value of
            the estimated expected future cash flows to be received, using a
            discount rate commensurate with the risks involved. At December 31,
            1999 and 1998, there was no impairment relating to retained
            interests or asset-backed securities. We do not have a trading
            portfolio.





Securities are identified as
            either available-for-sale or held-to-maturity at purchase and are
            accounted for accordingly. Unrealized losses on securities
            held-to-maturity are realized and charged against earnings when it
            is determined that a decline in value which is other than temporary
            has occurred. Net unrealized gains and losses on securities
            available-for-sale are excluded from earnings and reported, net of
            applicable income taxes, as a separate component of stockholders
             equity. Gains and losses on sales of securities are recorded
            in earnings at the time of sale and are determined by the
            difference between the net sale proceeds and the amortized cost of
            the security, using the specific identification method.





Discounts and premiums on
            securities are amortized into interest income using a method
            approximating the effective interest method over the estimated life
            of the security, adjusted for actual prepayments. Interest on
            securities is accrued as income only to the extent considered
            collectible.





Loans and Leases





Loans and leases that we
            originate or purchase are identified as either held-for-sale or
            held-for-investment and are recorded at cost including premiums or
            discounts, deferred fees and costs and the allowance for losses, as
            applicable. Loans and leases classified as held-for-sale primarily
            consist of fixed-rate franchise loans, where the interest rate risk
            has been hedged through the use of Treasury futures contracts, and
            other loans specifically targeted for sale. Loans and leases
            classified as held-for-sale are carried at the lower of cost or
            market on an aggregate basis for each loan and lease type. Market
            value for these loans and leases is based on prices for similar
            loans and leases in the secondary whole loan or securitization
            markets. Interest on loans and leases is accrued as income only to
            the extent considered collectible. Loans and leases classified as
            held-for-investment are carried at amortized cost and are not
            adjusted to the lower of cost or market because we have the ability
            and the intent to hold these loans and leases to maturity.
            Generally, we discontinue interest accruals on loans and leases 90
            days or more past due. Interest income on nonaccrual loans and
            leases is recognized on a cash basis when received.


BAY VIEW
            CAPITAL CORPORATION AND SUBSIDIARIES





NOTES TO
            CONSOLIDATED FINANCIAL STATEMENTS(Continued)








We charge fees for originating
            loans and leases at the time the loan or lease is granted. We
            recognize these origination fees, net of certain direct costs and
            standard costs where applicable in accordance with Statement of
            Financial Accounting Standards No. 91, Accounting for
            Nonrefundable Fees and Costs Associated with Originating or
            Acquiring Loans and Initial Direct Costs of Leases, as a
            yield adjustment over the life of the related loan or lease using
            the effective interest method or an approximate equivalent if not
            materially different. Amortization of net deferred origination fees
            is discontinued on nonperforming loans and leases. When a loan or
            lease is sold or paid off, unamortized net deferred origination
            fees are included in income at that time.





Statement of Financial
            Accounting Standards No. 114, Accounting by Creditors for
            Impairment of a Loan, as amended by Statement of Financial
            Accounting Standards No. 118, Accounting by Creditors for
            Impairment of a LoanIncome Recognition and Disclosures,
            established standards for impaired loans. A loan is impaired when,
            based on current information and events, it is probable that we are
            unable to collect all amounts due according to the contractual
            terms of the loan agreement. We consider nonperforming loans and
            troubled debt restructurings as impaired loans. Nonperforming loans
            are defined as loans 90 days or more delinquent as to principal and
            interest payments unless the principal and interest are well
            secured and in the process of collection. We also designate loans
            less than 90 days delinquent as nonperforming when the full
            collection of principal and/or interest is doubtful. Troubled debt
            restructurings are loans which have been modified based upon
            interest rate concessions and/or payment concessions. Statement No.
            114 is not applicable to large groups of homogeneous loans that are
            collectively evaluated for impairment. We consider our
            single-family residential and consumer loans, including auto and
            home equity loans, as homogeneous loans for purposes of the
            application of Statement No. 114.





Charge-offs are recorded on
            impaired loans for the difference between the valuation of the loan
            and the recorded investment, net of any specific reserves. In
            determining charge-offs for specific loans, management evaluates
            the creditworthiness and financial status of the borrower and also
            analyzes cash flows and current property appraisals. Statement No.
            114 requires that impaired loans be measured based upon the present
            value of expected future cash flows discounted at the loans
            effective interest rate or, as a practical expedient, at the loan
            s observable market price or the fair value of the collateral
            if the loan is collateral dependent. Our impaired real estate-based
            loans are generally measured based on the fair value of the
            collateral because they are collateral dependent.





Statement No. 118 allows a
            creditor to use existing methods for recognizing interest income on
            an impaired loan. We recognize interest income on impaired loans on
            a cash basis when received.





Allowance for Losses on Loans and
            Leases





The allowance for losses on
            loans and leases is established through a provision charged to
            expense and is maintained at a level that we believe is sufficient
            to cover estimated probable losses in the portfolio. In determining
            the level of the allowance for losses on loans and leases, we
            adhere to an internal asset review system and an established loss
            reserve methodology. This methodology provides for three reserve
            components. The first component represents reserves for loans and
            leases that have been individually evaluated and identified as
            having probable losses. The second component represents reserves
            for groups of loans and leases that are collectively evaluated for
            impairment. We determine reserves for these groups of loans and
            leases based on factors such as prevailing economic conditions,
            historical loss experience, asset concentrations, levels and trends
            of classified assets, and loan and lease delinquencies. The last
            component is unallocated reserves, representing reserves based on
            factors that are not necessarily associated with a specific credit,
            group of loans or leases or loan or lease category. These factors
            include an evaluation of economic conditions in areas where we lend
            money, loan and lease concentrations, lending policies or
            underwriting procedures, and trends in delinquencies and
            nonperforming assets. The unallocated reserve reflects our efforts
            to ensure that the overall allowance appropriately reflects the
            probable losses inherent in the loan and lease
            portfolio.


BAY VIEW
            CAPITAL CORPORATION AND SUBSIDIARIES





NOTES TO
            CONSOLIDATED FINANCIAL STATEMENTS(Continued)








While we use currently
            available information to provide for losses on loans and leases,
            additions to the allowance for losses on loans and leases may be
            necessary based on new information and/or future economic
            conditions.





Loan Sales and Servicing





Statement of Financial
            Accounting Standards No. 125, Accounting for Transfers and
            Servicing of Financial Assets and Extinguishments of Liabilities,
             establishes standards under which, after a transfer of
            financial assets, an entity recognizes the financial and servicing
            assets it still controls and the liabilities it has incurred,
            derecognizes financial assets when control has been surrendered,
            and derecognizes liabilities when extinguished. Under Statement No.
            125, we record a servicing asset for the present value of the
            retained interest in a transferred asset representing servicing
            fees net of related costs. Any retained interest in excess of such
            servicing fees is recorded on a net present value basis and is
            classified as an available-for-sale security and stated at fair
            value. At December 31, 1999 and 1998, there was no impairment
            relating to servicing assets. Amortization of servicing assets and
            any related impairments are included in noninterest income and
            noninterest expense as the associated servicing revenue is received
            and expenses are incurred. Gains or losses on the securitizations
            and/or sales of loans and leases are recorded in earnings at the
            time of the transaction.





Investment in Operating Leased
            Assets





We purchase autos subject to
            leases which are characterized as operating leases in accordance
            with Statement of Financial Accounting Standards No. 13,
            Accounting for Leases. The corresponding asset is
            recorded as a fixed asset and depreciated over the lease term to
            its estimated residual value. This depreciation and other related
            expenses, including the amortization of initial direct costs which
            are deferred and amortized over the lease term, are classified as
            noninterest expense. Lease payments received are recorded as
            noninterest income. Gross leased asset balances were $500.0 million
            at December 31, 1999 and $186.2 million at December 31, 1998.
            Accumulated depreciation and amortization related to the leased
            assets totaled $36.9 million at December 31, 1999 and $2.7 million
            at December 31, 1998. At December 31, 1999, future minimum lease
            payments to be received by us under operating leases were $83.7
            million, $81.7 million, $68.5 million, $43.0 million, $15.4
            million, and $1.3 million for the years ending December 31, 2000,
            2001, 2002, 2003, 2004, and thereafter, respectively.





We continually review and
            adjust, as necessary, the estimated residual value relating to our
            leased assets through an evaluation of factors such as prevailing
            economic conditions, historical loss experience and delinquencies.
            The estimated residual value on our leased assets was $289.9
            million at December 31, 1999 and $110.2 million at December 31,
            1998.





Real Estate Owned





Real estate owned is comprised
            of property acquired through foreclosure and is recorded at the
            lower of cost (i.e., net loan value) or fair value less estimated
            costs to sell, as of the date of foreclosure. The difference upon
            foreclosure, if any, is charged-off against the allowance for
            losses on loans and leases. Thereafter, a specific valuation
            allowance is established and charged to noninterest expense for
            adverse changes in the fair value of the property. Revenues and
            other expenses associated with real estate owned are realized and
            reported as a component of noninterest expense when
            incurred.





Premises and Equipment





Premises and equipment are
            stated at cost less accumulated depreciation and amortization.
            Depreciation and amortization are computed on the straight-line
            basis over the estimated useful lives for each of the various asset
            categories. These useful lives range from two to ten
            years.


BAY VIEW
            CAPITAL CORPORATION AND SUBSIDIARIES





NOTES TO
            CONSOLIDATED FINANCIAL STATEMENTS(Continued)








Intangible Assets





Core deposit premiums arise
            from the acquisition of deposits and are amortized on a declining
            balance basis over the estimated life of the deposit base acquired,
            generally eight to ten years. We continually evaluate the periods
            of amortization to determine whether later events and circumstances
            warrant revised estimates. In addition, the market value of core
            deposit premiums is re-evaluated on an annual basis to assess if
            any impairment exists and to determine the carrying value that may
            be included as a component of regulatory capital.





Goodwill arises from
            acquisitions and represents the excess of the total purchase price
            over the fair value of net assets acquired. Goodwill is amortized
            to expense on a straight-line basis over periods of up to 20 years.
            On a periodic basis, we review our goodwill for events or changes
            in circumstances that may indicate that the estimated undiscounted
            future cash flows from these acquisitions will be less than the
            carrying amount of the goodwill. If it becomes probable that
            impairment exists, a reduction in the carrying amount is
            recognized.





Impairment of Long-Lived Assets





Long-lived assets and certain
            identifiable intangible assets to be held and used are reviewed for
            impairment whenever events or changes in circumstances indicate
            that the carrying amount of such assets may not be recoverable.
            Determination of recoverability is based on an estimate of
            undiscounted future cash flows resulting from the use of the asset
            and its eventual disposition. Measurement of an impairment loss for
            long-lived assets and certain identifiable intangible assets that
            management expects to hold and use are based on the fair value of
            the asset. Long-lived assets and certain identifiable intangible
            assets to be disposed of are reported at the lower of carrying
            amount or fair value less costs to sell.





Securities Sold Under Agreements to
            Repurchase





We enter into sales of
            securities under agreements to repurchase (reverse repurchase
            agreements) which are considered financing activities. The
            obligations to repurchase the securities are reflected as
            liabilities, and the related underlying securities for the
            agreements, which are pledged as collateral and held by the
            counterparties, are included in our securities portfolio as
            recorded assets.





Income Taxes





We file consolidated federal
            income tax returns in which our taxable income or loss is combined
            with that of our subsidiaries. Consolidated, combined and separate
            company state tax returns are filed in certain states, as
            applicable, including California. Each subsidiarys share of
            income tax expense (benefit) is based on the amount which would be
            payable (receivable) if separate returns were filed.





Our income tax provisions are
            based upon income taxes payable for the current period as well as
            current period changes in deferred income taxes. Deferred income
            taxes are recognized for the tax consequences of temporary
            differences by applying enacted statutory income tax rates
            applicable to future years to differences between the financial
            statement carrying amounts and the tax basis of existing assets and
            liabilities. The effect on deferred income taxes for a change in
            tax rates is recognized through the provision for income taxes
            during the period of enactment.





Derivative Financial Instruments





We use interest rate derivative
            financial instruments to hedge mismatches in the rate and maturity
            of loans and leases and securities and their funding sources and to
            reduce interest rate risk on anticipated transactions, including
            loan and lease securitizations and/or sales. These instruments
            serve to reduce rather than increase our
          exposure to movements in interest rates. At the inception of the
            hedge, we identify an individual asset, liability or anticipated
            transaction or an identifiable group of essentially similar assets
            or liabilities that expose us to interest rate risk at the
            consolidated or subsidiary level. Interest rate derivatives are
            accounted for by the deferral method only if they are designated as
            a hedge and are expected to be and are effective in substantially
            reducing interest rate risk arising from the assets, liabilities or
            anticipated transactions identified as exposing us to risk. To
            qualify as an effective hedge, derivative financial instruments
            must meet specific correlation tests (i.e., the change in their
            fair values must be within 80 to 120 percent of the opposite change
            in the fair values of the hedged item or anticipated transaction).
            For interest rate exchange agreements, sometimes referred to as
            swaps, to qualify as an effective hedge, their notional amount,
            interest rate index and term must closely match the related terms
            of the hedged assets or liabilities. If a periodic assessment
            indicates that the derivative no longer provides an effective
            hedge, any previously unrecognized hedge gain or loss and any net
            settlement amount upon the close-out or termination of the
            derivative contract that offsets changes in the value of the hedged
            asset or liability is deferred and amortized to earnings over the
            life of the underlying hedged asset or liability. Further, any gain
            or loss attributable to the excess of the notional amount over the
            hedged amount is recognized in noninterest income.





Amounts payable or receivable
            for interest rate swaps are accrued with the passage of time, the
            effect of which is included in interest income or expense reported
            on the hedged asset or liability. If a hedged asset or liability is
            sold or paid off before maturity of the hedging interest rate
            derivative, the derivative is closed out or settled, and any
            previously unrecognized hedge gain or loss and any net settlement
            amount upon the close-out or termination of the interest rate
            derivative is recognized in earnings. If interest rate derivatives
            used in an effective hedge are closed out or terminated before the
            hedged item settles, any previously unrecognized hedge gain or loss
            and any net settlement amount upon the close-out or termination of
            the interest rate derivative is deferred and amortized to earnings
            over the life of the underlying hedged asset or
            liability.





When an anticipated transaction
            is a securitization and/or sale of assets, the derivatives hedging
            the anticipated transaction are closed out or settled, and any
            previously unrecognized hedge gain or loss and any net settlement
            amount upon the close-out or termination of the derivative is
            accounted for as part of the gain or loss on the securitization
            and/or sale of the underlying hedged assets. If the anticipated
            transaction does not occur, the derivatives hedging the anticipated
            transaction are closed out or settled, and are accounted for as a
            gain or loss on the hedge.





In connection with our use of
            interest rate derivatives, we are exposed to potential losses
            (credit risk) in the event of nonperformance by the counterparties
            to the agreements. We manage the credit risk associated with our
            interest rate derivatives by adhering to a strict counterparty
            selection process and by establishing maximum exposure limits with
            each individual counterparty. We do not anticipate nonperformance
            by our counterparties.





Stock-Based Compensation





Statement of Financial
            Accounting Standards No. 123, Accounting for Stock-Based
            Compensation, establishes financial accounting and reporting
            standards for stock-based compensation plans, including employee
            stock purchase plans, stock options and restricted stock. Statement
            No. 123 encourages all entities to adopt a fair value method of
            accounting for stock-based compensation plans, whereby compensation
            cost is measured at the grant date based upon the fair value of the
            award and is realized as an expense over the service or vesting
            period. However, Statement No. 123 also allows an entity to
            continue to measure compensation cost for these plans using the
            intrinsic value method of accounting prescribed by Accounting
            Principles Board Opinion No. 25, Accounting for Stock Issued
            to Employees.





We account for our stock-based
            awards to employees and directors using the intrinsic value method
            of accounting in accordance with Accounting Principles Board
            Opinion No. 25. Under the intrinsic value method,
          compensation cost is generally the excess, if any, of the quoted
            market price of the stock at the grant or other measurement date
            over the exercise price. See Note 16 for a pro forma presentation
            of our net income and earnings per share had compensation cost
            related to our stock option awards been determined under the fair
            value method.





Earnings Per Share





Statement of Financial
            Accounting Standards No. 128, Measurement of Earnings Per
            Share, establishes standards for computing and reporting
            basic earnings per share and diluted earnings per share. Basic
            earnings per share are calculated by dividing net earnings for the
            period by the weighted-average common shares outstanding for that
            period. There is no adjustment to the number of outstanding shares
            for potential dilutive instruments, such as stock options. Diluted
            earnings per share takes into account the potential dilutive impact
            of such instruments and uses the average share price for the period
            in determining the number of incremental shares to add to the
            weighted-average number of shares outstanding. All prior period
            earnings per share amounts have been restated to reflect the
            adoption of Statement No. 128.





