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United States
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-K/A (Amendment No.
1)
 [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the fiscal year ended December 31, 2003 OR [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  Commission file number 0-14879 BAY VIEW CAPITAL CORPORATION  Delaware
    
    94-3078031(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)1840 Gateway Drive
San Mateo, California
(Address of principal executive offices)
    
    94404
(Zip
Code)
 Registrants telephone number, including area code: (650) 312-7300
Securities registered pursuant to Section 12(b) of the Act: Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $0.01 per share
    
    New York Stock Exchange9.76% Capital Securities due 2028
    
    New York Stock Exchange
 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. [  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES [X]NO [  ] The aggregate market value of the voting stock held by non-affiliates of
the registrant as of June 30, 2003 was $364,280,153, based upon the price at
which the common equity was last sold on the New York Stock Exchange as of such
date. There
were 6,578,029 shares of Common Stock, $0.01 par value, outstanding
as of February 27, 2004. DOCUMENTS INCORPORATED BY REFERENCE Part III of Form 10-K  Portions of the definitive Proxy Statement for
Registrants 2004 Annual Meeting of Stockholders to be filed not later than
April 29, 2004 with the Securities and Exchange Commission are incorporated by
reference in Items 10, 11, 12, 13 and 14. 1




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EXPLANATORY NOTE:

This
Amendment No. 1 on Form 10-K/A amends and restates
Items 1, 5, 6, 7, 8 and 9A of our
Annual Report on Form 10-K for the fiscal year ended December 31, 2003, as
filed with the Securities and Exchange Commission on March 15, 2004 (the
Original Filing). We are filing this Amendment No. 1 to reflect the
restatement of our consolidated financial statements as of and for the three
months ended December 31, 2003.

As discussed in more detail in Note 3 to our consolidated financial
statements contained in this Form 10-K/A, the restatement resulted from a
review of the Companys application of FASB Statement No. 91, Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases, to our auto finance subsidiarys portfolio of
auto contracts held-for-sale. The effect of the restatement is to increase
total assets and net income as of and for the three months ended December 31,
2003 by $182 thousand. This Form 10-K/A also includes adjustments to reflect
the 1-for-10 reverse stock split effected on June 30, 2004. Accordingly, all
shares outstanding and per share amounts are presented herein on a post-reverse
stock split basis.

Except as set forth above, this Form 10-K/A continues to speak as of March
15, 2004, the date of the filing of the Original Filing, and we have not
updated the disclosures contained herein to reflect any events that have
occurred thereafter. For a discussion of events and developments thereafter,
reference is made to the periodic reports we have filed with the Securities and
Exchange Commission since March 15, 2004.

Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004
will also be restated in a similar fashion and will be filed simultaneously
with this Form 10-K/A.

2



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TABLE OF CONTENTS  Part IItem 1. BusinessGeneral and Business OverviewLiquidating PortfolioFunding ActivitiesDebtCompetitionEconomic Conditions, Government Policies and LegislationSupervision and RegulationEmployeesExecutive Officers of the RegistrantItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPart IIItem 5. Market for Registrants Common Equity and Related Stockholder MattersItem 6. Selected Financial Data  Five-Year Financial InformationItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresPart IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules and Reports on Form 8-KSignaturesEXHIBIT 3.1EXHIBIT 11EXHIBIT 12EXHIBIT 14EXHIBIT 21EXHIBIT 23EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2    Table of Contents  FORM 10-K/A Part IItem 1.
    
    BusinessGeneral and Business Overview
    
    
    5Liquidating Portfolio
    
    
    7Funding Activities
    
    
    8Debt
    
    
    8Competition
    
    
    8Economic Conditions, Government Policies and Legislation
    
    
    8Supervision and Regulation
    
    
    9Employees
    
    
    10Executive Officers of the Registrant
    
    
    10Item 2.
    
    Properties
    
    
    11Item 3.
    
    Legal Proceedings
    
    
    11Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    11Part IIItem 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    12Item 6.
    
    Selected Financial Data - Five-Year Financial Information
    
    
    13Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    45Item 8.
    
    Financial Statements and Supplementary Data
    
    
    47Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    96Item 9A.
    
    Controls and Procedures
    
    
    96Part IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    96Item 11.
    
    Executive Compensation
    
    
    96Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    96Item 13.
    
    Certain Relationships and Related Transactions
    
    
    97Item 14.
    
    Principal Accountant Fees and Services
    
    
    97Part IVItem 15.
    
    Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    
    98Signatures
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Forward-Looking Statements This Form 10-K Annual Report of Bay View Capital Corporation (the
Company, we, us, or our) contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that describe
our plans for our automobile finance company, Bay View Acceptance Corporation
(BVAC), and the continuing disposition of assets and satisfaction of
liabilities the Company acquired when the banking activities of Bay View Bank,
N.A. (the Bank) were discontinued effective September 30, 2003. These
forward-looking statements are identified by use of terms and phrases such as
anticipate, believe, could, estimate, expect, intend, may,
plan, predict, project, will, and similar terms and phrases, including
references to assumptions. These forward-looking statements are necessarily
based on assumptions as of the date of the Original Filing and involve
risks and uncertainties. Accordingly, the Companys actual results from the
ongoing operations of BVAC and the continuing disposition of assets and
satisfaction of liabilities from the discontinued banking activities may differ
materially from those that the Company currently anticipates. There are a number of factors that may affect forward-looking statements
regarding the ongoing operations of BVAC including the following:  
    
    Our Board could determine to expand the Companys and BVACs
operations if it decides greater stockholder value would be realized by
doing so;
    
    The Companys ability to obtain financing to fund the ongoing
operations of BVAC, including securitizing and selling automobile
installment contracts in order to repay an existing line of credit;
    
    Changes in general economic and business conditions;
    
    Interest rate fluctuations, including hedging activities;
    
    The Companys financial condition and liquidity, as well as future cash flows and earnings;
    
    Competition;
    
    The Companys level of operating expenses;
    
    The effect of new laws, regulations and court decisions affecting consumer finance transactions;
    
    The condition of the market for the sale of new and used automobiles;
    
    The level of chargeoffs on the contracts that BVAC purchases; and
    
    Significant litigation. The
Company proposes to make approximately $14.50 per share in cash
distributions to our stockholders from the proceeds of the disposition of
assets from discontinued banking activities. The factors that could reduce the
amounts ultimately distributed or that could cause a delay in making the
distributions include the following:  
    
    Unforeseen delays in the disposition of the assets;
    
    The realization of the Companys deferred tax assets could be less than the Company currently projects;
    
    The Company may encounter difficulty in selling some of its assets,
and certain assets may not be able to be sold for the prices the Company
currently anticipates;
    
    The Company may not be able to discharge certain liabilities for the
amounts the Company currently estimates;
    
    The Company may incur or discover presently unanticipated claims,
liabilities or expenses;
    
    Our current estimates of the cash distribution amounts include
projections of future events and performance as distant as 2006 and,
accordingly, are inherently subject to many uncertainties;
    
    The expenses of the disposition of assets may exceed the amounts
currently estimated;
    
    Our Board could determine to expand the Companys and BVACs
operations if it decides greater stockholder value would be realized by
doing so. As a result of the foregoing factors, no stockholder should place undue
reliance on any forward-looking statements. The Company does not undertake,
and specifically disclaims, any obligation to update any forward-looking
statements and all forward-looking statements speak only as of the date made. 4




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Part I 
 Item 1. Business General and Business
Overview 
 Bay View Capital Corporation, a Delaware corporation organized in 1989
(the Company, we, us, or our), is a financial services company
headquartered in San Mateo, California. On October 3, 2002, we adopted a Plan
of Dissolution and Stockholder Liquidity (the Plan). The Plan contemplated
that we, under applicable provisions of the Delaware General Corporation Law,
would:  
    
    dispose of all of our assets, including all of the assets of Bay View Bank, N.A. (the Bank);
    
    pay all of our debts and liabilities and make reasonable provision for any contingent liabilities;
    
    distribute the remaining proceeds from our asset sales to our stockholders; and
    
    dissolve. As a result of the adoption of the Plan, we adopted the liquidation basis
of accounting effective September 30, 2002. During the fourth quarter of 2003, our Board of Directors amended the Plan
to become a plan of partial liquidation (the Amended Plan) under which we
will complete the liquidation of the assets and satisfaction of the liabilities
of the Bank remaining after the Banks September 30, 2003 dissolution,
distribute the proceeds to our stockholders through a series of cash
distributions, and continue to operate our wholly-owned automobile finance
subsidiary, Bay View Acceptance Corporation (BVAC), on an ongoing basis. In
connection with adopting the Amended Plan, we discontinued our use of
liquidation basis accounting and re-adopted going concern basis accounting
effective October 1, 2003. The background of the Plan and our Boards decision to adopt the Amended
Plan is as follows:  
    
    As previously reported, the substantial losses we suffered in 2000
materially adversely affected our regulatory capital levels as well as
those of the Bank. The adverse effect on our regulatory capital level
and that of the Bank resulted in the imposition of written regulatory
agreements pursuant to 12 U.S.C. 1818(b) by the Board of Governors of
the Federal Reserve System (the FRB) with respect to us and by the
Office of the Comptroller of the Currency (the OCC) with respect to
the Bank.
    