The following table illustrates
            the calculation of basic and diluted earnings per share for the
            periods indicated:





|                                                            |  | For the
              Year Ended
            
            December 31,
|----------------------------------------------------------- |  | ----------------------------------------------------------------------
|
|
|Net
              earnings available to common stockholders |  | $28,964                                                               
|Weighted-average basic shares outstanding                   |  | 21,169                                                                
|Add:
              Dilutive potential common shares         |  | 146                                                                   
|                                                            |  |                                                                       
|Weighted-average diluted shares outstanding                 |  | 21,315                                                                
|                                                            |  |                                                                       
|Basic
              earnings per share                      |  | $ 
                 1.37                                              
|                                                            |  |                                                                       
|Diluted
              earnings per share                    |  | $ 
                 1.36                                              
|                                                            |  |                                                                       




Recent Accounting Pronouncements





In June 1998, the Financial
            Accounting Standards Board issued Statement of Financial Accounting
            Standards No. 133, Accounting for Derivative Instruments and
            Hedging Activities, which establishes accounting and
            reporting standards for derivative instruments and for hedging
            activities. It requires that an entity recognize all derivatives as
            either assets or liabilities in the statement of financial
            condition and measure those instruments at fair value. The
            accounting for changes in the fair value of derivatives depends on
            the intended use of the derivative. We currently utilize interest
            rate derivatives to hedge mismatches in the rate and maturity of
            loans, leases and securities and their funding sources and to
            reduce interest rate risk on anticipated transactions, including
            loan and lease securitizations and/or sales. To the extent these
            interest rate derivatives qualify as a cash flow hedge under
            Statement No. 133, the effective portion of the derivatives
            gain or loss would be initially reported as a component of other
            comprehensive income (outside of earnings) and subsequently
            reclassified into earnings when the forecasted transaction affected
            earnings. Statement No. 133, as amended by Statement of Financial
            Accounting Standards No. 137, will be effective for the fiscal
            quarter beginning January 1, 2001. At this time, we are in the
            process of evaluating the impact of the adoption of Statement 133,
            and have not determined the effect the standard will have on our
            consolidated financial condition, results of operations and cash
            flows.


BAY VIEW
            CAPITAL CORPORATION AND SUBSIDIARIES





NOTES TO
            CONSOLIDATED FINANCIAL STATEMENTS(Continued)








Reclassifications





In addition to the
            reclassifications discussed in Principles of Consolidation above,
            certain other reclassifications have been made to prior year
            balances in order to conform to the current year presentation. Such
            reclassifications had no effect on the results of operations or
            stockholders equity.





Note 2.
                Merger and Acquisition-Related
            Activity





Franchise Mortgage Acceptance
            Company





We completed our acquisition of
            Franchise Mortgage Acceptance Company and its wholly owned
            division, Bankers Mutual, collectively referred to as FMAC, on
            November 1, 1999. Under the terms of the definitive agreement, as
            amended, we acquired all of the common stock of FMAC for
            consideration valued at approximately $285 million. Each share of
            FMAC common stock was exchanged for, at the election of the holder,
            either $9.80 in cash or 0.5444 shares of our common stock. In
            total, cash elections were limited to 15% of the shares of FMAC
            common stock outstanding immediately prior to closing and the
            elections for our common stock were limited to 85% of the shares of
            FMAC common stock outstanding immediately prior to closing. We paid
            approximately $48 million in cash, including payments for certain
            acquisition costs, and issued 13,868,805 shares of our common
            stock, a portion of which were issued from our shares in treasury.
            Upon consummation of the merger, we contributed substantially all
            of FMACs assets and liabilities to newly formed subsidiaries
            of Bay View Bank.





The acquisition of FMAC was
            accounted for under the purchase method of accounting effective
            November 1, 1999. The amount of goodwill recorded as of the merger
            date was approximately $199 million, which is being amortized on a
            straight-line basis over 15 years. This goodwill amount represents
            the excess of the total purchase price over the estimated fair
            value of net assets acquired.





The following table illustrates
            the allocation of the purchase price:





|                                                              |  | (Dollars in
            
            thousands)
|------------------------------------------------------------- |  | -----------------------------------------------
|Cash
              paid                                       |  | $ 
               44,058                       
|Common
              stock issued                             |  | 237,022                                        
|Acquisition costs                                             |  | 4,281                                          
|                                                              |  |                                                
|Total
              purchase price                            |  | 285,361                                        
|Fair value
              of assets acquired                   |  | 324,739                                        
|Fair value
              of liabilities assumed               |  | 238,722                                        
|                                                              |  |                                                
|Net assets
              acquired                             |  | 86,017                                         
|                                                              |  |                                                
|Purchase
              price in excess of net assets acquired |  | $199,344                                       
|                                                              |  |                                                

BAY VIEW
            CAPITAL CORPORATION AND SUBSIDIARIES





NOTES TO
            CONSOLIDATED FINANCIAL STATEMENTS(Continued)








The pro forma financial
            information in the following table illustrates the combined results
            of our operations and the operations of FMAC for the years ended
            December 31, 1999 and 1998 as if the acquisition of FMAC had
            occurred as of January 1, 1998. The pro forma financial information
            is presented for informational purposes and is not necessarily
            indicative of the results of operations which would have occurred
            if we had constituted a single entity as of January 1, 1998. The
            pro forma financial information is also not necessarily indicative
            of the future results of operations of the combined company. In
            particular, our opportunity to achieve certain cost savings as a
            result of the acquisition has not been included in the pro forma
            financial information.





|                                                       |  | For the
              Year Ended
            
            December 31,
            
            (Unaudited)
|------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------
|
|
|Net
              interest income                      |  | 170,667                                                                                                    
|Provision
              for losses on loans and leases |  | (50,406                                                                                                    
|Noninterest income                                     |  | 125,748                                                                                                    
|Noninterest expense                                    |  | (250,458                                                                                                   
|Income tax
              expense                       |  | (5,252                                                                                                     
|                                                       |  |                                                                                                            
|Net (loss)
              income                        |  | $ 
               (9,701                                                                                   
|                                                       |  |                                                                                                            
|Basic
              (loss) earnings per share          |  | $ 
                 (0.28                                                                                  
|                                                       |  |                                                                                                            
|Diluted
              (loss) earnings per share        |  | $ 
                 (0.28                                                                                  
|                                                       |  |                                                                                                            




The pro forma combined net loss
            for the year ended December 31, 1999 of $9.7 million consists of
            our net income of $29.0 million and a net loss for FMAC of $25.6
            million, less pro forma adjustments of $12.9 million. The pro forma
            combined net income for the year ended December 31, 1998 of $11.9
            million consists of our net income of $22.7 million and net income
            for FMAC of $8.3 million, less pro forma adjustments of $19.1
            million. Significant pro forma adjustments include the reduction in
            net interest income from a sale of a portion of Bay View Bank
            s loan portfolio in contemplation of the acquisition, the
            interest and other costs associated with the issuance of $50
            million in Subordinated Notes by Bay View Bank to partially finance
            the acquisition, the amortization expense relating to goodwill
            generated as a result of the acquisition, and the income tax
            benefit associated with the pro forma adjustments.





Luther Burbank Savings Branches





On July 8, 1999, we announced a
            definitive agreement with Luther Burbank Savings, a savings bank
            headquartered in Santa Rosa, California, to acquire Luther Burbank
            Savings Mill Valley and Novato, California branches. These
            two branches represented approximately $117 million in deposits. In
            accordance with the agreement, we paid a 5.25% deposit premium. The
            transaction closed on September 25, 1999 and these two branches are
            now operating as Bay View Bank branches. The amount of goodwill
            recorded as of the acquisition date was approximately $6 million,
            which is being amortized on a straight-line basis over 10
            years.





America First Eureka Holdings,
            Inc.





We completed our acquisition of
            America First Eureka Holdings, Inc., sometimes referred to as AFEH,
            and its wholly owned subsidiary, EurekaBank, a federal savings
            bank, on January 2, 1998. Pursuant to the Merger Agreement, we paid
            $90 million in cash and $210 million in common stock (8,076,923
            shares of our common stock, a portion of which were issued from our
            treasury shares) to America First Financial Fund 1987-A Limited
          Partnership, the sole shareholder of AFEH, for a total purchase price
            of $300 million. The number of common shares issued was based on
            the average value of our common stock for the 20 full trading days
            ending on the fifth business day prior to the merger closing date.
            Based on the average value of our common stock during this period
            and pursuant to the Merger Agreement, the number of common shares
            issued was determined by dividing $210 million by $26.00 per
            share.





The acquisition of AFEH was
            accounted for under the purchase method of accounting effective
            January 2, 1998. The amount of goodwill recorded as of the merger
            date was $104 million, which is being amortized on a straight-line
            basis over 20 years and which excludes core deposit intangibles of
            approximately $12 million, which are being amortized on a declining
            balance basis over 10 years. This goodwill amount represents the
            excess of the total purchase price over the estimated fair value of
            net assets acquired.





Concord Growth Corporation





We completed our acquisition of
            EXXE Data Corporation and its wholly owned commercial finance
            subsidiary, Concord Growth Corporation, on March 17, 1997. At the
            close of the transaction, EXXE became a stand-alone subsidiary of
            Bay View Capital Corporation. Subsequent to the close of the
            transaction, EXXE was merged into Concord Growth Corporation and
            liquidated and Concord Growth Corporation became a first-tier,
            stand-alone subsidiary of Bay View Capital Corporation. The former
            holders of EXXE capital stock, warrants and options received an
            initial aggregate cash payment of $19.8 million and are entitled to
            potential future cash payments of up to $34 million, expiring in
            2000, depending upon the financial performance of Concord Growth
            Corporation. There were no cash payments made during 1999, 1998 or
            1997. The acquisition was accounted for under the purchase method
            of accounting effective April 1, 1997. The total purchase price
            exceeded the estimated fair value of net assets acquired by
            approximately $22 million, which was recorded as goodwill and which
            is being amortized on a straight-line basis over 15 years. During
            1998, Concord Growth Corporation was renamed Bay View Commercial
            Finance Group. All references to this subsidiary from this point
            forward herein will reflect its new name. Effective March 1, 1999,
            Bay View Capital Corporation contributed the capital stock of Bay
            View Commercial Finance Group to Bay View Bank in conjunction with
            the March 1, 1999 conversion of Bay View Bank from a federal stock
            savings bank to a nationally chartered commercial bank.


BAY VIEW
            CAPITAL CORPORATION AND SUBSIDIARIES





NOTES TO
            CONSOLIDATED FINANCIAL STATEMENTS(Continued)








Note 3.
                Investment Securities





All investment securities were
            classified as either available-for-sale or held-to-maturity at
            December 31, 1999 and 1998. We did not maintain a trading portfolio
            during 1999, 1998 or 1997. The following table illustrates our
            investment securities as of the dates indicated:





|                                                          |  | At
              December 31, 1999
|--------------------------------------------------------- |  | ----------------------------------
|
|
|
|Available-for-sale:                                       |  |                                   
|Federal
              National Mortgage Association stock |  | $ 
                   579         
|Asset-backed securities                                   |  | 5,393                             
|Retained
              interests in securitizations       |  | 43,098                            
|                                                          |  |                                   
|                                                          |  | $
              49,070            
|Held-to-maturity:                                         |  |                                   
|Federal
              Home Loan Bank callable notes       |  | $ 
                 9,997         
|                                                          |  |                                   




|                                                          |  | At
              December 31, 1998
|--------------------------------------------------------- |  | ----------------------------------
|
|
|
|Available-for-sale:                                       |  |                                   
|                                                         
|Federal
              National Mortgage Association stock |  | $ 
                 579           
|Retained
              interests in securitizations       |  | 4,641                             
|                                                          |  |                                   
|                                                          |  | $
              5,220             
|                                                          |  |                                   

BAY VIEW
            CAPITAL CORPORATION AND SUBSIDIARIES





NOTES TO
            CONSOLIDATED FINANCIAL STATEMENTS(Continued)








The following table illustrates
            activity in our retained interests in loan and lease
            securitizations for the periods indicated:





|          |  | For the
              Year Ended December 31, 1999
|--------- |  | --------------------------------------------------
|
|
|1994-A    |  | $ 
                                              
|1995-A    |  |                                                  
|1996-A    |  |                                                  
|1997-A    |  |                                                  
|1997-B    |  |                                                  
|1997-C    |  |                                                  
|1997-RA-1 |  | 4,641                                             
|1998-A    |  |                                                  
|1998-B    |  |                                                  
|1998-C    |  |                                                  
|1998-D    |  |                                                  
|1998-1    |  |                                                  
|1999-LG-1 |  |                                                  
|          |  |                                                   
|Totals    |  | $4,641                                            
|          |  |                                                   




|          |  | For the
              Year Ended December 31, 1998
|--------- |  | --------------------------------------------------
|
|
|1997-RA-1 |  | $5,439                                            
|          |  |                                                   




The significant assumptions
            utilized in the December 31, 1999 valuation of retained interests
            in auto loan securitizations (1997-RA-1 and 1999-LG-1) included a
            weighted-average discount rate of 13.9%, an annualized loss factor
            of 1.1% and a prepayment assumption of 1.6%. The weighted-average
            discount rate for the remaining retained interests in franchise
            loan and lease securitizations was 18.0% at December 31, 1999,
            which included an inherent credit loss assumption and a prepayment
            assumption consistent with industry averages.





We use certain qualified types
            of investment securities as full or partial collateral for
            borrowings, including advances from the Federal Home Loan Bank of
            San Francisco. The total par value of pledged investment securities
            at December 31, 1999 was $10.0 million. There were no pledged
            investment securities at December 31, 1998.





The $10.0 million par value
            Federal Home Loan Bank callable notes held at December 31, 1999
            mature in 2014 and are callable in 2000. In 1998, our Federal Farm
            Credit Bank callable note was called.





There were no sales of
            investment securities in 1999. Proceeds from sales of investment
            securities classified as available-for-sale during 1998 were $2.4
            million. Gross gains of $202,000 were realized on these sales.
            There were no sales of investment securities in 1997.


BAY VIEW
            CAPITAL CORPORATION AND SUBSIDIARIES





NOTES TO
            CONSOLIDATED FINANCIAL STATEMENTS(Continued)








Note 4.
                Mortgage-backed Securities





We hold mortgage-backed
            securities issued by government-chartered agencies, including
            Fannie Mae, Freddie Mac and the Government National Mortgage
            Association and by non-public financial intermediaries. The
            mortgage-backed securities portfolio also includes senior tranches
            of private-issue collateralized mortgage obligations. All
            mortgage-backed securities were classified as either
            available-for-sale or held-to-maturity at December 31, 1999 and
            1998. The following table illustrates our mortgage-backed
            securities as of the dates indicated:





|                                                        |  | At
              December 31, 1999
|------------------------------------------------------- |  | ----------------------------------
|
|
|
|Available-for-sale:                                    
|Fannie
              Mae                                |  | $ 
                   517         
|Government
              National Mortgage Association  |  | 9,795                             
|Collateralized mortgage obligations                     |  | 336                               
|                                                        |  |                                   
|Total
              available-for-sale                  |  | 10,648                            
|                                                        |  |                                   
|                                                        | 
|Held-to-maturity:                                      
|Fannie
               Mae                               |  | 195,550                           
|Freddie
               Mac                              |  | 102,090                           
|Government
               National Mortgage Association |  | 174,379                           
|Issued by
               other financial intermediaries |  | 20,633                            
|Collateralized mortgage obligations                     |  | 151,582                           
|                                                        |  |                                   
|Total
               held-to-maturity                   |  | 644,234                           
|                                                        |  |                                   
|Total                                                   |  | $654,882                          
|                                                        |  |                                   




|                                                         |  | At
               December 31, 1998
|-------------------------------------------------------- |  | -----------------------------------
|
|
|
|Available-for-sale:                                     
|Fannie
               Mae                                |  | $ 
                    748         
|Government
               National Mortgage Association  |  | 12,509                             
|Collateralized mortgage obligations                      |  | 473                                
|                                                         |  |                                    
|Total
               available-for-sale                  |  | 13,730                             
|                                                         |  |                                    
|                                                         | 
|Held-to-maturity:                                       
|Fannie
                Mae                               |  | 259,151                            
|Freddie
                Mac                              |  | 137,823                            
|Government National Mortgage
                Association |  | 6,538                              
|Issued by
                other financial intermediaries |  | 41,759                             
|Collateralized mortgage obligations                      |  | 176,502                            
|                                                         |  |                                    
|Total
                held-to-maturity                   |  | 621,773                            
|                                                         |  |                                    
|Total                                                    |  | $635,503                           
|                                                         |  |                                    

BAY
              VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
              (Continued)








The weighted-average
              yields on mortgage-backed securities classified as
              available-for-sale and held-to-maturity at December 31, 1999 were
              5.88% and 6.50%, respectively. The weighted-average yields on
              mortgage-backed securities classified as available-for-sale and
              held-to-maturity at December 31, 1998 were 6.12% and 6.21%,
              respectively.





The amount of
              adjustable-rate mortgage-backed securities was $78.9 million at
              December 31, 1999 and $115.7 million at December 31, 1998. We use
              mortgage-backed securities as full or partial collateral for
              advances from the Federal Home Loan Bank of San Francisco,
              repurchase agreements and interest rate exchange agreements. The
              total par value of pledged mortgage-backed securities was $549.6
              million at December 31, 1999 and $619.3 million at December 31,
              1998.