    In March 2001, in light of the critical financial condition and our
uncertain future of us and that of the Bank, we and the Bank retained
new management to develop and implement a strategic plan to restore the
financial stability of us and the Bank. The principal elements of the
strategic plan were the sale of the Banks higher risk assets, including
the sale of its franchise loan servicing operations and franchise loans,
and a renewed focus on the Banks commercial and retail banking
platforms.
    
    Following the significant and successful turnaround actions
undertaken and completed in 2001 under the strategic plan, we began
active consideration of various alternatives to maximize our value to
our stockholders. We retained Credit Suisse First Boston Corporation to
assist us in evaluating a variety of transactions. Through this
evaluation process, we determined that greater stockholder value could
be obtained by adopting the Plan and selling our and the Banks assets
to a series of purchasers rather than by an alternative approach such as
selling or merging us or the Bank as a whole.
    
    As a result of the decision to proceed with the Plan, we and the Bank
engaged in asset disposition activities. The two principal asset
disposition transactions effected were the sale of approximately $1.0
billion of multifamily and commercial real estate loans to Washington
Mutual Bank, FSA in August 2002 and the sale of the Banks retail
banking assets (including 57 branch offices; MoneyCare; service center
operations; approximately $327.7 million of single family residential
mortgages, home equity and commercial loans) and 5




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the assumption of $3.3 billion of deposit liabilities, to U.S. Bank
National Association (U.S. Bank) on November 1, 2002.
    
    The dissolution and liquidation of the Bank was completed on
September 30, 2003. On that date, the Bank transferred its remaining
assets and liabilities to us, as the Banks sole stockholder. From
November 1, 2002 until its dissolution, the Bank did not operate any
branches, did not accept any deposits, and did not otherwise conduct
traditional banking activities. During the period from November 1, 2002
through September 30, 2003, our principal business activity has been the
ongoing disposition of the Banks remaining assets, and the satisfaction
of its liabilities. Net interest income, the difference between
interest received and interest paid, comprised the majority of our
operating earnings in 2003. As we continue to sell assets and discharge
liabilities, these operating earnings will continue to contract.
    
    In October 2003, our Board of Directors adopted the Amended Plan.
Among the factors considered by our Board of Directors in deciding to
engage in a partial liquidation rather than a complete liquidation were;
adverse market conditions in the auto sector, which caused our Board to
conclude that the near-term sale or distribution of the stock of BVAC to
our stockholders would not be the best method of maximizing stockholder
value; a determination that our remaining tax net operating loss
carryforwards could be more fully utilized by continuing to operate BVAC
beyond the third quarter of 2005; and, the opportunity to obtain greater
corporate and financial flexibility than if we were limited to operating
as a dissolving corporation. In accordance with the Amended Plan, we
made an initial cash distribution of $263.2 million, or $40.00 per share,
to our stockholders on December 30, 2003 and redeemed $63.5 million of
the 9.76% Cumulative Capital Securities on December 31, 2003. In the course of resolving the remaining assets and liabilities from
discontinued banking activities during 2004 and 2005, we currently anticipate
making additional cash distributions of approximately $14.50 per share to our
common stockholders through a series of six quarterly distributions beginning
in the second quarter of 2004 and continuing through the third quarter of 2005.
We believe that each of the first five of these distributions will be
approximately $2.50 per share with the sixth distribution
approximating $2.00
per share. The timing and amount of these distributions will vary depending on
our Boards future decisions about BVAC and how to maximize stockholder value. Automobile Finance BVAC is a Southern California-based auto finance company engaged in the
indirect financing of automobile purchases by individuals. BVAC is our only
remaining operating subsidiary. As an indirect lender, BVAC markets to
automobile dealerships, both manufacturer-franchised dealerships and
independent dealerships, and purchases installment contracts on new and used
vehicles from over 7,000 auto dealers in 24 states. Of the contracts BVAC
purchased in 2003, approximately 90% were originated by manufacturer-franchised
dealerships and approximately 10% were originated by independent dealerships;
49% were contracts on new vehicles and 51% were contracts on used vehicles.
BVAC purchases installment contracts with limited recourse to the dealer. BVAC has positioned itself in the market as a premium priced lender for
well-qualified borrowers seeking extended financing terms and higher advances
than those generally offered by traditional lenders. BVAC places a strong
emphasis on borrower stability, credit quality, and debt serviceability. With
Fair, Isaac & Co. FICO credit scores that averaged 733 in 2003, BVACs
borrower base is largely comprised of prime borrowers. BVAC currently offers
financing terms to 96 months and typically finances an amount in excess of a
dealers wholesale value of a vehicle. BVAC will finance vehicles without
restrictions on the model year. During 2003, the average loan amount BVAC
financed was $28,600 with an average term of 81 months. We believe that this
strategy has enabled BVAC to establish a loyal dealership network by satisfying
consumer demand within the indirect auto finance market that is inadequately
served by commercial banks and finance companies. BVAC utilizes a proprietary
credit scoring system in connection with its underwriting and credit approvals.
The credit scoring system captures data from consumers credit
bureau reports,
consumers loan applications and the terms of proposed loans. 6




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We entered the auto finance business in 1996 through our acquisition of
CTL, Inc., the parent company of California Thrift & Loan. California Thrift &
Loan began its auto finance operations in 1973, and through a series of mergers
and name changes, became BVAC. Since the liquidation of the Bank, BVAC has
operated as an independent finance company, rather than a portfolio-lending
unit of the Bank, purchasing installment contracts for sale or securitization.
BVAC has a $250 million revolving warehouse credit facility for funding its
purchases of contracts prior to securitization or sale. At December 31, 2003,
BVAC had $138.2 million outstanding under this credit facility. BVAC intends
to periodically securitize and sell its production of installment contracts in
order to repay the line of credit. BVAC retains the servicing obligation on
the contracts that it securitizes or sells which provides the Company with a
source of fee income over the life of the contracts. BVAC is continuing a geographic expansion plan that it initiated in late
2002. From its established presence in 17 states, primarily in the West,
Midwest and Florida, BVAC entered seven Mid-Atlantic states in 2003. In 2004,
BVAC plans to enter nine additional states primarily in New England, as well as
Oklahoma. Historically, BVAC has aligned itself with smaller franchised and
independent dealers. In recent years, the industry has experienced intense
merger and acquisition activity that has led to the emergence of large,
regional and national automobile dealership organizations, causing BVAC to lose
production volume from its existing dealer base. In response, during 2003 BVAC
began a campaign to establish relationships with these regional and national
dealer organizations and has now signed agreements with five of these
organizations representing 370 dealerships. During 2004, BVAC intends to
continue to pursue this strategy. BVAC uses a vertically integrated combination of regional marketing
representatives and national supervision to develop and maintain relationships
with the majority of its dealer base and market its indirect financing
programs. Account development managers develop and maintain relationships with
BVACs larger regional and national dealership organizations. Retail contracts
are centrally underwritten, approved, funded, and serviced from
BVACs Covina,
California corporate office. 
 Liquidating Portfolio As of December 31, 2003, our ongoing business consisted solely of
automobile financing. All other types of lending were discontinued beginning
in 2002 and remaining loans from these other types of lending and other assets
continue to be liquidated. The following descriptions are provided as a
reference to these assets with outstanding balances at December 31, 2003. All
outstanding balances at December 31, 2003 are classified as held-for-sale. Automobile Leases- Automobile leases, which are not included in the
balance of our loan portfolio, totaled $66.7 million net of accumulated
depreciation and valuation allowances at December 31, 2003, and represent 18.3%
of our consolidated assets. We ceased purchasing auto leases in June 2000.
The auto leases are accounted for as operating leases and the lease asset is
capitalized and depreciated to its estimated residual value over the term of
the lease. Asset-Based Loans- At December 31, 2003, our asset-based loans totaled
$0.8 million. Our asset-based loans are primarily adjustable-rate loans based
on the prime rate index. Coincident with the sale of the Banks retail banking
assets, we ceased originating asset-based loans. Business Loans and Lines of Credit- At December 31, 2003, our business
loans totaled $4.8 million. We also ceased originating business loans and
lines of credit in November 2002. Franchise Loans- At December 31, 2003, our commercial franchise loans
totaled $6.4 million. We ceased the purchase and origination of franchise
loans in September 2000. Since then, we have focused on disposing of our
franchise loans through loan sales and negotiated payoffs. During 2003,
franchise loan sales, as well as loan payoffs and amortization, reduced our
franchise loans to $6.4 million at December 31, 2003 from $46.9 million at
December 31, 2002. At December 31, 2003, franchise loans included $5.4 million
of loans to gas station/convenience store and truckstop operators and $1.0
million of loans to restaurant operators. Mortgage-backed and Other Securities- At December 31, 2003, our
mortgage-backed and other securities portfolio totaled $6.1 million and
consisted of $5.9 million of high-quality mortgage-backed securities issued by 7




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Fannie Mae and Freddie Mac and senior tranches of private issue
collateralized mortgage obligations and $0.2 million of other securities.
During 2003, we sold $15.3 million of mortgage- and asset-backed securities. Real Estate Owned- At December 31, 2003, our real estate owned totaled
$5.0 million and consisted entirely of foreclosed franchise properties. 
 Funding Activities On November 1, 2002, U.S. Bank acquired the Banks retail deposits in
connection with our sale of the Banks retail banking assets. All of the
Banks brokered deposits matured by March 31, 2003. In addition to our warehouse credit facility, we have other borrowings,
representing the remaining balance of a structured financing secured by the
contractual cash flows from our auto lease portfolio, which totaled $16.1
million at December 31, 2003. 
 Debt As of December 31, 2003, we had $24.8 million of outstanding debt
represented by 9.76% Junior Subordinated Deferrable Interest Debentures (the
Junior Debentures) that were issued by the Company to Bay View Capital I, a
Delaware business trust we sponsor. The Junior Debentures support the $22.0
million of outstanding 9.76% Cumulative Capital Securities (the Capital
Securities) that were issued by Bay View Capital I and trade on the New York
Stock Exchange under the symbol (BVS). Effective December 31, 2003, in
accordance with the requirements of Financial Accounting Standards Board
Financial Interpretation No. 46, Consolidation of Variable Interest Entities,
we deconsolidated Bay View Capital I and the Capital Securities. As a result
of this deconsolidation, as of December 31, 2003, the debt reflected in our
consolidated financial statements now reflects the Junior Debentures while no
longer reflecting the Capital Securities. During the third quarter of 2003, we completed an offer of optional
redemption for our Capital Securities. Holders of the Capital Securities
elected to redeem approximately $4.6 million of the Capital Securities, or
approximately 5% of the then outstanding Capital Securities. On December 31,
2003, we redeemed $63.5 million, or approximately 74%, of the Capital
Securities outstanding at that time. The Junior Debentures and the Capital Securities are both callable at par.
We currently anticipate redeeming these remaining securities during 2004. 
 Competition Automobile financing is provided by a number of competing entities
including captive finance affiliates of automobile manufacturers, commercial
banks, independent finance companies, thrifts, and credit unions. Many of our
competitors have greater financial resources, capitalization, greater access to
existing and newly emerging capital markets, better economies of scale, and
more favorable costs of funds than we do. Our competitors often provide more
favorable financing terms to automobile purchasers or dealers than we do. The
captive finance affiliates of the automobile manufacturers have historically
offered varying amounts of below-market financing to automobile purchasers to
increase automobile sales volume. A number of our competitors also offer
automobile purchasers and dealerships with additional forms of financing,
including auto leasing and dealer inventory floor plan financing, which are not
provided by the Company. We believe that we compete primarily on the basis of
the relative uniqueness of the extended term and over-advance features of our
product, and the quality of service we provide to dealers. Accordingly, there
can be no assurances that we will be able to compete successfully against these
competitors. 
 Economic Conditions, Government Policies and Legislation During periods of economic slowdown, delinquencies and losses from
defaults and repossessions may increase. Decreased demand for automobiles and,
therefore, BVACs automobile financing volumes may also accompany periods of
economic slowdown. Decreased demand for automobiles may also depress values of
used automobiles, 8




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which weakens the collateral values of BVACs auto installment contracts.
Depressed values of used automobiles during periods of economic slowdown may
also reduce the value of repossessed and off-lease vehicles and may require
greater reserves and could result in greater losses for the Company. Sustained
periods of increased delinquencies and losses from defaults and repossessions
could adversely affect our financial position, results of operations, and our
liquidity by limiting our ability to enter into future securitizations or sales
of our production of installment contracts. Our profitability is also dependent on the interest rate spread we earn on
our installment contracts, the difference between the interest earned on our
fixed rate installment contracts and the rate we pay on our floating rate
borrowings, and the price we receive for these fixed rate contracts that are
securitized or sold. We monitor interest rates and utilize derivative
instruments to hedge interest rate volatility, however, market interest 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. 
 Supervision and Regulation General We are subject to regulation, supervision and licensing under various
federal, state and local statutes, ordinances and regulations, including the
Sarbanes-Oxley Act of 2002, the Office of Foreign Assets Control and the United
States Patriot Act. We are required to comply with the laws of those states in
which we conduct operations. We believe that we are in compliance with these
laws and regulations. Our securities are registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended (the Exchange Act). As
such, we are subject to the information, proxy solicitation, insider trading
and other requirements and restrictions of the Exchange Act. Our common stock
trades on the New York Stock Exchange (NYSE) under the ticker symbol BVC
and our Capital Securities trade on the NYSE under the ticker symbol BVS. Until the Banks dissolution, we and the Bank were subject to extensive
regulation intended primarily for the protection of depositors and the federal
deposit insurance fund and not for the benefit of our stockholders. In
connection with the Banks dissolution, we ceased to be a registered bank
holding company and are no longer subject to such regulation. Consumer Protection Laws Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance. These laws include the Truth-in-Lending Act, the Equal
Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
Reporting Act, the Gramm-Leach-Bliley Act, the Magnuson-Moss Warranty Act, the
FRBs Regulations B and Z, states adaptations of the Uniform Consumer Credit
Code and of the Uniform Commercial Code, state and federal privacy laws and
state motor vehicle retail installment sales acts and other similar laws.
These laws, among other things, require us to provide certain disclosures to
applicants, prohibit misleading advertising and protect against discriminatory
financing or unfair credit and collection practices. The Truth-in-Lending Act
and Regulation Z promulgated thereunder require disclosure of, among other
things, the payment schedule, the finance charge, the amount financed, the
total of payments and the annual percentage rate charged on each retail
installment contract. The Equal Credit Opportunity Act prohibits creditors
from discriminating against credit applicants (including retail installment
contract obligors) on the basis of specific enumerated criteria. Creditors are
also required to make certain disclosures regarding consumer rights and advise
consumers whose credit applications are not approved. The holder in due course
rules of the Federal Trade Commission (the FTC) provide for the preservation
of the consumers claims and defenses when a consumer obligation is assigned to
a holder. Some state laws impose finance charge ceilings and other
restrictions on consumer transactions and require contract disclosures in
addition to those required under federal law. These requirements impose
specific statutory liabilities upon creditors who fail to comply with their
provisions. In some cases these provisions, if violated, could affect our
ability to enforce the contracts we purchase. 9




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Employees At December 31, 2003, we had a total of 143 employees on a full-time
equivalent basis, consisting of both full-time and permanent part-time
employees, as follows: Bay View Acceptance Corporation
    
    
    102Bay View Capital Corporation
    
    
    41Total
    
    
    143
 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 our executive
officers: YearName
    
    Age
    
    Position
    
    AppointedCharles G. Cooper
    
    56
    
    Director, President and Chief Executive Officer
    
    2002James A.
Badame (1)
    
    60
    
    President, Bay View Acceptance Corporation
    
    1998Joseph J. Catalano
    
    57
    
    Senior Vice President, General Counsel and
    
    2002Corporate SecretaryWeldon Culley
    
    59
    
    Senior Vice President and Director of Risk
    
    2001ManagementJohn Okubo
    
    50
    
    Executive Vice President and Chief Financial
    
    2002OfficerSossy Soukiassian
    
    40
    
    Senior Vice President and General Auditor
    
    2002
 (1) Mr. Badame has submitted his resignation effective March 19, 2004. The business experience of each of our executive officers is as follows: Mr. Cooper has served as a Director, President and Chief Executive Officer
of Bay View Capital Corporation since October 2002. He joined the Bank in May
2001, initially serving as Executive Vice President and Chief Credit Officer.
Previously, he served as Executive Vice President and Chief Credit Officer at
Lone Star Bank of Dallas. Prior to joining Lone Star Bank, he was Senior Vice
President of Loan Administration at Compass Bank in Dallas from 1996 to 2000.
Mr. Cooper has more than 30 years of experience in the banking industry,
including 13 years experience as a bank examiner with the FDIC. Mr. Badame has served as President of BVAC since 1998. Prior to joining
us, he served as Director of Operations for Triad Financial Corporation, a
non-prime indirect automobile loan originator. He has over 25 years of
experience in the indirect retail and wholesale automobile dealer financing
business in a commercial bank environment, including management and executive
positions with Bank of America, Marine Midland Bank and Imperial Thrift. Mr.
Badame has also held sales, business and general management positions with
General Motors, Chrysler and Honda franchisees in the retail automobile
industry. Mr. Catalano, Senior Vice President, became our General Counsel and
Corporate Secretary of Bay View Capital Corporation in December 2002. Mr.
Catalano joined us in 1993 and served as Assistant General Counsel from 2000 to
2002. Previously, he served as Senior Vice President and Assistant General
Counsel of American Savings and Loan, Stockton California. Mr. Culley, Senior Vice President, has served as our Director of Risk
Management since August 2001. Previously he served as Vice President, Asset
Quality for BancFirst in Oklahoma City from July 2000 to July 2001. Mr. Culley
was self-employed as a bank consultant from April 1998 to July 2000. Mr.
Culley has more than 30 years of experience in the banking industry including
10 years as a bank examiner for the Texas Department of Banking. 10