There were no sales of
              mortgage-backed securities classified as available-for-sale
              during 1999. Proceeds from sales of mortgage-backed securities
              classified as available-for-sale during 1998 were $239.7 million.
              Gross gains of $2.0 million and gross losses of $206,000 were
              realized on these sales. Proceeds from sales of mortgage-backed
              securities classified as available-for-sale during 1997 were
              $20.5 million. Gross gains of $13,000 and gross losses of $13,000
              were realized on these sales. There were no sales of
              mortgage-backed securities classified as held-to-maturity during
              1999, 1998 or 1997.





The amortized cost and
              fair value of mortgage-backed securities classified as
              available-for-sale and held-to-maturity at December 31, 1999,
              categorized by remaining contractual maturity, are illustrated in
              the following table. Expected remaining maturities of
              mortgage-backed securities will generally differ from contractual
              maturities because borrowers may have the right to prepay
              obligations with or without penalties.





|                                                       |  | At
                December 31, 1999
|------------------------------------------------------ |  | ------------------------------------
|
|
|Due in
                one year or less                |  | $ 
                     365         
|Due
                after one year through five years  |  | 673                                 
|Due
                after five years through ten years |  | 106,456                             
|Due
                after ten years                    |  | 547,388                             
|                                                       |  |                                     
|Total                                                  |  | $654,882                            
|                                                       |  |                                     

BAY
              VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
              (Continued)








Note 5.
                  Loans and Leases





The following table
              illustrates our loans and leases as of the dates
              indicated:





|                                                                     |  | At
                December 31,
|-------------------------------------------------------------------- |  | -------------------------------
|
|
|Mortgage
                loans                                       |  |                                
|Residential                                                          |  |                                
|Single-family (one to four units)                                    |  | $ 
                   940,235  
|Multi-family (five or more units)                                    |  | 622,835                        
|Nonresidential                                                       |  | 317,068                        
|                                                                     |  |                                
|                                                                     |  | 1,880,138                      
|Franchise loans                                                      |  | 1,040,608                      
|Home
                equity loans                                    |  | 648,676                        
|Auto
                loans                                           |  | 496,901                        
|Commercial loans and leases(1)                                       |  | 254,671                        
|Business
                loans                                       |  | 33,345                         
|                                                                     |  |                                
|Total
                gross loans and leases                         |  | 4,354,339                      
|Net
                deferred origination fees and costs and advances |  | (372                           
|Premiums
                and discounts                               |  | 59,687                         
|Allowance for losses on loans and leases                             |  | (52,161                        
|                                                                     |  |                                
|                                                                     |  | 7,154                          
|                                                                     |  |                                
|Total                                                                |  | $4,361,493                     
|                                                                     |  |                                




|(1) | Includes
                asset-based participation loans.
|--- | ---------------------------------------------------------




Our loan and lease
              classifications for financial reporting purposes differ from
              those for regulatory reporting purposes. Loans and leases are
              classified for financial reporting purposes based upon the
              purpose and primary source of repayment of the loans or leases.
              Loans and leases are classified for regulatory reporting purposes
              based upon the type of collateral securing the loans or
              leases.





In 1999, we sold $450
              million of multi-family COFI-based loans, $105 million of
              single-family COFI-based loans, $80 million in Bankers Mutual
              multi-family production, and $43 million of home equity loans. We
              also securitized and sold $247 million of our auto loans during
              the fourth quarter of 1999 and recorded a $5.2 million net gain
              on the sale. There were no loan sales in 1998. During the first
              quarter of 1997, we securitized and sold $253 million of our auto
              loans and recorded a gain of $925,000 on the sale.





We serviced
              participating interests in single-family, multi-family,
              franchise, and auto loans and leases that we securitized and/or
              sold of $6.0 billion at December 31, 1999 and $475.1 million at
              December 31, 1998. At December 31, 1999, we had outstanding
              recourse and subordination contingencies relating to $2.2 billion
              of loans and leases securitized and/or sold, including $2.1
              billion in multi-family loans sold by Bankers Mutual under Fannie
              Maes Delegated Underwriting and Servicing program which we
              have contractually limited our aggregate loan loss exposure to
              $15.0 million. At December 31, 1998, we had outstanding recourse
              and subordination contingencies relating to $54.1 million of
              loans and leases securitized and/or sold.





The aggregate amount of
              servicing assets arising from loans and leases securitized and/or
              sold totaled $62.1 million at December 31, 1999 and $902,000 at
              December 31, 1998. The fair value of servicing assets acquired in
              connection with our November 1, 1999 acquisition of FMAC totaled
              $61.4 million, representing
            $34.4 million related to multi-family loans and $27.0 million
              related to franchise loans. Significant assumptions utilized in
              the December 31, 1999 valuation of servicing assets included a
              weighted-average discount rate of 12.0% and annual prepayment
              speeds ranging from 1.5% to 10.0% for multi-family loans and 0.5%
              to 5.5% for franchise loans and leases, depending upon the
              various related lockout and prepayment penalty
              periods.





We have agreed to
              modifications of certain multi-family and nonresidential mortgage
              loans. The modifications have taken the form of interest rate
              concessions and/or payment concessions. Such loan modifications
              are considered troubled debt restructurings (see Note 1) and are
              entered into with the objective of maximizing our long-term
              recovery of the investment in the loan when a borrower is
              experiencing financial difficulties. We have no commitments to
              lend additional funds to borrowers whose loans were so modified.
              In the aggregate, our investment in troubled debt restructurings
              (excluding troubled debt restructurings classified as nonaccrual
              loans of $60,000) was $1.0 million at December 31, 1999, $777,000
              at December 31, 1998 and $731,000 at December 31, 1997. Interest
              income with respect to these loans, under their original terms,
              as well as actual interest recognized, was not significant in
              1999, 1998 or 1997.





Nonaccrual loans and
              leases totaled $22.9 million at December 31, 1999, $14.7 million
              at December 31, 1998 and $11.0 million at December 31, 1997.
              Interest on nonaccrual loans and leases that was not recorded in
              income was $736,000 for the year ended December 31, 1999,
              $492,000 for 1998 and $209,000 for 1997. Actual interest that we
              recognized on these nonaccrual loans and leases was not
              significant in 1999, 1998 or 1997. At December 31, 1999, we had
              no commitments to lend additional funds to these
              borrowers.





The average investment
              in loans and leases for which impairment was determined in
              accordance with Statement No. 114 was $15.5 million for the year
              ended December 31, 1999, $15.2 million for 1998 and $13.9 million
              for 1997. Impaired loans and leases consist of nonperforming
              loans and leases (see Note 1) and troubled debt restructurings,
              as illustrated in the following table as of the dates
              indicated:





|                                             |  | At
                December 31,
|-------------------------------------------- |  | -------------------------------
|
|
|Nonperforming loans and leases               |  | $22,918                        
|Troubled
                debt restructurings |  | 1,009                          
|                                             |  |                                
|Total                                        |  | $23,927                        
|                                             |  |                                

BAY
              VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
              (Continued)








The following table
              illustrates our allowance for losses on loans and leases, as well
              as the changes thereto, as of and for the periods
              indicated:





|                                                                                  |  | At
                and For the Year Ended
              
              December 31,
|--------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------
|
|
|Balance
                at beginning of year                                      |  | $ 
                 45,405                                                         
|Reserves
                related to entity and asset acquisitions                 |  | 8,256                                                                              
|Transfers of loans to held-for-sale                                               |  | (2,656                                                                             
|Charge-offs:                                                                     
|Mortgage
                and other                                                |  | (827                                                                               
|Home
                equity                                                       |  | (19,568                                                                            
|Auto                                                                              |  | (7,674                                                                             
|Commercial                                                                        |  | (3,176                                                                             
|                                                                                  |  |                                                                                    
|                                                                                  |  | (31,245                                                                            
|Recoveries:                                                                      
|Mortgage
                and other                                                |  | 607                                                                                
|Home
                equity                                                       |  | 1,530                                                                              
|Auto                                                                              |  | 1,722                                                                              
|Commercial                                                                        |  | 231                                                                                
|                                                                                  |  |                                                                                    
|                                                                                  |  | 4,090                                                                              
|                                                                                  |  |                                                                                    
|Net
                charge-offs                                                   |  | (27,155                                                                            
|Provision for losses on loans and leases                                          |  | 28,311                                                                             
|                                                                                  |  |                                                                                    
|Balance
                at end of year                                            |  | $ 
                 52,161                                                         
|                                                                                  |  |                                                                                    
|Allowance for losses on loans and leases (including
                unallocated):
|Mortgage
                and other                                                |  | $ 
                 11,158                                                         
|Home
                equity                                                       |  | 21,559                                                                             
|Franchise                                                                         |  | 7,563                                                                              
|Auto                                                                              |  | 6,758                                                                              
|Commercial                                                                        |  | 5,123                                                                              
|                                                                                  |  |                                                                                    
|Total                                                                             |  | $ 
                 52,161                                                         
|                                                                                  |  |                                                                                    




An allowance for losses
              on loans and leases was provided for all impaired loans and
              leases at December 31, 1999, 1998 and 1997. The portion of the
              total allowance for loan and lease losses that was attributable
              to impaired loans was $3.3 million at December 31, 1999, $4.7
              million at December 31, 1998 and $1.7 million at December 31,
              1997.





At December 31, 1999
              and 1998, mortgage loans aggregating $852.4 million and $1.92
              billion, respectively, were pledged as collateral for advances
              from the Federal Home Loan Bank of San Francisco. Also, $436.3
              million of franchise loans were pledged as collateral for our
              warehouse line at December 31, 1999.


BAY
              VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
              (Continued)








Note 6.
                  Premises and Equipment





The following table
              illustrates our premises and equipment as of the dates
              indicated:





|                                          |  | At
                December 31,
|----------------------------------------- |  | -------------------------------
|
|
|Land                                      |  | $ 
                   1,658    
|Buildings                                 |  | 2,756                          
|Capitalized leases                        |  | 3,979                          
|Leasehold improvements                    |  | 17,380                         
|Furniture and equipment                   |  | 36,559                         
|Other                                     |  | 97                             
|                                          |  |                                
|                                          |  | 62,429                         
|Less:                                     |  |                                
|Accumulated depreciation and amortization |  | (35,213                        
|                                          |  |                                
|Total                                     |  | $ 
                 27,216     
|                                          |  |                                




Depreciation and
              amortization expense related to premises and equipment totaled
              $7.9 million for the year ended December 31, 1999, $6.8 million
              for 1998 and $3.0 million for 1997.





Note 7.
                  Intangible Assets





The following table
              illustrates our intangible assets as of the dates
              indicated:





|                                         |  | At
                December 31,
|---------------------------------------- |  | -------------------------------
|
|
|                                        
|Core
                deposit intangibles |  | $ 
                 13,849     
|Goodwill                                 |  | 339,516                        
|                                         |  |                                
|                                         |  | 353,365                        
|Less:                                   
|                                        
|Accumulated amortization                 |  | (24,360                        
|                                         |  |                                
|Total                                    |  | $329,005                       
|                                         |  |                                




Amortization expense
              for core deposit intangibles was $3.4 million for the year ended
              December 31, 1999, $3.7 million for 1998 and $2.1 million for
              1997.





Amortization expense
              for goodwill was $10.3 million for the year ended December 31,
              1999, $7.7 million for 1998 and $2.0 million for
              1997.


BAY
              VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
              (Continued)








Note 8.
                  Deposits





The following table
              illustrates our deposits as of the dates indicated:





|                                                 |  | At
                December 31, 1999
|------------------------------------------------ |  | ------------------------------------
|
|
|Savings
                accounts                 |  | $ 
                   145,565       
|Checking
                accounts                |  | 460,357                             
|Money
                market accounts            |  | 1,097,201                           
|                                                 |  |                                     
|Total
                transaction accounts       |  | 1,703,123                           
|Retail
                certificates of deposit   |  | 1,637,127                           
|Brokered
                certificates of deposit |  | 389,530                             
|                                                 |  |                                     
|Total                                            |  | $3,729,780                          
|                                                 |  |                                     




|                                               |  | At
                December 31, 1998
|---------------------------------------------- |  | ------------------------------------
|
|
|Savings
                accounts               |  | $ 
                   150,808       
|Checking
                accounts              |  | 373,619                             
|Money
                market accounts          |  | 1,102,848                           
|                                               |  |                                     
|Total
                transaction accounts     |  | 1,627,275                           
|Retail
                certificates of deposit |  | 1,642,362                           
|                                               |  |                                     
|Total                                          |  | $3,269,637                          
|                                               |  |                                     




Noninterest-bearing
              deposits were $52.3 million at December 31, 1999 and $66.4
              million at December 31, 1998. The aggregate amount of retail
              certificates of deposit individually exceeding $100,000 totaled
              $424.0 million at December 31, 1999 and $391.3 million at
              December 31, 1998. Retail certificates of deposit outstanding at
              December 31, 1999 were scheduled to mature as
              follows:





|           |  | At
                December 31,
              
              1999
|---------- |  | -----------------------------------------------------------------
|
|2000       |  | $1,427,493                                                       
|2001       |  | 160,074                                                          
|2002       |  | 42,829                                                           
|2003       |  | 4,179                                                            
|2004       |  | 1,593                                                            
|Thereafter |  | 959                                                              
|           |  |                                                                  
|Total      |  | $1,637,127                                                       
|           |  |                                                                  

BAY
              VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
              (Continued)








The following table
              illustrates interest expense on deposits, by deposit type, for
              the periods indicated:





|                                                   |  | For
                the Year Ended December 31,
|-------------------------------------------------- |  | -----------------------------------------------
|
|
|Savings
                accounts                   |  | $ 
                   2,444                    
|Checking
                and money market accounts |  | 53,443                                         
|Certificates of deposit                            |  | 86,540                                         
|Thrift
                certificates                |  |                                               
|                                                   |  |                                                
|Total                                              |  | $142,427                                       
|                                                   |  |                                                




Note 9.
                  Advances From the Federal Home Loan Bank
              of San Francisco





The following table
              illustrates outstanding advances from the Federal Home Loan Bank
              of San Francisco, sometimes referred to as the FHLB, by maturity
              and rate, as of the dates indicated:





|           |  | At
                December 31,
|---------- |  | -------------------------------
|
|
|
|          
|1999       |  | $ 
                           
|2000       |  | 722,500                        
|2001       |  | 190,400                        
|2002       |  | 24,400                         
|2003       |  | 300,000                        
|2004       |  |                               
|Thereafter |  | 130,000                        
|           |  |                                
|Total      |  | $1,367,300                     
|           |  |                                




Our advances from the
              FHLB at December 31, 1999 included $20 million of variable-rate
              advances. These advances mature in the year 2001 and reset
              semi-annually based on the 6-month London Interbank Offered Rate,
              sometimes referred to as LIBOR. These advances were
              collateralized by mortgage loans and mortgage-backed securities
              totaling $1.4 billion at December 31, 1999 and $2.5 billion at
              December 31, 1998.





Bay View Bank is a
              member of the Federal Home Loan Bank System. As a member, Bay
              View Bank is required to purchase stock in the FHLB at an amount
              equal to the greater of 1% of its residential mortgage loans or
              5% of outstanding FHLB advances. The stock is purchased at par
              value ($100 per share) and shares of stock held in excess of the
              minimum requirement may be sold back to the FHLB at par value.
              Bay View Bank records its investment in FHLB stock at cost (par
              value). At December 31, 1999, Bay View Banks investment in
              FHLB stock was $77.8 million and its minimum required investment
              was $68.4 million. The stock is pledged as collateral for
              advances from the FHLB. The FHLB generally declares quarterly
              stock dividends. The amount of these dividends recorded in income
              was $4.5 million for the year ended December 31, 1999, $4.9
              million for 1998 and $3.4 million for 1997.


BAY
              VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
              (Continued)








Note
              10.    Short-term Borrowings





The following table
              illustrates our short-term borrowings as of the dates
              indicated:





|                                                               |  | At
                December 31,
|-------------------------------------------------------------- |  | -------------------------------
|
|
|Securities sold under agreements to
                repurchase |  | $ 
                 17,883     
|Warehouse lines                                                |  | 397,538                        
|                                                               |  |                                
|Total                                                          |  | $415,421                       
|                                                               |  |                                




Securities sold under
              agreements to repurchase, sometimes called reverse repurchase
              agreements, are effectively borrowings secured by our portfolio
              of mortgage-backed securities. The securities sold under the
              terms of these agreements are in safekeeping with the registered
              primary securities dealers who arrange the transactions. The
              weighted-average interest rate on reverse repurchase agreements
              outstanding was 6.29% at December 31, 1999 and 5.37% at December
              31, 1998. All of our borrowings under reverse repurchase
              agreements have maturities of one year or less and were
              collateralized by mortgage-backed securities with a par value of
              $20.4 million at December 31, 1999 and $26.7 million at December
              31, 1998. The contractually required market values of the
              collateral pledged against these borrowings may range up to 106%
              of the borrowings at the time of sale. The market value of the
              mortgage-backed securities collateralizing these borrowings was
              $20.2 million at December 31, 1999 and $27.3 million at December
              31, 1998.