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##### Table of Contents



Mr. Okubo, Executive Vice President, became our Chief Financial Officer in
November 2002. Mr. Okubo joined Bay View in 1996 and has held various
financial management positions, including Treasurer from June 2001 and as
Controller of the Bank from 1998 to 2001. Previously, he served as Executive
Vice President and Chief Financial Officer of Home Federal Savings of San
Francisco from 1993 to 1996. Ms. Soukiassian, Senior Vice President, was promoted to General Auditor in
November 2002. Previously, she served as Director of Corporate Projects of Bay
View Capital Corporation from 1998 to 2002. Prior to joining us, she held management
positions with KPMG Peat Marwick, LLP in Los Angeles from 1996 to 1998. 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, 2003, we occupied three offices including our corporate
headquarters office and had an additional eleven offices that we have vacated,
and are subleasing, under operating lease agreements expiring at various dates
through the year 2012. In most instances, these lease arrangements include
options to renew or extend the lease at market rates. We also own leasehold
improvements, furniture and equipment at our offices, all of which are used in
our business activities. 
 Item 3. Legal Proceedings We
are involved as plaintiff or defendant in various legal actions
and are occasionally exposed to unasserted claims 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, results of operations or cash flows. 
 Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the three months ended December
31, 2003. 11




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##### Table of Contents



Part II Item 5. Market for Registrants Common Equity and Related Stockholder Matters At December 31, 2003, our common stock was traded on the NYSE under the
stock symbol BVC. At December 31, 2003, 6,575,890 shares of our common
stock were outstanding, and held by 1,334 stockholders of record.
On December 30, 2003, we distributed $40.00 per share in cash, to common
stockholders of record as of December 19, 2003. No dividends or distributions
were declared in 2002. The
following tables illustrate quarterly closing stock price activity for 2003 and
2002 (presented based on historical stock prices prior to the 1-for-10
reverse stock split effected on June 30, 2004): 2003First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterStock price - high
    
    $
    5.88
    
    
    $
    5.80
    
    
    $
    6.15
    
    
    $
    6.21Stock price - low
    
    $
    5.37
    
    
    $
    5.45
    
    
    $
    5.77
    
    
    $
    2.14
 2002First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterStock price - high
    
    $
    7.50
    
    
    $
    7.16
    
    
    $
    6.76
    
    
    $
    5.97Stock price - low
    
    $
    6.38
    
    
    $
    6.35
    
    
    $
    5.51
    
    
    $
    5.54
 12




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##### Table of Contents



Item 6. Selected
Financial Data - Five-Year Financial Information At December 31,Selected Balance Sheet Information (1)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999GoingConcernBasis
    
    LiquidationBasis
    
    Going Concern(Dollars in thousands)Total assets
    
    $
    364,118
    
    
    $
    875,545
    
    
    $
    4,014,105
    
    
    $
    5,360,931
    
    
    $
    6,498,700Investment securities
    
    
    28,836
    
    
    
    38,137
    
    
    
    98,980
    
    
    
    33,009
    
    
    
    59,060Mortgage-backed securities
    
    
    5,893
    
    
    
    32,516
    
    
    
    278,891
    
    
    
    642,628
    
    
    
    654,713Loans and leases held-for-investment, net
    
    
    
    
    
    
    
    
    
    
    2,326,787
    
    
    
    2,751,794
    
    
    
    4,295,246Loans and leases held-for-sale
    
    
    177,948
    
    
    
    311,014
    
    
    
    40,608
    
    
    
    345,207
    
    
    
    66,247Investment in operating lease assets, net
    
    
    66,657
    
    
    
    191,005
    
    
    
    339,349
    
    
    
    479,829
    
    
    
    463,088Intangible assets
    
    
    1,846
    
    
    
    
    
    
    
    123,573
    
    
    
    134,936
    
    
    
    329,005Deposits
    
    
    
    
    
    
    224,189
    
    
    
    3,234,927
    
    
    
    3,746,312
    
    
    
    3,729,780Borrowings
    
    
    179,060
    
    
    
    61,969
    
    
    
    287,168
    
    
    
    1,153,443
    
    
    
    1,935,517Capital
Securities (2)
    
    
    
    
    
    
    90,000
    
    
    
    90,000
    
    
    
    90,000
    
    
    
    90,000Net assets in liquidation
    
    
    
    
    
    
    410,064
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity
    
    
    155,932
    
    
    
    
    
    
    
    336,187
    
    
    
    297,849
    
    
    
    631,194
 For the
    
    For the
    
    For the
    
    For theThree
    
    Nine
    
    Three
    
    NineMonths
    
    Months
    
    Months
    
    MonthsEnded
    
    Ended
    
    Ended
    
    EndedDecember
    
    September
    
    December
    
    September31,
    
    30,
    
    31,
    
    30,
    
    For the Year Ended December 31,2003
    
    2003
    
    2002
    
    2002
    
    2001
    
    2000
    
    1999GoingConcernSelected Results of Operations Information (1)
    
    Basis
    
    Liquidation Basis
    
    Going Concern Basis(Dollars in thousands, except per share amounts)Interest income
    
    $
    4,936
    
    
    $
    17,951
    
    
    $
    17,247
    
    
    $
    145,239
    
    
    $
    302,745
    
    
    $
    460,192
    
    
    $
    421,656Interest expense
    
    
    (3,612
    )
    
    
    (8,411
    )
    
    
    (10,001
    )
    
    
    (60,068
    )
    
    
    (180,497
    )
    
    
    (294,752
    )
    
    
    (251,172
    )Net interest income
    
    
    1,324
    
    
    
    9,540
    
    
    
    7,246
    
    
    
    85,171
    
    
    
    122,248
    
    
    
    165,440
    
    
    
    170,484Provision for losses on loans and leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,700
    )
    
    
    (71,890
    )
    
    
    (62,600
    )
    
    
    (28,311
    )Leasing income
    
    
    6,907
    
    
    
    32,578
    
    
    
    14,639
    
    
    
    56,188
    
    
    
    92,305
    
    
    
    97,207
    
    
    
    58,558Gain (loss) on sales of assets and liabilities, net
    
    
    842
    
    
    
    787
    
    
    
    81
    
    
    
    18,625
    
    
    
    (10,547
    )
    
    
    (52,606
    )
    
    
    10,058Other income, net
    
    
    2,586
    
    
    
    3,722
    
    
    
    3,600
    
    
    
    16,752
    
    
    
    25,411
    
    
    
    32,041
    
    
    
    22,916General and administrative expenses
    
    
    (5,747
    )
    
    
    (26,338
    )
    
    
    (17,697
    )
    
    
    (106,101
    )
    
    
    (155,287
    )
    
    
    (158,590
    )
    
    
    (117,116
    )Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,935
    )
    
    
    (9,213
    )
    
    
    Revaluation of franchise-related assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70,146
    )
    
    
    (101,894
    )
    
    
    Leasing expense
    
    
    (5,938
    )
    
    
    (24,421
    )
    
    
    (10,854
    )
    
    
    (43,984
    )
    
    
    (86,120
    )
    
    
    (69,350
    )
    
    
    (40,188
    )Real estate operations, net
    
    
    (831
    )
    
    
    (463
    )
    
    
    (397
    )
    
    
    (1,222
    )
    
    
    (5,021
    )
    
    
    (65
    )
    
    
    238Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (993
    )
    
    
    (11,280
    )
    
    
    (20,766
    )
    
    
    (13,687
    )Write-off of intangible assets  franchise
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (192,622
    )
    
    
    Income (loss) before income tax expense (benefit)
    
    
    (857
    )
    
    
    (4,595
    )
    
    
    (3,382
    )
    
    
    13,736
    
    
    
    (177,262
    )
    
    
    (373,018
    )
    
    
    62,952Adjustment for liquidation basis
    
    
    
    
    
    
    (5,995
    )
    
    
    (2,761
    )
    
    
    266,510
    
    
    
    
    
    
    
    
    
    
    
    Income tax (expense) benefit
    
    
    184
    
    
    
    6,252
    
    
    
    4,886
    
    
    
    (181,792
    )
    
    
    85,866
    
    
    
    55,810
    
    
    
    (25,053
    )Dividends on
Capital Securities (3)
    
    
    
    
    
    
    
    
    
    
    (2,742
    )
    
    
    (7,873
    )
    
    
    (9,774
    )
    
    
    (8,989
    )
    
    
    (8,935
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,920
    )
    
    
    
    
    
    
    
    
    
    
    Net income
(loss) and changes in net assets in liquidation
    
    $
    (673
    )
    
    $
    (4,338
    )
    
    $
    (3,999
    )
    
    $
    71,661
    
    
    $
    (101,170
    )
    
    $
    (326,197
    )
    
    $
    28,964liquidationEarnings (loss) per diluted share(4)
    
    $
    0.10
    
    
    
    N/A
    
    
    
    N/A
    
    
    $
    11.35
    
    
    $
    (19.89
    )
    
    $
    (99.97
    )
    
    $
    13.59Cash
distribution/Dividends declared per share(4)
    
    $
    40.00
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3.00
    
    
    $
    3.00
 At and For the Year Ended December 31,Selected Other Information (1)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999GoingConcernBasis
    
    LiquidationBasis
    
    Going Concern Basis(Dollars in thousands, except per share amounts)Net interest margin
    
    
    2.71
    %
    
    
    N/A
    
    
    
    3.18
    %
    
    
    3.13
    %
    
    
    3.23
    %Book value per share
    
    $
    23.71
    
    
    
    N/A
    
    
    $
    53.72
    
    
    $
    91.43
    
    
    $
    193.80Nonperforming assets
    
    $
    7,133
    
    
    $
    27,268
    
    
    $
    89,817
    
    
    $
    101,173
    
    
    $
    25,939Ratio of nonperforming assets to total assets
    
    
    1.96
    %
    
    
    3.11
    %
    
    
    2.24
    %
    
    
    1.89
    %
    
    
    0.40
    %
  (1)
    
    The financial statements for the periods from September 30, 2002
through September 30, 2003 have been prepared using liquidation basis
accounting.  (2)
    
    Effective December 31, 2003, the Company adopted FASB Financial
Interpretation No. 46, Consolidation of Variable Interest Entities,
and accordingly, deconsolidated Bay View Capital I Trust. As a
result, as of December 31, 2003, the 9.76% Capital Securities of Bay
View Capital I Trust are no longer reflected on the Companys
Consolidated Statement of Financial Condition while the Companys
underlying 9.76% Junior Subordinated Deferrable Interest Debentures,
which were acquired by Bay View Capital I Trust, are reflected as
borrowings of the Company.  (3)
    
    Effective July 1, 2003, the Company adopted Statement of Financial
Accounting Standards No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity.
Year-to-date dividend expense on the Capital Securities is now
reflected in interest on borrowings. Statement No. 150 does not
allow for prior year restatements.  (4)
    
    Adjusted to reflect 1-for-10 reverse stock split. 13




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations INDEX Strategic Overview
    
    
    15Restatement
    
    
    15Our Strategy
    
    
    15Auto Finance
    
    
    16Critical Accounting Policies
    
    
    17Accounting Changes and Recent Accounting Pronouncements
    
    
    19Results of Operations
    
    
    21Going Concern BasisResults of Operations  Three Months ended December 31, 2003
    
    
    21Liquidation BasisChanges in Net Assets in Liquidation  Nine Months ended September 30, 2003
    
    
    24Changes in Net Assets in Liquidation  Three Months ended December 31, 2002
    
    
    25Going Concern BasisResults of Operations  Nine Months ended September 30, 2002
    
    
    26Results of Operations  Year ended December 31, 2001
    
    
    31Balance Sheet Analysis
    
    
    36Cash and Cash Equivalents
    
    
    36Restricted Cash
    
    
    36Retained Interests in Securitizations
    
    
    36Mortgage-backed and Other Securities
    
    
    37Loans and Leases
    
    
    38Deposits
    
    
    42Borrowings
    
    
    42Liquidity and Capital Resources
    
    
    43Stock Repurchase Program
    
    
    44Impact of Inflation and Changing Prices
    
    
    44
 14




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##### Table of Contents



Strategic Overview Bay View Capital Corporation (the Company, we, us, or our) is a
financial services company headquartered in San Mateo, California, whose
primary subsidiary, Bay View Acceptance Corporation (BVAC), specializes in
indirect purchases of retail automobile installment contracts originated by
manufacturer-franchised and independent dealers in connection with the sale of
new and used automobiles. BVAC generates revenue through its investment in
installment contracts, and the subsequent securitization or sale and servicing
of these installment contracts. Restatement Subsequent to the issuance of
our consolidated financial statements as of and for the year ended
December 31, 2003, we restated our consolidated financial
statements to reflect the items discussed in Note 3 to our
consolidated financial statements.  The effects of the restatement
have been reflected in the accompanying Managements Discussion
and Analysis of Financial Condition and Results of Operations. Our
restated consolidated financial statements also include adjustments
to reflect the 1-for-10 reverse stock split effected on June 30,
2004. Accordingly, all shares outstanding and per share amounts are
presented herein on a post-reverse stock split basis. Our Strategy On October 3, 2002, our stockholders authorized a plan of dissolution and
stockholder liquidity (the Plan) and the sale of the retail banking assets of
Bay View Bank, N.A. (the Bank) to U.S. Bank, N.A. (U.S. Bank). Under the
Plan, our Board of Directors is authorized to determine the most efficient
means of liquidation, and the timing of the process. We originally
contemplated that we would sell all of our assets, pay all of our liabilities
and then distribute the proceeds, including the stock of BVAC, to our
stockholders. In the year following the adoption of the Plan, we sold
substantially all of our assets with the exception of our auto lease portfolio
and BVAC. As a result of our stockholders authorization of the Plan and the closing
of the U.S. Bank transaction on November 1, 2002, we adopted liquidation basis
accounting, effective September 30, 2002, in accordance with accounting
principles generally accepted in the United States of America (GAAP). Because of changing market conditions in the auto finance sector during the fourth quarter of 2003, as
discussed elsewhere herein, we believed that the near-term sale or distribution
of the stock of BVAC to stockholders was no longer the best method of achieving
maximum stockholder value. Accordingly, during the fourth quarter of 2003, our
Board of Directors adopted a plan of partial liquidation (the
Amended Plan) under which we will complete the
liquidation of the assets and satisfaction of the liabilities of the Bank
remaining after the Banks September 30, 2003 dissolution, distribute the
proceeds to our stockholders through a series of cash distributions, and
continue to operate BVAC on an ongoing basis. In accordance with the Amended
Plan, we distributed $40.00 per share in cash to our stockholders on December
30, 2003. We intend to make further distributions of the proceeds to our
stockholders through a series of cash distributions. Following, in general terms, is a description of the federal income
taxation of distributions as a result of the Companys change from a plan of
complete liquidation to a plan of partial liquidation. Stockholders should
consult with their tax advisors to determine their individual tax situations.
For non-corporate stockholders, the distribution of $40.00 per share on December
30, 2003 should be treated as an exchange that generates capital gain or loss.
The capital gain or loss is the difference between the $40.00 per share
distribution and the allocated cost basis per share. Such allocated cost basis
is equal to the stockholders cost basis multiplied by 64.78%, which is the
ratio of the $40.00 distribution to the average per share price on the
distribution date of $61.75. Any such basis allocated to the exchange would
reduce the stockholders remaining cost basis. These rules are described in
I.R.S. Revenue Ruling 77-245. For corporate stockholders, the $40.00
distribution should be taxable as a dividend. For all stockholders,
distributions after 2003 will be taxed as dividends to the extent of the
Companys current or accumulated earnings and profits, with any excess being
treated first as a return of capital to the extent of any remaining cost basis
in the stock, then as a capital gain. Our decision to partially liquidate and to continue to operate BVAC on an
ongoing basis, warranted the termination of our use of the liquidation basis of
accounting. We re-adopted the going concern basis of accounting and
re-established our stockholders equity effective October 1, 2003. At December
31, 2003, stockholders equity was $155.9 million. Effective September 30, 2003, we completed the dissolution of the Bank.
As a result, the Company ceased to be a bank holding company and we and our
subsidiaries are no longer subject to supervision, examination and regulation
by the Board of Governors of the Federal Reserve System (the FRB), the Office
of the Comptroller of the Currency or the Federal Deposit Insurance
Corporation. 15