Warehouse lines are
              short-term lines of credit which we utilize to fund loan and
              lease originations. All of our borrowings under warehouse lines
              have maturities of one year or less and were collateralized by
              franchise loans with a par value of $437.3 million at December
              31, 1999. The contractually required value of the collateral
              pledged against these borrowings may range up to 133% of the
              borrowings. The advance rate ranges from 75% to 95% of the lower
              of book value or market value of the underlying collateral. We
              pay interest monthly on the average outstanding principal balance
              at a spread over one-month LIBOR ranging from 85 to 160 basis
              points depending upon the advance rate. The maximum amount of
              time that a loan may remain on the warehouse line is six months.
              We recorded $371,000 in commitment fee expense associated with
              the warehouse lines for the year ended December 31,
              1999.





There were no warehouse
              lines committed or outstanding at December 31, 1998. The
              following table illustrates our warehouse lines at December 31,
              1999:





|                                                                                        |  |                                |  |                                                                           |  | At
                December 31, 1999
|--------------------------------------------------------------------------------------- |  | ------------------------------ |  | ------------------------------------------------------------------------- |  | ------------------------------------
|
|
|Morgan
                Stanley Asset
              
                   Funding, Inc.(1) |  | July 15,
                2000  |  | One-month LIBOR plus
              
                  160 basis points(3) |  | 7.42                                
|Residential Funding
              
                   Corporation(2)                    |  | March
                31, 2000 |  | One-month LIBOR plus
              
                  100 basis points    |  | 6.82                                
|                                                                                        |  |                                |  |                                                                           |  |                                     
|Totals                                                                                  |  |                                |  |                                                                           |  |                                     
|                                                                                        |  |                                |  |                                                                           |  |                                     




|(1) | The
                Morgan Stanley Asset Funding, Inc. line of credit is used to
                fund franchise loans and leases.
|--- | ---------------------------------------------------------------------------------------------------------------------------------




|(2) | The
                Residential Funding Corporation line of credit is used to fund
                multi-family loans originated by Bankers Mutual pending sale
                into the secondary market.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) | The
                spread over one-month LIBOR ranges from 85 basis points to 160
                basis points.
|--- | ----------------------------------------------------------------------------------------------------------------

BAY
              VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
              (Continued)








Note
              11.    Notes and Debentures





On August 18, 1999, Bay
              View Bank issued $50 million in Subordinated Notes registered
              under the Securities Act of 1933, as amended. The Subordinated
              Notes are unsecured obligations of Bay View Bank and are
              subordinated in right of payment to all existing and future
              senior indebtedness, as defined, of Bay View Bank. The
              Subordinated Notes mature on August 31, 2009, with a call
              provision at our option any time after August 31, 2002 at par.
              The issuance has a stated coupon of 10.00%. The all-in cost of
              the Subordinated Notes was 10.57%. A portion of the proceeds was
              dividended to Bay View Capital Corporation and used to partially
              finance the acquisition of FMAC. Interest expense on the
              Subordinated Notes was $1.9 million for the year ended December
              31, 1999. These Subordinated Notes qualify as Tier 2 capital for
              Bay View Bank regulatory capital purposes.





On August 28, 1997, Bay
              View Capital Corporation issued $100 million in Subordinated
              Notes registered under the Securities Act of 1933, as amended.
              The Subordinated Notes are unsecured obligations of Bay View
              Capital Corporation and are subordinated in right of payment to
              all existing and future senior indebtedness, as defined, of Bay
              View Capital Corporation. The Subordinated Notes mature on August
              15, 2007, with a call provision effective on or after August 15,
              2002 or, at any time upon a change of control or the occurrence
              of certain other events, at our option, at various premiums
              through August 15, 2005 and at par thereafter. The issuance has a
              stated coupon of 9.125% and was issued at a discount to yield
              9.225%. The all-in cost of the Subordinated Notes was 9.62%. A
              portion of the proceeds was used to partially finance the
              acquisition of AFEH. Interest expense on the Subordinated Notes
              was $9.6 million for each of the years ended December 31, 1999
              and 1998 and $3.2 million for 1997. These Subordinated Notes
              qualify as Tier 2 capital for Bay View Capital Corporation
              regulatory capital purposes.





On May 28, 1996, Bay
              View Capital Corporation issued $50 million in Senior Debentures
              with a stated coupon of 8.42% which were not registered under the
              Securities Act of 1933, in a private placement under Section 4(2)
              of the Securities Act. A portion of the proceeds was used to
              partially finance the acquisition of Bay View Credit. The Senior
              Debentures, which had an all-in cost of 8.91%, matured on June 1,
              1999. In conjunction with the acquisition of AFEH, we negotiated
              covenant modifications with the Senior Debenture holders during
              1997 to allow the repurchase of additional shares of common stock
              in exchange for a payment to the Senior Debenture holders of
              approximately $1.1 million. Interest expense on the Senior
              Debentures was $1.9 million for the year ended December 31, 1999
              and $4.5 million for each of the years ended December 31, 1998
              and 1997.





Note 12.
                  Capital Securities





On December 21, 1998,
              we issued $90 million in Capital Securities through Bay View
              Capital I, sometimes referred to as the Trust. The Capital
              Securities pay quarterly cumulative cash distributions at an
              annual rate of 9.76% of the liquidation value of $25 per share.
              The Capital Securities represent undivided beneficial interests
              in the Trust, which we established for the purpose of issuing the
              Capital Securities. We own all of the issued and outstanding
              common securities of the Trust. Proceeds from the offering and
              from the issuance of common securities were invested by the Trust
              in our 9.76% Junior Subordinated Deferrable Interest Debentures,
              sometimes referred to as the Junior Debentures, due December 31,
              2028 with an aggregate principal amount of $92.8 million. The
              primary asset of the Trust is the Junior Debentures. The
              obligations of the Trust with respect to the Capital Securities
              are fully and unconditionally guaranteed by us to the extent
              provided in the Guarantee Agreement with respect to the Capital
              Securities. We used a portion of the proceeds to repay our $50
              million Senior Debentures upon their maturity on June 1, 1999 and
              the balance for general corporate purposes. The all-in cost of
              the Capital Securities was 9.95%. The Capital Securities have the
              added benefit of qualifying as Tier 1 capital for regulatory
              capital purposes. Dividend expense on the Capital Securities was
              $8.9 million for the year ended December 31, 1999 and $244,000
              for the year ended December 31, 1998.


BAY
              VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
              (Continued)








Note
              13.    Income Taxes





The following table
              illustrates our consolidated income tax expense for the periods
              indicated:





|                                          |  | For
                the Year
              
              Ended December 31, 1999
|----------------------------------------- |  | ---------------------------------------------------------------------------------
|
|
|Current
                provision         |  | $ 
                   815                                                        
|Deferred
                provision        |  | 19,669                                                                           
|                                          |  |                                                                                  
|Total
                income tax expense  |  | $20,484                                                                          
|                                          |  |                                                                                  
|                                          | 
|
|Current
                 provision        |  | $ 
                  1,393                                                       
|Deferred provision                        |  | 15,064                                                                           
|                                          |  |                                                                                  
|Total
                 income tax expense |  | $16,457                                                                          
|                                          |  |                                                                                  
|                                          | 
|
|Current
                 provision        |  | $ 
                  4,940                                                       
|Deferred provision                        |  | 2,277                                                                            
|                                          |  |                                                                                  
|Total
                 income tax expense |  | $ 
                  7,217                                                       
|                                          |  |                                                                                  




The following table
               illustrates the reconciliation between the federal statutory
               income tax rate and the effective income tax rate for the
               periods indicated:





|                                                                   |  | For
                 the Year
               
               Ended December 31,
|------------------------------------------------------------------ |  | -------------------------------------------------------------------------------
|
|Federal
                 statutory income tax rate                 |  | 35.0                                                                           
|Amortization of goodwill                                           |  | 6.2                                                                            
|State
                 income tax rate, net of federal tax benefit |  | 5.5                                                                            
|Other,
                 net                                        |  | (0.3                                                                           
|                                                                   |  |                                                                                
|Effective income tax rate                                          |  | 46.4                                                                           
|                                                                   |  |                                                                                




Our stockholders
               equity included a tax benefit associated with the exercise of
               stock options of $92,000 for the year ended December 31, 1999,
               $1.2 million for 1998 and $1.4 million for 1997.


BAY
               VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
               TO CONSOLIDATED FINANCIAL STATEMENTS
               (Continued)








The following table
               illustrates the components of net deferred tax assets as of the
               dates indicated:





|                                                                         |  | At
                 December 31,
|------------------------------------------------------------------------ |  | --------------------------------
|
|
|Deferred tax assets:                                                    
|                                                                        
|Net
                 operating loss carryforwards                        |  | $ 
                  61,146     
|Provision for losses on loans and leases                                 |  | 36,865                          
|State
                 income taxes                                      |  | 4,437                           
|Alternative minimum tax credit carryforwards                             |  | 3,053                           
|Other
                 accrued expenses not deducted for tax purposes    |  | 1,940                           
|Intangible assets                                                        |  | 1,231                           
|Capitalized leases                                                       |  | 555                             
|Unrealized loss on securities
                 available-for-sale        |  | 206                             
|Real
                 estate partnership investments                     |  |                                
|Mark-to-market adjustment                                                |  |                                
|Other                                                                    |  | 395                             
|                                                                         |  |                                 
|Gross
                 deferred tax assets                               |  | 109,828                         
|Valuation allowance                                                      |  |                                
|                                                                         |  |                                 
|Net
                 deferred tax assets                                 |  | 109,828                         
|Deferred tax liabilities:                                               
|Tax
                 depreciation in excess of book depreciation         |  | (26,094                         
|Securitizations                                                          |  | (20,353                         
|Mark-to-market adjustment                                                |  | (11,851                         
|Federal
                 Home Loan Bank of San Francisco stock dividends |  | (9,183                          
|Excess
                 over base year reserves                          |  | (5,643                          
|Loan
                 fees                                               |  | (3,830                          
|Real
                 estate partnership investments                     |  | (1,729                          
|Loan
                 premiums                                           |  | (696                            
|Other                                                                    |  |                                
|                                                                         |  |                                 
|Gross
                 deferred tax liabilities                          |  | (79,379                         
|                                                                         |  |                                 
|Net
                 deferred tax asset                                  |  | $ 
                  30,449     
|                                                                         |  |                                 




In accordance with
               Statement of Financial Accounting Standards No. 109,
               Accounting for Income Taxes, a deferred tax
               liability has not been recognized for our bad debt reserves that
               arose in the tax years which began prior to January 1, 1988. At
               December 31, 1999 and 1998, the amount of these reserves was
               approximately $19.8 million. The amount of unrecognized deferred
               tax liability for these reserves at December 31, 1999 and 1998
               was approximately $10.3 million. The deferred tax liability
               could potentially be recognized in the future if there is a
               change in federal tax law, certain distributions are made with
               respect to the stock of Bay View Bank, the bad debt reserves are
               used for any purpose other than absorbing bad debt losses, or
               Bay View Bank ceases to be a bank as defined in the Internal
               Revenue Code.





During 1996, we
               reached a final agreement with the Internal Revenue Service to
               resolve certain disputed issues related to the taxable years
               1987 through 1989. The principal disputed issues related to
               various savings and loan industry tax issues for which we had
               previously provided deferred taxes. During 1997, we realized the
               benefit resulting from the finalization of these tax audits as
               well the benefit of enterprise zone interest exclusions for
               previous years.


BAY
               VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
               TO CONSOLIDATED FINANCIAL STATEMENTS
               (Continued)








The acquisition of
               AFEH during 1998 increased net deferred tax assets by $77.6
               million. The acquisition of FMAC during 1999 decreased net
               deferred tax assets by $11.6 million.





At December 31, 1999,
               the federal and state net operating loss carryforwards were
               $172.4 million and $13.1 million, respectively. They will expire
               in various years from 2001 through 2018.





A valuation allowance
               on deferred tax assets is recorded if it is more likely than not
               that some portion or all of the deferred tax assets will not be
               realized through recovery of taxes previously paid and/or future
               taxable income. The allowance is subject to ongoing adjustments
               based on changes in circumstances that affect our assessment of
               the realizability of the deferred tax assets. We have reviewed
               our deferred tax assets as of December 31, 1999 and 1998. Based
               upon this review, a valuation allowance was established to
               reduce the deferred tax assets to that amount which is more
               likely than not to be realized. This valuation allowance totaled
               $0 at December 31, 1999 and $3.8 million at December 31,
               1998.





Amounts for the
               current year are based upon estimates and assumptions as of the
               date of this report and could vary significantly from amounts
               shown on our tax returns as filed. Accordingly, the variances
               from the amounts previously reported for 1998 are primarily a
               result of adjustments to conform to our tax returns as
               filed.





Note
               14.    Stockholders Equity and
               Regulatory Capital Requirements





Under capital adequacy
               guidelines and the regulatory framework for prompt corrective
               action, Bay View Capital Corporation and Bay View Bank must meet
               specific capital guidelines that involve quantitative measures
               of assets, liabilities and certain off-balance sheet items as
               calculated in accordance with GAAP and regulatory capital
               guidelines. Our capital amounts and classifications are also
               subject to qualitative judgments by the regulators about
               interest rate risk components, asset and off-balance sheet risk
               weightings and other factors. Failure to meet minimum capital
               requirements can initiate certain mandatory, and possibly
               additional discretionary, actions by regulators that, if
               undertaken, could have a material impact on our financial
               condition and results of operations.





Effective March 1,
               1999, Bay View Bank converted from a savings institution
               regulated by the Office of Thrift Supervision to a national bank
               regulated by the Office of the Comptroller of the Currency and
               Bay View Capital Corporation converted from a savings and loan
               holding company regulated by the Office of Thrift Supervision to
               a bank holding company regulated by the Federal Reserve
               Board.





The Office of the
               Comptroller of the Currency regulations provide definitions of
               regulatory capital ratios (e.g., tier 1 leverage, tier 1
               risk-based and total risk-based) and the methods of calculating
               each type of capital. The minimum tier 1 leverage capital
               requirement is 4.0%ofadjusted quarterly average
               assets, as defined. The minimum tier 1 risk-based capital
               requirement is 4.0% of risk-weighted assets, including certain
               off-balance sheet items. The minimum total risk-based capital
               requirement (Tier 1 and Tier 2 capital) is 8.0% of risk-weighted
               assets, including certain off-balance sheet items.





In addition, the
               Federal Deposit Insurance Corporation Improvement Act of 1991,
               sometimes referred to as FDICIA, requires each federal banking
               agency to implement prompt corrective actions for
               undercapitalized institutions that it regulates. In response to
               this requirement, the Office of the Comptroller of the Currency
               adopted final rules based on FDICIAs five capital tiers:
               well-capitalized, adequately-capitalized, undercapitalized,
               significantly undercapitalized, and critically undercapitalized.
               The regulations provide that a bank is well-capitalized if its
               total risk-based capital ratio is 10% or greater, its tier 1
               risk-based capital ratio is 6% or greater, its tier 1 leverage
               ratio is 5% or greater, and the institution is not subject to a
               capital directive. As used herein, total risk-based capital
               ratio means the ratio of total risk-based capital to
               risk-weighted assets, including off-balance sheet items, tier 1
               risk-based capital ratio means the ratio of core capital to
               risk-weighted
             assets, including off-balance sheet items, and tier 1 ratio means
               the ratio of core capital to adjusted total assets, in each case
               as calculated in accordance with current agency capital
               regulations.





Bay View Banks
               regulatory capital levels at December 31, 1999 exceeded both the
               minimum requirements as well as the requirements necessary to be
               considered well-capitalized as illustrated in the following
               table. As of December 31, 1999, the most recent notification
               from the Office of the Comptroller of the Currency categorized
               Bay View Bank as well-capitalized. There are no conditions or
               events since that notification that management believes have
               changed Bay View Banks well-capitalized
               categorization.





|                                   |  | At
                 December 31, 1999
|---------------------------------- |  | -------------------------------------
|
|
|
|Tier 1
                 leverage   |  | $406,001                             
|Tier 1
                 risk-based |  | $406,001                             
|Total
                 risk-based  |  | $507,516                             




Bay View Capital
               Corporations regulatory capital levels at December 31,
               1999 exceeded both the Federal Reserve Boards minimum
               requirements as well as the requirements necessary to be
               considered well-capitalized as illustrated in the following
               table:





|                                   |  | At
                 December 31, 1999
|---------------------------------- |  | -------------------------------------
|
|
|
|Tier 1
                 leverage   |  | $386,110                             
|Tier 1
                 risk-based |  | $386,110                             
|Total
                 risk-based  |  | $587,773                             




The following table
               reconciles stockholders equity under GAAP with regulatory
               capital for Bay View Bank and Bay View Capital Corporation at
               December 31, 1999:





|                                                                     |  | At
                 December 31, 1999
|-------------------------------------------------------------------- |  | -------------------------------------
|
|
|
|Stockholders equity (GAAP)                                          |  | $ 
                  740,628         
|Increase (decrease):                                                
|Goodwill
                 and identifiable intangible assets         |  | (320,044                             
|Non-qualifying core deposit intangibles                              |  | (7,731                               
|Disallowed servicing assets                                          |  | (6,852                               
|Capital
                 Securities                                  |  |                                     
|Qualifying allowance for losses on loans and
                 leases |  |                                     
|Subordinated debt                                                    |  |                                     
|                                                                     |  |                                      
|Regulatory capital                                                   |  | $ 
                  406,001         
|                                                                     |  |                                      

BAY
               VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
               TO CONSOLIDATED FINANCIAL STATEMENTS
               (Continued)








During 1998 and until
               its conversion to a national bank charter on March 1, 1999, Bay
               View Bank was subject to capital adequacy guidelines issued by
               the Office of Thrift Supervision. These regulations provided
               definitions of regulatory capital (e.g., tangible capital, core
               capital and risk-based capital and the methods of calculating
               each type of capital). The tangible capital requirement was
               1.5%of tangible assets. The core capital requirement was
               4.0% of adjusted total assets, as defined. The risk-based
               capital requirement was 8.0% of risk-weighted assets, including
               off-balance sheet items. Bay View Banks fully phased-in
               regulatory capital ratios exceeded these minimum requirements at
               December 31, 1998. The following table illustrates Bay View Bank
               s minimum regulatory capital ratios as they were
               originally computed and reported to the Office of Thrift
               Supervision at December 31, 1998:





|                                 |  | At
                 December 31, 1998
|-------------------------------- |  | -------------------------------------
|
|
|
|                                
|Tangible                         |  | $344,509                             
|Core
                 (Leverage) |  | $345,211                             
|Risk-based                       |  | $389,250                             




In addition, Bay View
               Banks regulatory capital ratios were in excess of
               regulatory guidelines for a well-capitalized savings institution
               as of December 31, 1998. The following table illustrates Bay
               View Banks well-capitalized regulatory capital
               ratios as they were originally computed and reported to the
               Office of Thrift Supervision at December 31, 1998:





|                                   |  | At
                 December 31, 1998
|---------------------------------- |  | -------------------------------------
|
|
|
|                                  
|Tier 1
                 leverage   |  | $345,211                             
|Tier 1
                 risk-based |  | $345,211                             
|Total
                 risk-based  |  | $389,250                             




The Office of the
               Comptroller of the Currency has adopted rules incorporating an
               interest rate risk component of the capital adequacy guidelines
               for institutions with a greater than normal level of
               interest rate risk exposure, as defined. As of December 31,
               1999, Bay View Bank was not subject to an interest rate risk
               component for capital measurement purposes.





Bay View Capital
               Corporation is a legal entity separate and distinct from Bay
               View Bank. Our principal source of funds on an unconsolidated
               basis is dividends from our wholly owned subsidiaries, including
               Bay View Bank. Dividends declared by Bay View Bank to Bay View
               Capital Corporation were $89.6 million in 1999, $87.0 million in
               1998 and $13.0 million in 1997. There are various statutory and
               regulatory restrictions on the extent to which Bay View Bank may
               pay dividends to, make investments in or loans to, or otherwise
               supply funds to Bay View Capital Corporation. As a national
               bank, Bay View Bank may pay dividends in any one calendar year
               equal to its net earnings in that calendar year plus net
               earnings for the previous two calendar years, less any dividends
               paid during this three-year period.





As a national bank,
               effective March 1, 1999, Bay View Bank is required to hold stock
               in the Federal Reserve Bank totaling 3.0% of the sum of its
               common stock and additional paid-in-capital. Bay View Bank
               records its investment in Federal Reserve Bank stock at cost
               (par value). Bay View Bank held $13.5 million in Federal Reserve
               Bank stock at December 31, 1999.


BAY
               VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
               TO CONSOLIDATED FINANCIAL STATEMENTS
               (Continued)








Note
               15.    Stock Repurchase
               Program





In August 1998, our
               Board of Directors authorized the repurchase of up to $50
               million in shares of our common stock. During 1998, we
               repurchased $24.1 million in shares, representing 1,196,500
               shares of our common stock at an average price of $20.11 per
               share. During 1999 we repurchased an additional $8.3 million in
               shares, representing 460,000 shares of our common stock at an
               average price of $18.22 per share. In November 1999, our
               treasury shares were reissued in conjunction with the
               acquisition of FMAC. At December 31, 1999, we had approximately
               $17.6 million in remaining authorization available for future
               share repurchases.





In January 1997, our
               Board of Directors authorized the repurchase of $25 million in
               shares of our common stock and in May 1997, an additional $25
               million was authorized. During 1997, we repurchased $39.8
               million in shares, representing 1,399,000 shares of our common
               stock at an average price of $28.48 per share. In December 1997,
               our Board of Directors rescinded the remaining share repurchase
               authorization. In January 1998, our treasury shares were
               reissued in conjunction with the acquisition of
               AFEH.





Note
               16.    Stock Options





As of December 31,
               1999, we had six stock option plans: the Amended and
               Restated 1986 Stock Option and Incentive Plan, the
               Amended and Restated 1995 Stock Option and Incentive Plan,
                the Amended and Restated 1989 Non-Employee Director
               Stock Option and Incentive Plan, the 1998-2000
               Performance Stock Plan, the 1998 Non-Employee
               Director Stock Option and Incentive Plan, and the
               1999 FMAC Stock Option, Deferred Stock and Restricted
               Stock Plan which authorize the issuance of up to
               1,759,430, 2,500,000, 550,000, 400,000, 200,000, and 270,576
               shares of common stock, respectively. The plans provide for the
               grant of a variety of long-term incentive awards to directors,
               officers and employees as a means of enhancing the recruitment
               and retention of those individuals on whom our continued success
               most depends. The exercise price for the purchase of shares
               subject to a stock option at the date of grant generally may not
               be less than 100% of the market value of the shares covered by
               the option on that date and the options generally vest over
               periods ranging from 6 months to 3 years.





The following table
               illustrates the stock options available for grant as of December
               31, 1999:





|                                                                                  |  | 1986
                 Stock
               
               Option and
               
               Incentive
               
               Plan |   | 1995
                 Stock
               
               Option and
               
               Incentive
               
               Plan |            | 1989
                 Non-
               
               Employee
               
               Director
               
               Stock
               
               Option and
               
               Incentive
               
               Plan |  | 1998-2000
               
               Performance
               
               Stock Plan |   | 1998
                 Non-
               
               Employee
               
               Director
               
               Stock
               
               Option and
               
               Incentive
               
               Plan |         | 1999 FMAC
               
               Stock Option,
               
               Deferred
               
               Stock and
               
               Restricted
               
               Stock Plan |  | Total  
|--------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------
|Shares
                 reserved for
               
                    issuance |  | 1,759,430                                                                                                                                          |   |                                                                                                                                                    | 2,500,000  |                                                                                                                                                                                                                                                                        |  | 550,000                                                                                        |   |                                                                                                                                                                                                                                                                        | 400,000 |                                                                                                                                                                                                                             |  | 200,000
|Granted                                                                           |  | (2,048,816                                                                                                                                         | ) |                                                                                                                                                    | (2,747,250 | )                                                                                                                                                                                                                                                                      |  | (570,000                                                                                       | ) |                                                                                                                                                                                                                                                                        | (93,000 | )                                                                                                                                                                                                                           |  | (42,000
|Forfeited                                                                         |  | 298,574                                                                                                                                            |   |                                                                                                                                                    | 601,849    |                                                                                                                                                                                                                                                                        |  | 20,000                                                                                         |   |                                                                                                                                                                                                                                                                        | 2,000   |                                                                                                                                                                                                                             |  |       
|Expired                                                                           |  | (9,188                                                                                                                                             | ) |                                                                                                                                                    |           |                                                                                                                                                                                                                                                                        |  |                                                                                               |   |                                                                                                                                                                                                                                                                        |        |                                                                                                                                                                                                                             |  |       
|                                                                                  |  |                                                                                                                                                    |   |                                                                                                                                                    |            |                                                                                                                                                                                                                                                                        |  |                                                                                                |   |                                                                                                                                                                                                                                                                        |         |                                                                                                                                                                                                                             |  |        
|Total
                 available for
               
                    grant    |  |                                                                                                                                                   |   |                                                                                                                                                    | 354,599    |                                                                                                                                                                                                                                                                        |  |                                                                                               |   |                                                                                                                                                                                                                                                                        | 309,000 |                                                                                                                                                                                                                             |  | 158,000
|                                                                                  |  |                                                                                                                                                    |   |                                                                                                                                                    |            |                                                                                                                                                                                                                                                                        |  |                                                                                                |   |                                                                                                                                                                                                                                                                        |         |                                                                                                                                                                                                                             |  |        

BAY
               VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
               TO CONSOLIDATED FINANCIAL STATEMENTS
               (Continued)








At December 31, 1999,
               we had outstanding options under the plans with expiration dates
               ranging from the year 2000 through 2009, as illustrated in the
               following table:





|                                 |  | Number of
               
               Option Shares |   | Exercise Price
               
               Range |                                 | Weighted-Average
               
               Exercise Price
|-------------------------------- |  | ------------------------------------------------------ | - | --------------------------------------------------- | ------------------------------- | --------------------------------------------------------------
|Outstanding at December 31, 1996 |  | 1,154,890                                              |   |                                                     | $ 
                  7.2818.87 |                                                               
|Granted                          |  | 901,000                                                |   |                                                     | 6.97
                 34.41    |                                                               
|Exercised                        |  | (118,990                                               | ) |                                                     | 6.97
                 17.50    |                                                               
|Forfeited                        |  | (178,500                                               | ) |                                                     | 6.97
                 28.44    |                                                               
|                                 |  |                                                        |   |                                                     |                                 |                                                               
|Outstanding at December 31, 1997 |  | 1,758,400                                              |   |                                                     | 7.88
                 34.41    |                                                               
|Granted                          |  | 629,000                                                |   |                                                     | 17.9435.20                     |                                                               
|Exercised                        |  | (160,101                                               | ) |                                                     | 7.88
                 28.44    |                                                               
|Forfeited                        |  | (81,599                                                | ) |                                                     | 8.69
                 35.20    |                                                               
|                                 |  |                                                        |   |                                                     |                                 |                                                               
|Outstanding at December 31, 1998 |  | 2,145,700                                              |   |                                                     | 7.88
                 35.20    |                                                               
|Granted                          |  | 1,254,826                                              |   |                                                     | 13.81
                 19.53   |                                                               
|Exercised                        |  | (40,500                                                | ) |                                                     | 14.72
                 20.50   |                                                               
|Forfeited                        |  | (452,250                                               | ) |                                                     | 8.75
                 35.20    |                                                               
|                                 |  |                                                        |   |                                                     |                                 |                                                               
|Outstanding at December 31, 1999 |  | 2,907,776                                              |   |                                                     | $ 
                  7.8834.41 |                                                               
|                                 |  |                                                        |   |                                                     |                                 |                                                               
|Exercisable at December 31, 1999 |  | 1,641,736                                              |   |                                                     | $ 
                  7.8834.41 |                                                               
|                                 |  |                                                        |   |                                                     |                                 |                                                               




The following table
               illustrates information about stock options outstanding at
               December 31, 1999:





|                               |  | Outstanding |  | Exercisable
|------------------------------ |  | ----------- |  | -----------
|
|$
                  7.8813.31 |  | 738,712     |  | 5.01       
|$13.47
                 15.63 |  | 854,250     |  | 8.93       
|$16.56
                 23.63 |  | 729,114     |  | 8.01       
|$24.13
                 34.41 |  | 585,700     |  | 7.71       
|                               |  |             |  |            
|$
                  7.8834.41 |  | 2,907,776   |  | 7.46       
|                               |  |             |  |            




On October 14, 1999,
               our stockholders voted to amend the Amended and Restated 1995
               Stock Option and Incentive Plan to increase the number of shares
               reserved for issuance by 500,000. During 1999, we repurchased
               216,500 out-of-the-money stock options granted under the Amended
               and Restated 1995 Stock Option and Incentive Plan. These
               options, which had exercise prices ranging from $34.13 to
               $35.20, were repurchased for $598,000, which was included in
               compensation expense for the year ended December 31, 1999. The
               amount paid for each option was based on the options fair
               value determined using a Black-Scholes option pricing model.
               These options are included in the total options available for
               grant at December 31, 1999.





Statement of Financial Accounting Standards
               No. 123 Pro Forma Disclosure





We adopted Statement
               No. 123 effective January 1, 1996, but continue to account for
               employee and director stock-based compensation plans under the
               intrinsic value method prescribed by APB 25. Statement No. 123
               requires that stock-based compensation to parties other than
               employees and directors be accounted for under the fair value
               method. Accordingly, no compensation cost has been recognized
               for our stock option awards to
             employees and directors in 1999, 1998 and 1997, except as
               discussed above. The weighted-average fair value of options
               granted to employees and directors was $6.76, $7.97 and $7.96
               per share in 1999, 1998 and 1997, respectively. Had compensation
               cost related to our stock option awards to employees and
               directors been determined under the fair value method prescribed
               under Statement No. 123, our net income and earnings per share
               would have been the pro forma amounts illustrated in the table
               below for the periods indicated:





|                                                      |  | For
                 the Year Ended December 31,
|----------------------------------------------------- |  | ------------------------------------------------
|
|
|                                                     
|Net
                 income:                         
|                                                     
|Actual                                                |  | $28,964                                         
|Pro
                 forma                            |  | $26,321                                         
|Net
                 income per share:               
|Actual
                 basic earnings per share      |  | $ 
                    1.37                     
|Pro
                 forma basic earnings per share   |  | $ 
                    1.24                     
|Actual
                 diluted earnings per share    |  | $ 
                    1.36                     
|Pro
                 forma diluted earnings per share |  | $ 
                    1.23                     




The fair value of
               options granted was estimated as of the date of grant using the
               Black-Scholes option pricing model with the following
               weighted-average assumptions:





|                                        |  | For
                 the Year
               
               Ended December 31,
|--------------------------------------- |  | -------------------------------------------------------------------------------
|
|Dividend yield                          |  | 2.32                                                                           
|Expected volatility of our common stock |  | 33                                                                             
|Expected risk-free interest rate(1)     |  | 6.34                                                                           
|Expected life of options in years       |  | 5.41                                                                           




|(1) | The
                 expected risk-free interest rate was calculated using a term
                 commensurate with the expected life of the
                 options.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




Note
               17.    Employee Benefit
               Plans





We have a 401(k)
               thrift plan under which an employee with three or more months of
               service may contribute from 2% to 15% of base salary to the
               plan. The amount of base salary deferred is not subject to
               federal or state income taxes at the time of deferral. After one
               year of service, we will match an employees contribution
               up to 100% of the first 6% of the employees base salary,
               depending on the employees length of service. Our
               contribution was $2.3 million for the year ended December 31,
               1999, $2.1 million for 1998 and $1.4 million for
               1997.





Bay View Franchise
               Mortgage Acceptance Company and Bankers Mutual employees
               participate in a separate 401(k) plan. Under the plan, an
               employee may elect to enroll at the beginning of any month after
               which the employee has been employed for at least six months.
               Employees may contribute up to 14% of their salaries to the
               plan. We will match 50% of the employees contribution up
               to 4% of the employees compensation.





Effective December 31,
               1995, we modified our non-qualified defined benefit retirement
               plan for non-employee members of our Board of Directors and
               terminated our non-qualified supplemental retirement plan for
               executive officers. As of December 31, 1999, we had a $1.1
               million liability to certain non-employee members of our Board
               of Directors payable in 66,114 shares of our common stock in
               satisfaction of the non-qualified
             defined benefit retirement plan liability. Such shares were
               repurchased in the market and are held in treasury and
               restricted as to re-issuance until paid out. The liability is
               included in additional paid-in capital. As of December 31, 1999,
               we had a $2.0 million liability to certain current and retired
               executive officers (relating to the remaining benefits owed
               pursuant to the terminated non-qualified supplemental retirement
               plan for executive officers) recorded as other
               liabilities.





We have an Employee
               Stock Ownership Plan, sometimes referred to as the ESOP,
               covering all regular full-time and part-time employees who have
               completed one year of service. ESOP plan participants become
               100% vested in their allocated balances upon the completion of
               three years of service. In 1989, we borrowed $6.0 million from a
               financial institution and in turn lent it to the ESOP to
               purchase shares of our common stock in the open market. The ESOP
               held 448,074 shares of our common stock at December 31, 1999 and
               439,077 shares at December 31, 1998. All shares of common stock
               held by the ESOP are treated as outstanding shares in both our
               basic and diluted earnings per share computations. The interest
               rate we pay on the ESOP debt is based on 90% of the prime rate.
               The ESOP incurred interest expense on its debt totaling $181,000
               for the year ended December 31, 1999, $290,000 for 1998 and
               $316,000 for 1997. We recorded ESOP-related interest expense of
               $131,000 for the year ended December 31, 1999, $176,000 for 1998
               and $224,000 for 1997. We recorded ESOP-related compensation
               expense of $1.1 million for the year ended December 31, 1999,
               $908,000 for 1998 and $421,000 for 1997. We make periodic
               contributions to the ESOP primarily to enable the ESOP to pay
               principal, interest expense and administrative costs not covered
               by cash dividends received by the ESOP on its unallocated shares
               of our common stock. We made contributions to the ESOP on a cash
               basis totaling $1.1 million for 1999, $639,000 for 1998 and
               $649,000 for 1997.