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##### Table of Contents



Auto Finance BVAC is a Southern California-based auto finance company engaged in the
indirect financing of automobile purchases by individuals. BVAC is our primary
remaining subsidiary. As an indirect lender, BVAC markets to automobile
dealerships, both manufacturer franchised dealerships and independent
dealerships, and purchases installment contracts on new and used vehicles from
over 7,000 auto dealers in 24 states. Of the contracts purchased in 2003,
approximately 90% were originated by manufacturer franchised dealerships and
approximately 10% were originated by independent dealerships; 49% were
contracts on new vehicles and 51% were contracts on used vehicles. BVAC
purchases installment contracts with limited recourse to the dealer. BVAC has positioned itself in the market as a premium priced lender for
well-qualified borrowers seeking extended financing terms and higher advances
than those generally offered by traditional lenders. BVAC places a strong
emphasis on borrower stability, credit quality, and debt serviceability. With
Fair, Isaac & Co. FICO credit scores that averaged 733 in 2003, BVACs
borrower base is largely comprised of prime borrowers. BVAC offers loan terms
to 96 months and typically finances an amount in excess of a dealers wholesale
value of a vehicle. BVAC will finance vehicles without restrictions on the
model year. During 2003, the average loan amount BVAC financed was $28,600 and
had an average term of 81 months. We believe that this strategy has enabled
BVAC to establish a loyal dealership network by satisfying consumer demand
within the indirect auto finance market that is inadequately served by
commercial banks and finance companies. BVAC utilizes a proprietary credit
scoring system in connection with its underwriting and credit approvals. The
credit scoring system captures data from consumers credit
bureau reports,
consumers loan applications and the terms of proposed loans. We entered the auto finance business in 1996 through our acquisition of
CTL, Inc., the parent company of California Thrift & Loan. California Thrift &
Loan began its auto finance operations in 1973, and through a series of mergers
and name changes, became BVAC. Since the liquidation of the Bank, BVAC has
operated as an independent finance company, rather than a portfolio-lending
unit of the Bank, purchasing installment contracts for sale or securitization.
BVAC has a $250 million revolving warehouse credit facility for funding its
purchases of contracts prior to securitization or sale. At December 31, 2003,
BVAC had $138.2 million outstanding under this credit facility. BVAC intends
to periodically securitize and sell its production of installment contracts in
order to repay the line of credit. BVAC periodically transfers installment contracts to securitization
trusts. The trusts then issue asset-backed securities. BVAC has structured
these transactions as sales of the installment contracts. BVAC retains the
servicing obligation on the contracts that it securitizes or sells. In order
to enhance the credit rating of these asset-backed securities, BVAC has a
financial guaranty insurance policy and deposits cash into a restricted cash
account established within the securitization trusts. Excess cash flow from
the trusts is utilized to build the restricted cash account to pre-designated
levels and provide further credit enhancement. Once these pre-designated
levels are attained, excess cash flow is distributed to BVAC. In addition to
this excess cash flow, BVAC earns monthly fee income for servicing outstanding
installment contracts that have been securitized and collects late payment
charges and other fees. BVAC is continuing a geographic expansion plan that it initiated in late
2002. From its established presence in 17 states, primarily in the West and
Midwest, as well as Florida, BVAC entered seven Mid-Atlantic states in 2003.
In 2004, BVAC plans to enter nine additional states primarily in New England,
as well as Oklahoma. Historically, BVAC has aligned itself with smaller,
franchised and independent dealers. In recent years, the industry has
experienced intense merger and acquisition activity which has led to the
emergence of large, regional and national automobile dealership organizations,
causing BVAC to lose production volume from its existing dealer base. In
response, during 2003 BVAC began a campaign to establish relationships with
these regional and national dealer organizations and has now signed agreements
with five of these organizations representing 370 dealership stores. During
2004, BVAC will continue to pursue this strategy. BVAC uses a combination of regional marketing representatives and
telemarketing to develop and maintain relationships with the majority of its
dealer base and market its indirect financing programs. Account development
managers develop and maintain relationships with BVACs larger regional and
national dealership organizations. 16




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Contracts are centrally underwritten, approved, funded, and serviced from
BVACs Covina California corporate office. Critical Accounting Policies We have identified the most critical accounting policies upon which our
financial status depends. We determined the critical policies by considering
accounting principles that involve the most complex or subjective decisions or
assessments. We have identified our most critical accounting policies to be
those related to our re-adoption of the going concern basis of accounting
effective October 1, 2003, investment in operating lease assets, retained
interests in securitizations, and income taxes. Going Concern vs. Liquidation Basis Accounting Effective October 1, 2003, the Company discontinued its use of the
liquidation basis of accounting and re-adopted the going concern basis of
accounting. Our decision to engage in a partial liquidation, and continue to
operate BVAC on an ongoing basis, warranted the termination of our use of the
liquidation basis of accounting. We re-established our stockholders equity
effective October 1, 2003. For the period September 30, 2002 through September
30, 2003, the Company used the liquidation basis of accounting. In connection with our re-adoption of the going concern basis of
accounting, we recognized $0.7 million of pre-tax expense and $1.1 million of
additions to stockholders equity, and recorded the following adjustments   
    
    Goodwill: Re-established the $1.8 million of goodwill that existed
prior to our adoption of the liquidation basis of accounting; this
goodwill related to our acquisition of BVACs predecessor entity,
California Thrift & Loan
    
    Premium on investment in BVAC: Reversed $10.0 million of premium over
the book value of BVAC, which was recorded as deferred gain under the
liquidation basis of accounting, and restored the historical cost basis
in our equity investment in BVAC
    
    Installment contracts: Reversed unrealized gains which were recorded
under the liquidation basis of accounting and restored the lower of cost
or market valuation
    
    Mortgage-backed securities: Restored Statement No. 115 available-for-sale
accounting
    
    Accrued liabilities: Reversed $1.7 million of accruals related to
certain severance and occupancy costs which were recorded under the
liquidation basis of accounting and adopted Statement No. 146 accounting for
costs associated with disposal activities
    
    Stockholders equity: Restored stockholders equity as of October 1,
2003 Under the liquidation basis of accounting, assets were carried at
estimated net realizable values and all estimated future liabilities associated
with carrying out the Plan were accrued. Future revenues and expenses of an
operating nature were recognized in income and expense when realized. See Note 2 to the Consolidated Financial Statements, Summary of
Significant Accounting Policies, at Item 8, Financial Statements and
Supplementary Data for further discussion of the liquidation basis accounting
policies used from September 30, 2002 to September 30, 2003. Investment in Operating Lease Assets In accordance with the provisions of Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the Company performs a quarterly impairment analysis of its long-lived
assets including its automobile leases, which are accounted for as operating
leases. Statement No. 144 addresses the recognition and measurement of the impairment
of long-lived assets and defines impairment as the condition that exists when
the carrying amount of long-lived assets exceeds fair value. When identified,
Statement No. 144 requires the recognition of an impairment loss. Under Statement No. 144, the
Company considers an auto lease to be impaired if its gross future undiscounted
cash flows are less than the net book value of the lease. The net book value
of the lease is 17




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##### Table of Contents



defined as the original capitalized cost of the automobile, including initial
direct capitalized costs, less the cumulative amount of depreciation recorded
against the automobile and the cumulative amount of amortization of the initial
direct capitalized costs recorded since the inception of the lease and less any
impairment charges recorded-to-date on that lease. In determining gross future undiscounted cash flows, the Company contracts
with Automotive Lease Guide, commonly referred to as ALG, to provide estimates
of the residual value of the underlying automobiles at the end of their lease
terms assuming that the vehicles are in average condition. The Company then
estimates the probability that i.) the automobiles will be purchased by the
lessee prior to the end of the lease term, ii.) the automobile will be
purchased by the lessee at the end of the lease term, either at a discount or
at the full contractual residual amount, or iii.) the automobile will be
returned to the lessor at the end of the lease term. These probabilities are
estimated using a number of factors, including the Companys experience-to-date
and industry experience. Using the projected ALG residual values combined with the Companys
experience-to-date relative to the projected ALG residual values, the Company
reduced the projected ALG residual values to reflect the Companys
experience-to-date. This experiential analysis, along with the probabilities of
each of the three disposition scenarios discussed above occurring, enables the
Company to determine a probability-weighted gross future undiscounted cash flow
for each automobile lease. For those leases where the gross future
undiscounted cash flows are less than net book value, the lease is considered
impaired. For those leases considered impaired, the Company then estimates the fair
value of the lease. The fair value is determined by calculating the present
value of the future estimated cash flows again assuming the probabilities of
each of the three disposition scenarios. The present value is calculated using
current market rates, which are similar to the original contract lease rate.
For those impaired leases where the estimated fair value is less than the net
book value, an impairment charge is recorded for the difference. Under the
going concern basis of accounting, annual depreciation expense associated with
those leases that have reduced residual values is recomputed over the remaining
term of the lease. Retained Interests in Securitizations As discussed above, BVAC periodically transfers installment contracts to
securitization trusts, which then issue asset-backed securities. BVAC has
structured these transactions as sales of the installment contracts. In order
to enhance the credit rating of these asset-backed securities, BVAC deposits
cash into restricted cash accounts established by the securitization trusts.
Excess cash flow within the securitization trusts - resulting from interest
income received on the installment contracts in excess of interest paid to
investors in the asset-backed securities, credit losses and trust expenses  is
utilized to build the restricted cash account to pre-designated levels and
provide further credit enhancement. Once these pre-designated levels are
attained, excess cash flow is distributed to BVAC. In accounting for these
securitization transactions, BVAC typically recognizes a gain on the sale
transaction and a related asset  a retained interest in the securitization 
that represents the present value of the cash deposit and excess cash flow that
is anticipated to be produced by the securitization trust over the life of the
asset-backed securities. The Company incorporates various assumptions in calculating the present
value of the cash deposit and excess cash flow. The following table
illustrates the significant assumptions utilized in the valuation of retained
interests in securitizations as of December 31, 2003: Weighted-average discount rate
    