We assumed the
               liability associated with a qualified, noncontributory defined
               benefit retirement plan in conjunction with our acquisition of
               AFEH covering substantially all of AFEHs former employees.
               AFEH had previously frozen the benefits provided under the plan
               effective January 1, 1994. Prior to that date, the benefits were
               based on the average of each eligible employees highest
               five consecutive annual salaries in the ten years preceding age
               65, or the employees termination date, if earlier. Due to
               the plans frozen status, no additional benefits were
               accrued in the plan after January 1, 1994. All plan participants
               became fully vested in their accrued benefits on this date. We
               may elect to terminate the frozen plan at some point in the
               future according to our rights under the plan. The plan assets
               consist primarily of a well-diversified portfolio of equities
               and fixed-income securities. It is our policy to fund the
               minimum amount required.





The following table
               illustrates the change in the plans projected benefit
               obligation for periods indicated:





|                                                                   |  | For
                 the Year
               
               Ended
               
               December 31,
|------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------
|
|
|Projected benefit obligation at beginning of
                 year |  | $6,158                                                                                                        
|Interest cost                                                      |  | 391                                                                                                           
|Actuarial gain                                                     |  | (685                                                                                                          
|Change
                 in assumptions                             |  |                                                                                                              
|Benefits paid                                                      |  | (775                                                                                                          
|                                                                   |  |                                                                                                               
|Projected benefit obligation at end of year                        |  | $5,089                                                                                                        
|                                                                   |  |                                                                                                               

BAY
               VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
               TO CONSOLIDATED FINANCIAL STATEMENTS
               (Continued)








The following table
               illustrates the change in the plan assets for the periods
               indicated:





|                                                  |  | For
                 the Year
               
               Ended
               
               December 31,
|------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------
|
|
|Plan
                 assets at beginning of year |  | $5,983                                                                                                        
|Actual
                 return on plan assets     |  | 521                                                                                                           
|Benefits paid                                     |  | (775                                                                                                          
|                                                  |  |                                                                                                               
|Plan
                 assets at end of year       |  | $5,729                                                                                                        
|                                                  |  |                                                                                                               




The following table
               illustrates the plans funded status and amounts recognized
               in our consolidated statement of financial condition for the
               periods indicated:





|                                                                                                                                                                                          |  | For
                 the Year
               
               Ended December 31,
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------
|
|
|Projected benefit obligation                                                                                                                                                              |  | $ 
                  5,089                                                     
|Fair
                 value of plan assets                                                                                                                                                |  | 5,729                                                                          
|                                                                                                                                                                                          |  |                                                                                
|Plan
                 assets in excess of (less than) projected benefit
                 obligation                                                                                       |  | 640                                                                            
|Unrecognized gain from past experience different than
                 originally assumed and from effects
               
                    of changes in
                 assumptions |  | (1,153                                                                         
|Recognition of a portion of unrecognized
                 gain                                                                                                                            |  | 122                                                                            
|                                                                                                                                                                                          |  |                                                                                
|Total
                 accrued benefit liability                                                                                                                                          |  | $ 
                    (391                                                    
|                                                                                                                                                                                          |  |                                                                                
|Weighted average discount rate                                                                                                                                                            |  | 7.50                                                                           
|                                                                                                                                                                                          |  |                                                                                
|Expected long-term rate of return on assets                                                                                                                                               |  | 8.00                                                                           
|                                                                                                                                                                                          |  |                                                                                




During 1999, $600,247
               in benefit payments were distributed to plan participants.
               During 1998, $1.5 million in benefit payments were distributed
               to plan participants. As the benefit payments were in excess of
               10% of the plans accumulated benefit obligation and in
               excess of the plans interest cost for the year, the
               payments were considered a settlement of plan liabilities under
               Statement of Financial Accounting Standards No. 88,
               Employers Accounting for Settlements and
               Curtailments of Defined Benefit Pension Plans and for
               Termination Benefits. The result was an immediate
               recognition of a corresponding portion of the associated
               unrecognized gain.





The following table
               illustrates components of net periodic pension benefit for the
               periods indicated:





|                                                               |  | For
                 the Year Ended
               
               December 31,
|-------------------------------------------------------------- |  | -------------------------------------------------------------------------------
|
|
|Interest cost on projected benefit
                 obligation |  | $391                                                                           
|Assumed
                 return on plan assets                 |  | (446                                                                           
|Net
                 amortization of unrecognized gain         |  | (122                                                                           
|                                                               |  |                                                                                
|Net
                 periodic pension benefit                  |  | $(177                                                                          
|                                                               |  |                                                                                

BAY
               VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
               TO CONSOLIDATED FINANCIAL STATEMENTS
               (Continued)








Note
               18.    Derivative Financial
               Instruments





In the normal course
               of business, we use interest rate derivative financial
               instruments to hedge mismatches in the rate and maturity of
               loans, leases and securities and their funding sources and to
               reduce interest rate risk on anticipated transactions, including
               loan and lease securitizations and/or sales. During 1999, 1998
               and 1997, these derivative financial instruments included
               interest rate exchange agreements, Treasury futures contracts,
               forward sales of securities, and treasury rate-lock agreements.
               Derivative financial instruments involve, to varying degrees,
               elements of credit risk. Credit risk is defined as the
               possibility of sustaining a loss because other parties to the
               financial instrument fail to perform in accordance with the
               terms of the contract.





Interest Rate Exchange
               Agreements





We were a party to
               interest rate exchange agreements with a notional principal
               amount of $256.5 million at December 31, 1999 and $365.5 million
               at December 31, 1998. The following tables illustrate the
               maturities and weighted-average interest rates for swaps
               outstanding as of December 31, 1999 and 1998. The information is
               based on interest rates at December 31, 1999 and 1998. To the
               extent that rates change, variable interest rate information
               will change.





|                                                                                  |  | Maturities of Derivatives Instruments
               
               At December 31, 1999
|--------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------
|
|
|Pay
                 fixed generic swaps:                                        
|                                                                                 
|Notional amount                                                                   |  | $100,000                                                                                 
|Weighted-average receive rate (3-month
               
                    LIBOR) |  | 6.15                                                                                     
|Weighted-average pay rate (fixed)                                                 |  | 6.10                                                                                     




|                                                                                  |  | Maturities of Derivatives Instruments
               
               At December 31, 1998
|--------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------
|
|
|Pay
                 fixed generic swaps:                                        
|                                                                                 
|Notional amount                                                                   |  | $34,000                                                                                  
|Weighted-average receive rate
               
                    (3-month LIBOR) |  | 5.46                                                                                     
|Weighted-average pay rate (fixed)                                                 |  | 6.75                                                                                     




Our outstanding
               interest rate swaps at December 31, 1999 and 1998 were
               collateralized by mortgage-backed securities with a total par
               value of $9.7 million and $10.7 million, respectively. The
               effect of interest rate swaps was to increase interest expense
               by $3.1 million for the year ended December 31, 1999, $2.4
               million for 1998 and $2.8 million for 1997.





Treasury Futures Contracts





As of December 31,
               1999, we had open positions with a notional amount of $32.5
               million related to United States Treasury futures contracts used
               to hedge fixed-rate franchise loans classified as held-for-sale.
               At December 31, 1999, our unrealized net gain on these futures
               contracts was $103,000.


BAY
               VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
               TO CONSOLIDATED FINANCIAL STATEMENTS
               (Continued)








Forward Sales of Mortgage-Backed
               Securities





In the past, we have
               utilized forward sales contracts of mortgage-backed securities
               to hedge portfolios of mortgage loans because of their
               historical effectiveness as a hedge. In connection with the
               market and interest rate volatility experienced during the third
               quarter of 1998, the correlation between our outstanding forward
               sale contracts and the underlying portfolio of loans was
               disrupted, triggering the settlement of the forward sale
               contracts and resulting in a $940,000 recognized loss for the
               year ended December 31, 1998. There were no forward sale
               contracts in effect at December 31, 1998 or December 31,
               1999.





Treasury Rate-Lock
               Agreements





During 1997, we
               entered into $105 million of Treasury rate-lock agreements to
               hedge the anticipated issuance of $100 million in Subordinated
               Notes. These agreements guaranteed a stated rate of interest for
               a stated period of time and we paid the difference between the
               lock rate and the effective Treasury rate on the settlement
               date. In conjunction with the settlement of the Treasury
               rate-lock agreements, approximately $307,000 was deferred and is
               being recognized as an adjustment to net interest expense over
               the life of the Subordinated Notes.





Note
               19.    Commitments and
               Contingencies





Premises





In 1980, we sold a
               building which formerly housed our headquarters for $3.45
               million, and, concurrent with the sale, leased back the entire
               building under a twenty-year lease which has been accounted for
               as a capital lease. We occupy a minor portion of this building
               and receive sublease rental income from the remaining portion,
               and are responsible for all operating and maintenance expenses
               associated with the building. During the years ended December
               31, 1999, 1998 and 1997, depreciation expense on the capital
               lease was $303,000 for each year. Accumulated depreciation on
               the capital lease was $3.8 million at December 31, 1999 and $3.5
               million at December 31, 1998.





At December 31, 1999,
               we occupied 113 offices plus our administrative corporate office
               under operating lease arrangements expiring at various dates
               through the year 2016. In most instances, these lease
               arrangements include options to renew or extend the lease at
               market rates and terms. Bay View Bank owns the property in which
               four of its branches and offices are located. Rental expense was
               $10.1 million for the year ended December 31, 1999, $10.6
               million for 1998 and $5.6 million for 1997. Sublease rental
               income totaled $584,000 for the year ended December 31, 1999,
               $1.4 million for 1998 and $670,000 for 1997.





Future minimum
               payments under noncancellable lease obligations, net of
               approximately $5.1 million in sublease rental income from
               existing sublease rental arrangements through the year 2008, are
               summarized as follows:





|                                                   |  | At
                 December 31, 1999
|-------------------------------------------------- |  | -------------------------------------
|
|
|2000                                               |  | $497                                 
|2001                                               |  |                                     
|2002                                               |  |                                     
|2003                                               |  |                                     
|2004                                               |  |                                     
|Thereafter                                         |  |                                     
|                                                   |  |                                      
|                                                   |  | 497                                  
|                                                   |  |                                      
|Less
                 amount representing interest |  | (21                                  
|                                                   |  |                                      
|Net
                 capital lease obligation      |  | $476                                 
|                                                   |  |                                      

BAY
               VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
               TO CONSOLIDATED FINANCIAL STATEMENTS
               (Continued)








Loans





At December 31, 1999,
               we had outstanding commitments to originate $9.6 million in
               mortgage loans, $12.4 million in construction loans, $113.4
               million in consumer loans, and $49.3 million in commercial loans
               and letters of credit. We have outstanding recourse and
               subordination contingencies at December 31, 1999 relating to
               $2.2 billion in principal balances of loans securitized and/or
               sold (see Note 5).





Bankers Mutual
               participates in the Fannie Mae Delegated Underwriting and
               Servicing program. Because of Bankers Mutuals loss sharing
               arrangement with Fannie Mae, we are required under federal
               banking regulations to hold capital against all loans sold under
               the program as if we owned 100% of these loans. The amount of
               capital that we were required to hold against these loans was
               $15.0 million at December 31, 1999.





Litigation





We are involved as
               plaintiff or defendant in various legal actions arising in the
               normal course of business. In the opinion of management, after
               consultation with counsel, the resolution of these legal actions
               will not have a material adverse effect on our consolidated
               financial condition or results of operations.





Note
               20.    Estimated Fair Value of Financial
               Instruments





The following
               disclosure of the estimated fair value of financial instruments
               is made in accordance with the requirements of Statement of
               Financial Accounting Standards No. 107, Disclosures about
               Fair Value of Financial Instruments. Fair value estimates,
               methods and assumptions, set forth below for our financial
               instruments, are made solely to comply with the requirements of
               Statement No. 107 and should be read in conjunction with our
               consolidated financial statements and related notes.





We have determined the
               estimated fair value amounts by using market information and
               valuation methodologies that we consider appropriate. However,
               considerable judgment is required to interpret market data to
               develop the estimates of fair value. Accordingly, the estimates
               presented herein are not necessarily indicative of the amounts
               we could realize in a current market exchange. The use of
               different market assumptions and/or estimation methodologies may
               have a material effect on the estimated fair value amounts. For
               all of these reasons, the aggregation of the fair values
               presented herein does not represent, and should not be construed
               to represent, our underlying value.





The following methods
               and assumptions have been used to estimate the fair value of
               each class of financial instrument for which it is practicable
               to estimate the value.





Cash and cash
               equivalents:This category includes cash and deposits due
               from depository institutions, federal funds sold and commercial
               paper. The cash equivalents are readily convertible to known
               amounts of cash or are so near their maturity that they present
               insignificant risk of changes in value. For these short-term
               financial instruments, the carrying amount is a reasonable
               estimate of fair value.





Securities:The
               fair values of investment securities and mortgage-backed
               securities are based on published market prices or quotes
               obtained from independent registered securities brokers. The
               fair values of retained interests in loan and lease
               securitizations are estimated by discounting future cash flows
               using a discount rate commensurate with the risks
               involved.





Loans and leases:The fair value of fixed-rate and variable-rate loans and
               leases is based on prices for similar loans and leases in the
               secondary whole loan or securitization markets or, absent this
               information, estimated by discounting contractual cash flows
               using discount rates that reflect our current pricing for loans
               and
             leases with similar credit ratings and for the same remaining
               maturities. Prepayment estimates are based on historical
               experience and published data for similar loans and
               leases.





Investments in
               stock of the Federal Home Loan Bank of San Francisco and the
               Federal Reserve Bank: The carrying amounts of the
               investments in stock of the Federal Home Loan Bank of San
               Francisco and the Federal Reserve Bank are used as a reasonable
               estimate of fair value.





Deposits:The
               fair value of transaction accounts with no stated maturity, such
               as savings accounts, checking accounts and money market accounts
               is equal to the amount payable on demand at the reporting date
               and is assumed to equal the carrying amount. The fair value of
               certificates of deposit is estimated using the rates currently
               offered for certificates of deposit with similar remaining
               maturities. The fair value of deposits does not include the
               benefit that results from the lower-cost funding provided by our
               deposits as compared with the cost of borrowing funds in the
               market.





Debt and other
               borrowings: Rates currently available to us for debt and
               other borrowings with similar terms and remaining maturities are
               used to estimate the fair value of existing debt, including
               advances from the Federal Home Loan Bank of San Francisco,
               Senior Debentures, Subordinated Notes, other borrowings, and
               Capital Securities. For short-term borrowings, the carrying
               amount is a reasonable estimate of fair value.





Off-balance sheet
               commitments: We have not estimated the fair value of
               off-balance sheet commitments to extend credit. Because of the
               uncertainty in attempting to assess the likelihood and timing of
               a commitment being drawn upon, coupled with the lack of an
               established market for these financial instruments, we do not
               believe it is meaningful or practicable to provide an estimate
               of fair value.





Interest rate
               swaps:The unrealized gain (loss) on interest rate swaps is
               the estimated amount that we would receive or pay to terminate
               the swap agreements at the reporting date, taking into account
               current interest rates and the current creditworthiness of the
               swap counterparties.





Treasury futures
               contracts:The unrealized gain (loss) on Treasury futures
               contracts is the estimated amount that we would receive or pay
               to terminate the contracts at the reporting date, taking into
               account current interest rates.





Limitations:The fair value estimates presented herein are based on
               pertinent information available to us as of December 31, 1999
               and 1998. Although we are not aware of any factors that would
               significantly affect the estimated fair value amounts, such
               amounts have not been comprehensively revalued for purposes of
               these financial statements since those dates and, therefore,
               current estimates of fair value may differ significantly from
               the amounts presented herein.


BAY
               VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
               TO CONSOLIDATED FINANCIAL STATEMENTS
               (Continued)








The following table
               illustrates the estimated fair values of our financial
               instruments as of the dates indicated:





|                                                                                                                                           |  | At
                 December 31,
|------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------
|
|
|
|Financial assets                                                                                                                          
|Cash and
                 cash equivalents                                                                                                 |  | $ 
                    343,905  
|Investment securities                                                                                                                      |  | 59,060                          
|Mortgage-backed securities                                                                                                                 |  | 654,713                         
|Loans
                 and leases, net                                                                                                     |  | 4,361,493                       
|Investment in stock of the Federal Home Loan Bank
               
                         
                      of San Francisco         |  | 77,835                          
|Investment in stock of the Federal Reserve
                 Bank                                                                           |  | 13,476                          
|Financial liabilities                                                                                                                      |  |                                 
|Transaction accounts                                                                                                                       |  | 1,703,123                       
|Certificates of deposit                                                                                                                    |  | 2,026,657                       
|Advances
                 from the Federal Home Loan Bank of
               
                         
                      San Francisco |  | 1,367,300                       
|Short-term borrowings                                                                                                                      |  | 415,421                         
|Other
                 borrowings                                                                                                          |  | 3,294                           
|Notes
                 and Debentures                                                                                                      |  | 149,502                         
|Capital
                 Securities                                                                                                        |  | 90,000                          




|                           |  | Off-Balance Sheet Financial
                 Instruments
|-------------------------- |  | --------------------------------------------------------
|
|
|
|Interest rate swaps        |  | $1,443                                                  
|Treasury futures contracts |  | $ 
                                                    

BAY
               VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
               TO CONSOLIDATED FINANCIAL STATEMENTS
               (Continued)








Note
               21.    Parent Company Financial
               Information





The following table
               illustrates the parent companys condensed statements of
               financial condition at December 31, 1999 and 1998 and the
               related condensed statements of income and cash flows for the
               years ended December 31, 1999, 1998 and 1997:





Condensed Statements of Financial
               Condition





|                                                                  |  | At
                 December 31,                  
|----------------------------------------------------------------- |  | --------------------------------------------------
|
|
|                                                                  | 
|ASSETS                                                            |  |                                                   
|                                                                  |  |                                                   
|                                                                  | 
|Cash on
                 deposit (overdraft) with subsidiary bank |  | $ 
                         
                  794
|Investment securities, at fair value                              |  | 5,393                                             
|Loans
                 held-for-investment, net                   |  | 384,658                                           
|Investment in and advances to subsidiaries                        |  | 759,505                                           
|Deferred income taxes                                             |  | 23,099                                            
|Other
                 assets                                     |  | 24,428                                            
|                                                                  |  |                                                   
|Total
                 assets                                     |  | $1,197,877                                        
|                                                                  |  |                                                   
|                                                                  | 
|LIABILITIES AND STOCKHOLDERS
                 EQUITY            
|                                                                  |  |                                                   
|                                                                  | 
|Short-term borrowings                                             |  | $ 
                    346,210                    
|Accounts payable and other liabilities                            |  | 28,188                                            
|Subordinated Notes and Senior Debentures                          |  | 99,501                                            
|Junior
                 Subordinated Debentures                   |  | 92,784                                            
|Stockholders equity                                              |  | 631,194                                           
|                                                                  |  |                                                   
|Total
                 liabilities and stockholders equity       |  | $1,197,877                                        
|                                                                  |  |                                                   




Condensed Statements of Income





|                                                                                      |  | For
                 the Year ended December 31,
|------------------------------------------------------------------------------------- |  | ------------------------------------------------
|
|
|Income:                                                                              
|                                                                                     
|Dividends from subsidiaries                                                           |  | $ 
                  89,563                     
|Interest
                 income                                                      |  | 2,887                                           
|                                                                                      |  |                                                 
|                                                                                      |  | 92,450                                          
|                                                                                      |  |                                                 
|Expense:                                                                             
|Interest
                 on Notes and Debentures                                     |  | 21,009                                          
|General
                 and administrative expense                                   |  | 4,932                                           
|Income
                 tax benefit                                                   |  | (9,441                                          
|                                                                                      |  |                                                 
|                                                                                      |  | 16,500                                          
|                                                                                      |  |                                                 
|Income
                 before undistributed net income of subsidiaries               |  | 75,950                                          
|Undistributed (distribution in excess of) net income of
                 subsidiaries |  | (46,986                                         
|                                                                                      |  |                                                 
|Net
                 income                                                           |  | $ 
                  28,964                     
|                                                                                      |  |                                                 

BAY
               VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
               TO CONSOLIDATED FINANCIAL STATEMENTS
               (Continued)








CONDENSED STATEMENTS OF CASH FLOWS





|                                                                                                                                       |  | For
                 the Year ended December 31,
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------
|
|
|CASH
                 FLOWS FROM OPERATING ACTIVITIES                                                                                 
|Net
                 income                                                                                                            |  | $ 
                    28,964                   
|Adjustments to reconcile net income to net cash
                 provided by operating
               
                    activities:
|Undistributed (distributions in excess of) net income of
                 subsidiaries                                                 |  | 46,986                                          
|Gain on
                 sale of securities                                                                                            |  |                                                
|Increase
                 in other assets                                                                                              |  | (11,631                                         
|Increase
                 in other liabilities                                                                                         |  | 7,996                                           
|Other                                                                                                                                  |  | 3,243                                           
|                                                                                                                                       |  |                                                 
|Net
                 cash provided by operating activities                                                                             |  | 75,558                                          
|                                                                                                                                       |  |                                                 
|CASH
                 FLOWS FROM INVESTING ACTIVITIES                                                                                  |  |                                                 
|Acquisition of subsidiaries, net of cash and cash
                 equivalents (paid)
               
                    received     |  | (15,453                                         
|Purchases of loans receivable                                                                                                          |  | (374,658                                        
|Investment in subsidiary                                                                                                               |  | (29,500                                         
|Purchase of investment securities                                                                                                      |  | (5,393                                          
|Proceeds from sale of investment securities                                                                                            |  |                                                
|Maturity of investment securities                                                                                                      |  |                                                
|Advances from (to) subsidiaries                                                                                                        |  | 69,820                                          
|                                                                                                                                       |  |                                                 
|Net
                 cash used in investing activities                                                                                 |  | (355,184                                        
|                                                                                                                                       |  |                                                 
|CASH
                 FLOWS FROM FINANCING ACTIVITIES                                                                                 
|Increase in short-term borrowings                                                                                                      |  | 346,210                                         
|Issuance of Junior Subordinated Debentures                                                                                             |  |                                                
|Issuance of Subordinated Notes, net of
                 discount                                                                       |  |                                                
|Repayment of Senior Debentures                                                                                                         |  | (50,000                                         
|Repurchase of common stock                                                                                                             |  | (8,381                                          
|Proceeds from issuance of common stock                                                                                                 |  | 498                                             
|Dividends paid to stockholders                                                                                                         |  | (7,715                                          
|                                                                                                                                       |  |                                                 
|Net
                 cash provided by financing activities                                                                             |  | 280,612                                         
|                                                                                                                                       |  |                                                 
|Net
                 increase (decrease) in cash                                                                                       |  | 986                                             
|Cash
                 (overdraft) on deposit with subsidiary bank at beginning of
                 year                                |  | (192                                            
|                                                                                                                                       |  |                                                 
|Cash on
                 deposit (overdraft) with subsidiary bank at end of
                 year                                      |  | $ 
                        794                  
|                                                                                                                                       |  |                                                 

BAY
               VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
               TO CONSOLIDATED FINANCIAL STATEMENTS
               (Continued)








Note
               22.    Segment and Related
               Information





We have four operating
               segments that we refer to as business platforms. The platforms
               were determined primarily based upon the characteristics of the
               underlying interest-earning assets. Each platform is comprised
               of interest-earning assets with similar characteristics,
               including marketing and distribution channels, pricing, credit
               risk, and interest rate sensitivity. Our platforms are as
               follows:





A Banking Platform
               which is comprised of single-family, multi-family and commercial
               mortgage loans, mortgage-backed securities, retail and business
               banking loans, and asset-based commercial participation loans.
               The Banking Platform also includes the major businesses and
               assets acquired from FMAC. The Banking Platforms revenues
               are derived from customers throughout the United
               States.





A Home Equity Platform
               which is comprised of home equity loans and lines of credit. The
               Home Equity Platforms revenues are derived from customers
               throughout the United States.





An Auto Platform which
               is comprised of auto loans and leases. The Auto Platforms
               revenues are derived from customers throughout the United
               States.





A Commercial Platform
               which is comprised of asset-based lending (excluding asset-based
               commercial participation loans), factoring and commercial
               leasing activities. The Commercial Platforms revenues are
               derived from customers throughout the United States.





The accounting
               policies of our platforms are the same as those described in the
               Summary of Significant Accounting Policies (see Note 1). Each of
               our business platforms contributes to our overall profitability.
               We evaluate the performance of our segments based upon
               contribution by platform. Contribution by platform is defined as
               each platforms net interest income and noninterest income
               less each platforms allocated provision for losses on
               loans and leases, direct general and administrative expenses,
               including certain direct expense allocations, and other
               noninterest expense, including the amortization of intangible
               assets.





In computing net
               interest income by platform, funding costs are allocated to each
               platform based upon the duration of its interest-earning assets
               and auto-related operating leased assets and, specifically, by
               matching these assets with interest-bearing liabilities with
               similar durations. Accordingly, the Auto Platforms and the
               Commercial Platforms funding costs were determined based
               upon our average cost of transaction accounts for the
               appropriate period. The Banking Platforms and the Home
               Equity Platforms funding costs were determined based upon
               the average cost of our remaining funding sources, including the
               noninterest expense associated with our Capital
               Securities.





All indirect general
               and administrative expenses not specifically identifiable with,
               or allocable to, our business platforms are included in indirect
               corporate overhead. Indirect corporate overhead includes both
               recurring items, such as our administrative and support
               functions, and certain non-recurring items, such as expenses
               associated with corporate-wide process and systems
               re-engineering projects, acquisition and integration expenses
               and third-party Year 2000 compliance-related
               activities.





Our prior period
               platform results were revised to reflect an expanded number of
               business platforms and to reflect the methodology discussed
               above. Intercompany revenues and expenses are eliminated in the
               measurement of platform contribution.


BAY
               VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
               TO CONSOLIDATED FINANCIAL STATEMENTS
               (Continued)








The following tables
               illustrate each platforms contribution for the periods
               indicated. The tables also illustrate the reconciliation of
               total contribution by platform to our consolidated net income
               for the periods indicated. Reconciling items generally include
               indirect corporate overhead and income tax expense.





|                                                                                         |  | For
                 the Year Ended December 31, 1999
|---------------------------------------------------------------------------------------- |  | -----------------------------------------------------
|
|
|Net
                 interest income                                                     |  | $ 
                      97,579                      
|Provision for losses on loans and leases                                                 |  |                                                     
|Noninterest income                                                                       |  | 24,775                                               
|Direct
                 general and administrative expenses                              |  | (68,063                                              
|Leasing
                 expenses                                                        |  |                                                     
|Dividend expense on Capital Securities                                                   |  | (7,518                                               
|Net
                 income on real estate owned                                         |  | 238                                                  
|Amortization of intangible assets                                                        |  | (10,947                                              
|                                                                                         |  |                                                      
|Contribution by platform                                                                 |  | $ 
                      36,064                      
|                                                                                         |  |                                                      
|Indirect corporate overhead                                                              |  |                                                      
|Income
                 tax expense                                                      |  |                                                      
|                                                                                         |  |                                                      
|Net
                 income                                                              |  |                                                      
|                                                                                         |  |                                                      
|At
                 December 31, 1999:                                                  
|Interest-earning assets plus operating leased
               
                    assets |  | $4,026,891                                           
|                                                                                         |  |                                                      
|Noninterest-earning assets                                                               |  |                                                      
|                                                                                         |  |                                                      
|Total
                 assets                                                            |  |                                                      
|                                                                                         |  |                                                      




|                                                                                         |  | For
                 the Year Ended December 31, 1998
|---------------------------------------------------------------------------------------- |  | -----------------------------------------------------
|
|
|Net
                 interest income                                                     |  | $ 
                      93,796                      
|Provision for losses on loans and leases                                                 |  |                                                     
|Noninterest income                                                                       |  | 16,621                                               
|Direct
                 general and administrative expenses                              |  | (61,055                                              
|Leasing
                 expenses                                                        |  |                                                     
|Dividend expense on Capital Securities                                                   |  | (210                                                 
|Net
                 income on real estate owned                                         |  | 131                                                  
|Amortization of intangible assets                                                        |  | (8,754                                               
|                                                                                         |  |                                                      
|Contribution by platform                                                                 |  | $ 
                      40,529                      
|                                                                                         |  |                                                      
|Indirect corporate overhead                                                              |  |                                                      
|Income
                 tax expense                                                      |  |                                                      
|                                                                                         |  |                                                      
|Net
                 income                                                              |  |                                                      
|                                                                                         |  |                                                      
|At
                 December 31, 1998:                                                  
|Interest-earning assets plus operating leased
               
                    assets |  | $3,816,993                                           
|                                                                                         |  |                                                      
|Noninterest-earning assets                                                               |  |                                                      
|                                                                                         |  |                                                      
|Total
                 assets                                                            |  |                                                      
|                                                                                         |  |                                                      




BAY
               VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES
               TO CONSOLIDATED FINANCIAL STATEMENTS
               (Continued)





|                                                                                         |  | For
                 the Year Ended December 31, 1997
|---------------------------------------------------------------------------------------- |  | -----------------------------------------------------
|
|
|Net
                 interest income                                                     |  | $ 
                      60,369                      
|Provision for losses on loans and leases                                                 |  | (229                                                 
|Noninterest income                                                                       |  | 7,906                                                
|Direct
                 general and administrative expenses                              |  | (47,346                                              
|Net
                 income on real estate owned                                         |  | 1,128                                                
|Amortization of intangible assets                                                        |  | (2,073                                               
|                                                                                         |  |                                                      
|Contribution by platform                                                                 |  | $ 
                      19,755                      
|                                                                                         |  |                                                      
|Indirect corporate overhead                                                              |  |                                                      
|Income
                 tax expense                                                      |  |                                                      
|                                                                                         |  |                                                      
|Net
                 income                                                              |  |                                                      
|                                                                                         |  |                                                      
|At
                 December 31, 1997:                                                  
|Interest-earning assets plus operating leased
               
                    assets |  | $2,657,754                                           
|                                                                                         |  |                                                      
|Noninterest-earning assets                                                               |  |                                                      
|                                                                                         |  |                                                      
|Total
                 assets                                                            |  |                                                      
|                                                                                         |  |                                                      




Note
               23.    Selected Quarterly Results of
               Operations (Unaudited)





|                                                  |  | For
                 the Year Ended December 31, 1999
|------------------------------------------------- |  | -----------------------------------------------------
|
|
|Interest income                                   |  | $100,021                                             
|Net
                 interest income              |  | 40,783                                               
|Provision for losses on loans and leases          |  | 5,311                                                
|Income
                 before income tax expense |  | 13,429                                               
|Net
                 income                       |  | 7,133                                                
|Basic
                 earnings per share         |  | 0.37                                                 
|Diluted
                 earnings per share       |  | 0.37                                                 




|                                                  |  | For
                 the Year Ended December 31, 1998
|------------------------------------------------- |  | -----------------------------------------------------
|
|
|                                                 
|Interest income                                   |  | $99,064                                              
|Net
                 interest income              |  | 36,934                                               
|Provision for losses on loans and leases          |  | 660                                                  
|Income
                 before income tax expense |  | 9,976                                                
|Net
                 income                       |  | 5,061                                                
|Basic
                 earnings per share         |  | 0.25                                                 
|Diluted
                 earnings per share       |  | 0.24                                                 







Independent Auditors Report





The Board
               of Directors


Bay View
               Capital Corporation:





We have audited the
               accompanying consolidated statements of financial condition of
               Bay View Capital Corporation and subsidiaries (the Company
               ) as of December 31, 1999 and 1998, and the related
               consolidated statements of income and comprehensive income,
               stockholders equity and cash flows for the years then
               ended. These financial statements are the responsibility of the
               Companys management. Our responsibility is to express an
               opinion on these consolidated financial statements based on our
               audit. The accompanying consolidated statements of income and
               comprehensive income, stockholders equity and cash flows
               of Bay View Capital Corporation and subsidiaries for the year
               ended December 31, 1997 were audited by other auditors whose
               report thereon dated January 26, 1998, expressed an unqualified
               opinion on those statements.





We conducted our
               audits in accordance with generally accepted auditing standards.
               Those standards require that we plan and perform the audit to
               obtain reasonable assurance about whether the financial
               statements are free of material misstatement. An audit includes
               examining, on a test basis, evidence supporting the amounts and
               disclosures in the financial statements. An audit also includes
               assessing the accounting principles used and significant
               estimates made by management, as well as evaluating the overall
               financial statement presentation. We believe that our audits
               provide a reasonable basis for our opinion.





In our opinion, the
               financial statements referred to above present fairly, in all
               material respects, the financial position of Bay View Capital
               Corporation and subsidiaries as of December 31, 1999 and 1998,
               and the results of its operations and its cash flows for the
               years then ended in conformity with generally accepted
               accounting principles.





/s/ KPMG
               LLP





San
               Francisco, California


January
               18, 2000








Item 9.    Changes in and Disagreements with
               Accountants on Accounting and Financial
               Disclosure





None.





Part
               III





Item 10.    Directors and Executive Officers
               of the Registrant





Information concerning
               our executive officers is contained under the heading
               Executive Officers of the Registrant at Item 1.
               Business. Information concerning our directors and
               compliance with the reporting requirements of Section 16(a) of
               the Securities Exchange Act of 1934 by our directors, executive
               officers and beneficial owners of greater than ten percent of
               our equity securities is incorporated herein by reference from
               our Definitive Proxy Statement for the Annual Meeting of
               Stockholders scheduled to be held on April 27, 2000, a copy of
               which will be filed not later than 120 days after the close of
               our fiscal year. The compensation report and performance graph
               included in the Definitive Proxy Statement pursuant to Items
               402(k) and 402(l) of Regulation S-K are specifically not
               incorporated by reference herein.





Item 11.    Executive
               Compensation





Information concerning
               executive compensation is incorporated herein by reference from
               our Definitive Proxy Statement for the Annual Meeting of
               Stockholders scheduled to be held on April 27, 2000, a copy of
               which will be filed not later than 120 days after the close of
               our fiscal year. The compensation report and performance graph
               included in the Definitive Proxy Statement pursuant to Items
               402(k) and 402(l) of Regulation S-K are specifically not
               incorporated by reference herein.