    
    12.0%-12.5
    %Projected annual credit losses, net
    
    
    1.00
    %Range of projected cumulative credit losses
    
    
    1.71%-1.90
    %Prepayment speed
    
    1.6 ABS
 Changes in the above assumptions due to actual experiences or market
conditions could affect the value of our retained interests in securitizations. 18




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##### Table of Contents



Income Taxes At
December 31, 2003, net deferred tax assets were $16.1 million after a
valuation allowance of $21.5 million. This valuation allowance was established
in consideration of the Companys projected future net income available to
realize the deferred tax assets under the Amended Plan in years after 2003.
The realization of deferred tax assets is dependent upon our ability to
generate future taxable income. Accounting Changes and Recent Accounting Pronouncements In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement replaced the
accounting and reporting provisions of Emerging Issues Task Force (EITF)
Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). It requires that costs associated with an exit or
disposal activity be recognized when a liability is incurred rather than at the
date an entity commits to an exit plan. The Company adopted Statement No. 146
upon its re-adoption of going concern basis accounting effective October 1,
2003. The adoption of Statement No. 146 had no material impact on our consolidated statements of
financial condition, results of operations or cash flows. In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 expands on the
accounting guidance of Statement Nos. 5, 57, and 107 and incorporates without
change the provisions of FASB Interpretation No. 34 which was superseded. FIN
45 elaborates on the existing disclosure requirements for most guarantees and
requires that guarantors recognize a liability for the fair value of guarantees
at inception. The disclosure requirements of this Interpretation were
effective for financial statement periods ending after December 15, 2002. The
initial recognition and measurement provisions of FIN 45 were applied on a
prospective basis to guarantees issued or modified after December 31, 2002.
Significant guarantees that have been entered into by the Company are disclosed
in Note 18. The adoption of this Interpretation did not have a material impact
on the Companys financial position, results of operations or
cash flows. In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46 sets forth criteria for
the identification of a variable interest entity (VIE), and the consolidation
of the assets, liabilities, noncontrolling interests, and results of operations
of a VIE in a companys consolidated financial statements. A variable interest
entity exists when either the total equity investment at risk is not sufficient
to permit the entity to finance its activities by itself, or the equity
investors lack a controlling financial interest or they have voting rights that
are not proportionate to their economic interest. A company that holds
variable interests in an entity is required to consolidate that entity if the
companys interest in the VIE is such that the company will absorb a majority
of the VIEs expected losses and/or receive a majority of the VIEs expected
residual returns. FIN 46 also requires additional disclosures by primary
beneficiaries and other significant variable interest holders. In December
2003, the FASB issued FIN 46R, a revision of FIN 46. FIN 46R delayed the
effective date of FIN 46 for all entities created subsequent to January 31,
2003 and non-SPEs (special-purpose entities) created prior to February 1, 2003
to reporting periods ending after March 15. 2004. Entities created prior to
February 1, 2004 and defined as SPEs must apply either the provisions of FIN
46 or early adopt the provisions of FIN 46R by the first reporting period
ending after December 15, 2003. As of December 31, 2003, the Company does not
have VIEs which would be consolidated under the provisions of FIN 46R. Based
on FIN 46, the Company deconsolidated its wholly-owned subsidiary, Bay View
Capital I Trust, effective December 31, 2003. As a result, the 9.76%
Cumulative Capital Securities (Capital Securities) of Bay View Capital I
Trust are no longer reflected on the Companys Consolidated Statement of
Financial Condition at December 31, 2003 while the Companys underlying 9.76%
Junior Subordinated Deferrable Interest Debentures (Junior Debentures), which
were acquired by Bay View Capital I Trust, are reflected as borrowings of the
Company. In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. This Statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other 19




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contracts (collectively referred to as derivatives) and for hedging
activities under Statement No. 133. Statement No. 149 was effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The provisions of this
Statement, with certain exceptions, were required to be applied prospectively.
Adoption of Statement No. 149 did not have a significant impact on the
Companys financial position or results of operations. In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity. This Statement establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and was otherwise effective at the
beginning of the first interim period beginning after June 15, 2003. The
Company adopted Statement No. 150 effective July 1, 2003. Implementation of
Statement No. 150 resulted in the reclassification of the Companys Capital
Securities from their prior classification as a mezzanine item to
liabilities. Consequently, the dividend expense on these Capital Securities
during 2003, totaling $8.8 million, is now reflected as interest expense.
Statement No. 150 does not allow restatement of prior year results. In December 2003, the FASB issued Statement of Financial Accounting
Standards No. 132R, a revision of Statement No. 132, Employers Disclosures
about Pensions and Other Postretirement Benefits, an amendment of FASB
Statements Nos. 87, 88, and 106. Statement No. 132R expands disclosure
requirements to include information describing types of plan assets, investment
strategy, measurement date(s), plan obligations, cash flows, and components of
net period benefit costs of defined pension plans and other defined benefit
postretirement plans. Statement No. 132R is effective for financial statements
with fiscal years ending after December 15, 2003. The expanded disclosures
required by Statement No. 132R do not apply to the Companys benefit plans
which were terminated prior to year-end. In December 2003, under clearance of the FASB, the Accounting Standards
Executive Committee (AcSEC) of the AICPA issued Statement of Position (SOP)
03-2,  Accounting for Certain Loans or Debt Securities Acquired in a
Transfer. This SOP establishes accounting standards for discounts on
purchased loans when the discount is attributable to credit quality. The SOP
requires that the loan discount, rather than contractual amounts, establishes
the investors estimate of undiscounted expected future principal and interest
cash flows as a benchmark for yield and impairment measurements. The SOP
prohibits the carryover or creation of a valuation allowance in the initial
accounting for these loans. This SOP is effective for loans acquired in years
ending after December 15, 2004. The Company believes that adopting this
Statement will not have a material impact on the Companys financial position
or results of operations. 20




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Results of Operations As discussed above, we discontinued the use of the liquidation basis of
accounting and re-adopted the going concern basis of accounting effective
October 1, 2003. From September 30, 2002, we reported our results under the
liquidation basis of accounting under which we reported the value of, and the
changes in, net assets available for distribution to stockholders (net assets
in liquidation) instead of results from continuing operations. Accordingly,
our financial statements as of and for the quarter ended December 31, 2003 have
been prepared under the going concern basis of accounting while reporting
periods from September 30, 2002 through September 30, 2003 have been prepared
under the liquidation basis of accounting. Under the liquidation basis of accounting, the Consolidated Statement of
Operations and Comprehensive Income was replaced with the Consolidated
Statement of Changes in Net Assets in Liquidation. For reporting periods prior
to September 30, 2002, our financial statements are presented on a going
concern basis of accounting. As a result, we are providing, in Item 8.
Financial Statements and Supplementary Data, (1) a Consolidated Statement of
Financial Condition as of December 31, 2003 and a Consolidated Statement of Net
Assets (Liquidation Basis) as of December 31, 2002, (2) a Consolidated
Statement of Operations and Comprehensive Income (Loss) for the three months
ended December 31, 2003, (3) a Consolidated Statement of Changes in Net Assets
in Liquidation (Liquidation Basis) for the nine months ended September 30, 2003
and the three months ended December 31, 2002, and (4) Consolidated Statements
of Operations and Comprehensive Income (Loss) for the nine months ended
September 30, 2002 and the year ended December 31, 2001. Going Concern Basis Results of Operations  Three Months ended December 31, 2003 Our net loss for the quarter ended December 31, 2003, including net
adjustments required to re-adopt the going concern basis of accounting
effective October 1, 2003, totaled $0.7 million, or $0.10
per diluted share, and consisted of income from
ongoing operations of BVAC totaling $0.8 million offset by a net loss of $1.5
million from our liquidating activities. As discussed under Critical
Accounting Policies, Going Concern vs. Liquidation Basis Accounting, in
connection with our re-adoption of the going concern basis of accounting, we
recognized $0.7 million of pre-tax expense and $1.1 million of additions to
stockholders equity in the three-month period ended December 31, 2003. For
the quarter ended December 31, 2003, interest income was $4.9 million
and the average yield on interest-earning assets was 4.56% while interest
expense on our borrowings was $3.6 million and the average cost of borrowings,
largely comprised of interest on our Junior Debentures, was 11.20%. The
negative interest rate spread for the quarter, the difference between the yield
on interest-earning assets and the cost of our borrowings, was attributable to
large balances of cash and cash equivalents which were accumulated in the
quarter in order to distribute $263.2 million, or $40.00 per share in cash, to
common stockholders on December 30, 2003 and redeem $63.5 million, or
approximately 74% of the Capital Securities issued by Bay View Capital I Trust
on December 31, 2003. Money market yields earned on the cash and cash
equivalent balances caused a significant decline in the overall yield of
interest-earning assets in the quarter ended December 31, 2003. As previously discussed, implementation of Statement of Financial
Accounting Standards No. 150 resulted in the reclassification of our Capital
Securities from their prior classification as a mezzanine item to
liabilities. Accordingly, the dividend expense on these Capital Securities
during 2003, totaling $2.1 million and $8.8 million for the three months and
the year ended December 31, 2003, respectively, is now included in interest
expense on borrowings. 21