Item 12.    Security Ownership of Certain
               Beneficial Owners and Management





Information concerning
               security ownership of certain beneficial owners and management
               is incorporated herein by reference from our Definitive Proxy
               Statement for the Annual Meeting of Stockholders scheduled to be
               held on April 27, 2000, a copy of which will be filed not later
               than 120 days after the close of our fiscal year.





Item 13.    Certain Relationships and Related
               Transactions





Information concerning
               certain relationships and related transactions is incorporated
               herein by reference from our Definitive Proxy Statement for the
               Annual Meeting of Stockholders scheduled to be held on April 27,
               2000, a copy of which will be filed not later than 120 days
               after the close of our fiscal year.








Part
               IV





Item 14.    Exhibits, Financial Statement
               Schedules and Reports on Form 8-K





(a)
               (1) and (2):





Our Financial
               Statements and Supplementary Data contained in Item 8 are filed
               as part of this report. All financial statement schedules have
               been omitted as the required information is not applicable or
               has been included in our financial statements and related
               notes.





(a)
               (3):





Exhibits are listed in
               the table below.





|Regulation
               
               S-K
               
               Exhibit
               
               Number |  | Document                                                                                                                                                     |  | Reference to prior
               
               filing or exhibit
               
               number attached
               
               hereto
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|2                                                                                                                          |  | Plan of
                 acquisition, reorganization, arrangement, liquidation or
                 succession                                                |  | None                                                                                                                                                    
|                                                                                                                           | 
|3                                                                                                                          |  | Articles of Incorporation                                                                                                                                    |  | 3a                                                                                                                                                      
|                                                                                                                           |  | Bylaws                                                                                                                                                       |  | 3b                                                                                                                                                      
|                                                                                                                           | 
|4                                                                                                                          |  | Instruments defining the rights of security holders,
                 including indentures:                                                                  |  |                                                                                                                                                         
|                                                                                                                           |  | Articles of Incorporation                                                                                                                                    |  | 3a                                                                                                                                                      
|                                                                                                                           |  | Bylaws                                                                                                                                                       |  | 3b                                                                                                                                                      
|                                                                                                                           |  | Specimen of common stock certificate                                                                                                                         |  | 4.1                                                                                                                                                     
|                                                                                                                           |  | Stockholder Protections Rights Agreement, dated July
                 31, 1990 (the Rights
               
                   Agreement)                   |  | 4a                                                                                                                                                      
|                                                                                                                           |  | First
                 Amendment to the Rights Agreement, dated February 26,
                 1993                                                           |  | 4b                                                                                                                                                      
|                                                                                                                           |  | Second
                 Amendment to the Rights Agreement, dated October 10,
                 1997                                                           |  | 4c                                                                                                                                                      
|                                                                                                                           |  | Third
                 Amendment to the Rights Agreement, dated September 29,
                 1998                                                          |  | 4d                                                                                                                                                      
|                                                                                                                           |  | Fourth
                 Amendment to the Rights Agreement, dated October 22,
                 1999                                                           |  | 4e                                                                                                                                                      
|                                                                                                                           |  | Form of
                 Rights Certificate and of Election to Exercise pursuant to the
                 Rights
               
                   Agreement |  | 4f                                                                                                                                                      
|                                                                                                                           | 
|9                                                                                                                          |  | Voting
                 trust agreement                                                                                                                      |  | None                                                                                                                                                    
|                                                                                                                           | 
|10                                                                                                                         |  | Material contracts:                                                                                                                                          |  |                                                                                                                                                         
|                                                                                                                           |  | Employment Contract with Richard E. Arnold                                                                                                                   |  | 10a                                                                                                                                                     
|                                                                                                                           |  | Employment Contract with John N. Buckley                                                                                                                     |  | 10a                                                                                                                                                     
|                                                                                                                           |  | Employment Contract with David A. Heaberlin                                                                                                                  |  | 10a                                                                                                                                                     
|                                                                                                                           |  | Employment Contract with Scott H. Ray                                                                                                                        |  | 10a                                                                                                                                                     
|                                                                                                                           |  | Employment Contract with Ronald L. Reed                                                                                                                      |  | 10a                                                                                                                                                     
|                                                                                                                           |  | Employment Contract with Edward H. Sondker                                                                                                                   |  | 10a                                                                                                                                                     
|                                                                                                                           |  | Employment Contract with Carolyn
                 Williams-Goldman                                                                                           |  | 10a                                                                                                                                                     
|                                                                                                                           |  | Employment Contract with Matthew L.
                 Carpenter                                                                                               |  | 10.1                                                                                                                                                    
|                                                                                                                           |  | Employment Contract with Wayne L. Knyal                                                                                                                      |  | 10.2                                                                                                                                                    
|                                                                                                                           |  | Employment Contract with Douglas J. Wallis                                                                                                                   |  | 10.3                                                                                                                                                    
|                                                                                                                           |  | Supplemental Executive Retirement Plan                                                                                                                       |  | 10b                                                                                                                                                     
|                                                                                                                           |  | Senior
                 Management Incentive Plan                                                                                                            |  | 10c                                                                                                                                                     
|                                                                                                                           |  | Senior
                 Management Long-Term Incentive Plan                                                                                                  |  | 10d                                                                                                                                                     
|                                                                                                                           |  | Amended
                 and Restated 1986 Stock Option and Incentive Plan                                                                                   |  | 10e                                                                                                                                                     
|                                                                                                                           |  | Amendment No. One to the Amended and Restated 1986
                 Stock Option and
               
               Incentive Plan                           |  | 10f                                                                                                                                                     
|                                                                                                                           |  | Amended
                 and Restated 1989 Non-Employee Director Stock Option
                 Plan                                                          |  | 10g                                                                                                                                                     
|                                                                                                                           |  | Amended
                 Outside Directors Retirement Plan                                                                                                  |  | 10h                                                                                                                                                     
|                                                                                                                           |  | Stock
                 in Lieu of Cash Compensation Plan for Non-Employee
                 Directors                                                         |  | 10h                                                                                                                                                     
|                                                                                                                           |  | Deferred Compensation Plan                                                                                                                                   |  | 10h                                                                                                                                                     
|                                                                                                                           |  | Amended
                 and Restated 1995 Stock Option and Incentive Plan                                                                                   |  | 10i                                                                                                                                                     




|Regulation
               
               S-K
               
               Exhibit
               
               Number |  | Document                                                                                                                           |  | Reference to prior
               
               filing or exhibit
               
               number attached
               
               hereto
|-------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                           |  | Amendment No. One to the Amended and Restated 1995
                 Stock Option and
               
               Incentive Plan |  | 10f                                                                                                                                                     
|                                                                                                                           |  | Amendment No. Two to the Amended and Restated 1995
                 Stock Option and
               
               Incentive Plan |  | 10f                                                                                                                                                     
|                                                                                                                           |  | 1998
                 2000 Stock Performance Plan                                                                                 |  | 10j                                                                                                                                                     
|                                                                                                                           |  | 1998
                 Non-Employee Director Stock Option and Incentive
                 Plan                                       |  | 10j                                                                                                                                                     
|                                                                                                                           |  | Supplemental Phantom Stock Unit Plan                                                                                               |  | 10.4                                                                                                                                                    
|                                                                                                                           | 
|11                                                                                                                         |  | Statement re computation of per share
                 earnings                                                                    |  | 11                                                                                                                                                      
|                                                                                                                           | 
|12                                                                                                                         |  | Statements re computation of ratios                                                                                                |  | 12                                                                                                                                                      
|                                                                                                                           | 
|13                                                                                                                         |  | Annual
                 Report to security holders                                                                                 |  | Not
                 required                                                                                                                           
|                                                                                                                           | 
|16                                                                                                                         |  | Letter
                 re change in certifying accountant                                                                         |  | Not
                 required                                                                                                                           
|                                                                                                                           | 
|18                                                                                                                         |  | Letter
                 re change in accounting principles                                                                         |  | None                                                                                                                                                    
|                                                                                                                           | 
|21                                                                                                                         |  | Subsidiaries of the Registrant                                                                                                     |  | 21                                                                                                                                                      
|                                                                                                                           | 
|22                                                                                                                         |  | Published report regarding matters submitted to vote of
                 security holders                                          |  | None                                                                                                                                                    
|                                                                                                                           | 
|23                                                                                                                         |  | Consent
                 of KPMG LLP                                                                                               |  | 23.1                                                                                                                                                    
|                                                                                                                           |  | Consent
                 of Deloitte & Touche LLP                                                                                  |  | 23.2                                                                                                                                                    
|                                                                                                                           | 
|24                                                                                                                         |  | Power
                 of attorney                                                                                                 |  | Not
                 required                                                                                                                           
|                                                                                                                           | 
|27                                                                                                                         |  | Financial Data Schedule                                                                                                            |  | 27                                                                                                                                                      
|                                                                                                                           | 
|99                                                                                                                         |  | Additional ExhibitsReport of predecessor
                 independent accountants                                                 |  | 99                                                                                                                                                      




(References to Prior Filings)





|3a    |  | Filed
                 as exhibit 4(a) to the Registrants Registration
                 Statement on Form S-3 filed June 20, 1997
               
               (File No. 333-29757)                                                                      
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|3b    |  | Filed
                 as exhibit 10.3 to the Registrants Quarterly Report on
                 Form 10-Q for the quarterly period ended
               
               September 30, 1999 (File No. 0-14879)                                               
|      | 
|4a    |  | Filed
                 as exhibit 1 to the Registrants Registration Statement
                 on Form 8 filed March 9, 1993 (the second
               
               amendment to a Form 8-A filed August 6, 1990) (File No.
                 0-17901)  
|      | 
|4b    |  | Filed
                 as exhibit 3 to the Registrants Registration Statement
                 on Form 8 filed March 9, 1993 (the second
               
               amendment to a Form 8-A filed August 6, 1990) (File No.
                 0-17901)  
|      | 
|4c    |  | Filed
                 as exhibit 4 to the Registrants Registration Statement
                 on Form 8-A, as amended on
               
               Form 8-A/A-3, filed October 10, 1997 (File No.
                 0-17901)                          
|      | 
|4d    |  | Filed
                 as exhibit 5 to the Registrants Registration Statement
                 on Form 8-A, as amended on Form 8-A/A-
               
               4, filed September 29, 1998 (File No. 0-17901)                                        
|      | 
|4e    |  | Filed
                 as Exhibit 8 to the Registrants Registration Statement
                 on Form 8-A, as amended on
               
               Form 8-A/A, filed November 1, 1999 (File No. 0-14879)                                             
|      | 
|4f    |  | Filed
                 as exhibit 2 to the Registrants Registration Statement
                 on Form 8 filed March 9, 1993 (the second
               
               amendment to a Form 8-A filed August 6, 1990) (File No.
                 0-17901)  
|      | 
|10a   |  | Filed
                 as an exhibit to the Registrants Quarterly Report on
                 Form 10-Q for the quarterly period ended
               
               September 30, 1998 (File No. 0-17901)                                                 
|      | 
|10b-d |  | Filed
                 as exhibits 10.6 to 10.8, respectively, to the Registrant
                 s Annual Report on Form 10-K filed
               
               March 30, 1993 for the year ended December 31, 1992 (File No.
                 0-17901)
|      | 
|10e   |  | Filed
                 as exhibit 4 to the Registrants Registration Statement
                 on Form S-8 filed August 11, 1995
               
               (File No. 33-95724)                                                                        




|10f                                                                                                                                                                                  |  | Filed
                 as exhibits 10 to 10.2, respectively, to the Registrants
                 Quarterly Report on Form 10-Q for the
               
               quarterly period ended September 30, 1999 (File No.
                 0-14879)                                                                                                                                                                                                                                                                               
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                     | 
|10g                                                                                                                                                                                  |  | Filed
                 as exhibit 4.4 to the Registrants Registration Statement
                 on Form S-8 filed July 26, 1991
               
               (File No. 33-41924)                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                     | 
|10h                                                                                                                                                                                  |  | Filed
                 as an exhibit to the Registrants Annual Report on Form
                 10-K for the fiscal year ended
               
               December 31, 1996, as amended on Form 10-K/A on June 27, 1997
                 (File No. 0-17901)                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                     | 
|10i                                                                                                                                                                                  |  | Filed
                 as an exhibit to the Registrants Annual Report on Form
                 10-K for the fiscal year ended
               
               December 31, 1996, as amended on Form 10-K/A on June 27, 1997
                 (File No. 0-17901)                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                     | 
|10j                                                                                                                                                                                  |  | Filed
                 as an appendix to the Registrants Definitive Proxy
                 Statement on Schedule 14-A filed April 20,
               
               1998 (File No. 0-17901)                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                     | 
|All of such
                 previously filed documents are hereby incorporated herein by
                 reference in accordance with Item 601 of Regulation
                 S-K.
|                                                                                                                                                                                     | 
|(b)
                   Reports on Form 8-K:                                                                                                                                         
|                                                                                                                                                                                     | 
|b(i)                                                                                                                                                                                 |  | The
                 Registrant filed the following report on Form 8-K dated
                 November 5, 1999 during the three months
               
               ended December 31, 1999:                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                     |  | The
                 Registrant entered into the Placement Agency Agreement among
                 Bay View Capital Corporation,
               
               FMAX Holdings, L.L.C. as selling stockholder and Freidman,
                 Billings, Ramsey & Co. as placement
               
               agent. The agreement relates to an offering of the Registrant
                 s common stock commenced on
               
               November 5, 1999 and was completed on November 10,
                 1999.
|                                                                                                                                                                                     | 
|b(ii)                                                                                                                                                                                |  | The
                 Registrant filed the following report on Form 8-K dated
                 November 1, 1999 during the three months
               
               ended December 31, 1999:                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                     |  | The
                 Registrant filed a press release announcing the consummation
                 of the acquisition of Franchise
               
               Mortgage Acceptance Company.                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                     | 
|b(iii)                                                                                                                                                                               |  | The
                 Registrant filed the following report on Form 8-K dated
                 October 20, 1999 during the three months
               
               ended December 31, 1999:                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                     |  | The
                 Registrant filed a press release announcing Bay View Capital
                 Corporations third quarter earnings
               
               for the quarter ended September 30, 1999.                                                                                                                                                                                                                                                                                                                   




Signatures





Pursuant to the
               requirements of Section 13 or 15(d) 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.





Date:
               March 24, 2000


| | BAY
                 VIEW CAPITAL CORPORATION
| | ---------------------------------------------




| | 
| | 

| | By: | /s/
                     SCOTT
               H. RAY
| | --- | ----------------------------------------------------

| | Scott
                 H. Ray
| | -----------------------------

| | Executive Vice President and Chief Financial Officer
                 (Principal Financial Officer)
| | ---------------------------------------------------------------------------------------------------




| | 
| | 

| | By: | /s/    JEFFREY
               O. BUTCHER
| | --- | ----------------------------------------

| | Jeffrey
                 O. Butcher
| | -----------------------------------

| | First
                 Vice President and Controller
               
               (Principal Accounting Officer)
| | ------------------------------------------------------------------------------------------------------------------




Pursuant to the
               requirements of the Securities Exchange Act of 1934, this report
               has been signed below by the following persons on behalf of the
               Registrant and in the capacities and on the dates
               indicated.








| | 
| | 




|By: | /s/
                     JOHN
               R. MC
               KEAN | By: | /s/    EDWARD
               H. SONDKER
|--- | ---------------------------------------------------------------------- | --- | ---------------------------------------



|John R.
                 McKean | Edward
                 H. Sondker
|------------------------------- | ----------------------------------

|Chairman of the Board | Director President and Chief Executive
                 Officer
|--------------------- | ---------------------------------------------------------------

| | (Principal Executive Officer)
| | -----------------------------

| | 
| | 

| | 
| | 






|March
                 24, 2000 | March
                 24, 2000
|------------------------------- | -------------------------------







| | 
| | 




|By: | /s/    PAULA
               R. COLLINS | By: | /s/
                     WAYNE
               L. KNYAL
|--- | -------------------------------------- | --- | ------------------------------------------------------



|Paula R. Collins | Wayne
                 L. Knyal
|---------------- | -------------------------------



|Director | Director
|-------- | --------






|March
                 24, 2000 | March
                 24, 2000
|------------------------------- | -------------------------------







| | 
| | 




|By: | /s/
                     THOMAS
               M. FOSTER | By: | /s/    GEORGE
               H. KRAUSS
|--- | -------------------------------------------------------- | --- | --------------------------------------



|Thomas
                 M. Foster | George
                 H. Krauss
|--------------------------------- | ---------------------------------



|Director | Director
|-------- | --------






|March
                 24, 2000 | March
                 24, 2000
|------------------------------- | -------------------------------







| | 
| | 




|By: | /s/    ROBERT
               M. GREBER | By: | /s/    W. BLAKE
               WINCHELL
|--- | -------------------------------------- | --- | ---------------------------------------



|Robert
                 M. Greber | W.
                 Blake Winchell
|--------------------------------- | ----------------------------------



|Director | Director
|-------- | --------






|March
                 24, 2000 | March
                 24, 2000
|------------------------------- | -------------------------------