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##### Table of Contents



The following table illustrates average yields on our interest-earning
assets and average rates on our interest-bearing liabilities for the period
indicated: AVERAGE BALANCES, YIELDS AND RATESFor the Three Months Ended December 31, 2003Average
    
    
    
    
    
    AverageBalance
    
    Interest
    
    Yield/Rate(Dollars in thousands)AssetsInterest-earning assets:Loans and leases
    
    $
    175,621
    
    
    $
    3,757
    
    
    
    8.48
    %Mortgage-backed securities
    
    
    11,105
    
    
    
    166
    
    
    
    5.95Investments
    
    
    242,863
    
    
    
    1,013
    
    
    
    1.65Total interest-earning assets
    
    
    429,589
    
    
    
    4,936
    
    
    
    4.56
    %Other assets
    
    
    29,740Total assets
    
    $
    459,329Liabilities and Stockholders EquityInterest-bearing liabilities:Borrowings
    
    $
    128,781
    
    
    $
    3,612
    
    
    
    11.20
    %Total interest-bearing liabilities
    
    
    128,781
    
    
    
    3,612
    
    
    
    11.20
    %Other liabilities
    
    
    47,550Total liabilities
    
    
    176,331Stockholders equity
    
    
    282,998Total liabilities and stockholders
equity
    
    $
    459,329Net interest income/net interest spread
    
    
    
    
    
    $
    1,324
    
    
    
    (6.64
    )%Net interest-earning assets
    
    $
    300,808Net interest margin
    
    
    
    
    
    
    
    
    
    
    1.71
    %
 For the quarter ended December 31, 2003, noninterest income was $10.3
million and included leasing income of $6.9 million, loan servicing and other
fee income of $1.3 million, gains related to recoveries of mark-to-market
adjustments on franchise loans of $0.9 million, and other income of $1.2
million. Noninterest expense was $12.5 million and included leasing expenses
of $5.9 million and operating expenses of $6.6 million. Leasing Expenses Leasing expenses represent expenses related to our auto lease portfolio.
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 and
impairment charges. We ceased purchasing auto leases in June 2000. At December 31, 2003, approximately 109 of the 5,341 vehicles in our
automobile lease portfolio, or 2%, were considered impaired under Statement of
Financial Accounting Standards No. 144 compared to 64% at September 30, 2003
and 42% at December 31, 2002. We perform impairment testing on our auto lease
portfolio on a quarterly basis. Accordingly, the percentage of leases
considered impaired is a measure of the quarterly change (normally a decline)
in residual values versus our depreciation and writedown of the book value of
our auto lease portfolio since the prior quarterly valuation. We believe the
decline in the impairment percentage from September 30, 2003 and December 31,
2002 was attributable to more stable resale values for used vehicles in the
fourth quarter of 2003, however, resale values for used vehicles are subject to
many external market conditions and there can be no assurances about future
rates of impairment. This percentage may vary significantly from quarter to
quarter and, 22




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##### Table of Contents



accordingly, the impairment percentage that existed at December 31, 2003 should
not be considered to be indicative of future impairment. This impairment is
subject to a number of significant assumptions that could change in the near
term, and adversely affect the valuation of the automobile lease portfolio.
These assumptions were previously described under Critical Accounting Policies,
Investment in Operating Lease Assets. Two of these assumptions - including the
residual values of individual leases that are projected by ALG and the relative
probabilities of the three alternatives for disposing of vehicles - are
particularly susceptible to changes in market conditions. As an illustration
of the sensitivity of these assumptions, if the market values of the individual
vehicles declined by $250, an additional 7% of the leases would be deemed to be
impaired and, therefore, potentially subject to an impairment charge.
Additionally, the impairment charge could increase if the percentage of
vehicles returned to us is greater than the percentage that was projected at
year-end, because the proceeds realized when the Company must dispose of the
vehicle are generally less than if the lessee purchases the automobile prior to
the end of the lease term. Income Taxes We
recorded a tax benefit of $0.2 million for the fourth quarter of 2003.
Our effective tax rate of 55.7% differed from the federal statutory rate due
primarily to nondeductible compensation and reduced levels of state income and
franchise taxes. 23




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##### Table of Contents



Liquidation Basis Changes in Net Assets in Liquidation  Nine Months ended September 30, 2003 Our
net assets in liquidation totaled $409.8 million, or $63.60 in net
assets in liquidation per outstanding diluted share at September 30, 2003
compared to $410.1 million, or $64.30 in net assets in liquidation per
outstanding diluted share at December 31, 2002. The change in net assets in liquidation for the first nine months of 2003
included a pre-tax operating loss of $4.6 million and $6.0 million of charges
for assets in liquidation partially offset by $6.3 million of income tax
benefits and $4.1 million of other changes in net assets in liquidation,
primarily proceeds from stock options and warrants exercised during the first
nine months of 2003. The net charges for changes in estimated values of assets and liabilities
during the first nine months of 2003 consisted primarily of $8.5 million of
additional mark-to-market writedowns on the auto lease portfolio. This
writedown was partially offset by a $1.3 million gain associated with the
financing secured by our auto lease cash flows resulting from favorable
experience with the underlying cash flows, and a $1.0 million reduction of an
accrual related to the settlement of litigation that was negotiated during the
first quarter of 2003. Implementation of Statement of Financial Accounting Standards No. 150
resulted in the reclassification of our Capital Securities from their prior
classification as a mezzanine item to liabilities. Leasing Expenses Leasing expenses were $24.4 million for the first nine months of 2003. At
September 30, 2003, approximately 4,275 of the 6,665 vehicles in our automobile
lease portfolio, or 64%, were considered impaired under Statement of Financial
Accounting Standards No. 144. If the market values of the individual vehicles
declined by $250, an additional 7% of the leases would have been deemed to be
impaired and, therefore, potentially subject to an impairment charge. Income Taxes We recorded a tax benefit of $6.3 million for the first nine months of
2003, which was recorded at an effective tax rate of 59.0%. The 2003 effective
tax rate differed from the federal statutory rate primarily due to reduced
levels of state income and franchise taxes. 24




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##### Table of Contents



Changes in Net Assets in Liquidation  Three Months ended December 31, 2002 Our net assets in liquidation at December 31, 2002 totaled $410.1 million,
or $64.30 in net assets in liquidation per outstanding share compared to $413.7
million, or $65.00 in net assets in liquidation per outstanding share at
September 30, 2002. The decrease in net assets in liquidation and net assets
in liquidation per outstanding share was primarily the result of a $6.1 million
pre-tax loss from operations recorded during the fourth quarter of 2002 and
$2.8 million of net charges for additional liquidation valuation adjustments
partially offset by a tax benefit of $4.9 million. The loss from operations for the quarter was primarily a result of an
operating loss caused by a delay in closing the sale of our retail banking
assets to U.S. Bank from October 1, 2002 to November 1, 2002. Our liquidation
of earning assets in advance of the anticipated October 1, 2002 sale date
resulted in sharply lower interest revenues during October. The $2.8 million
charge for additional liquidation valuation adjustments was primarily due to a
decrease in the market value of the loan portfolio. As discussed above, on November 1, 2002, we completed the U.S. Bank
transaction. U.S. Bank, N.A. assumed the Banks retail deposits totaling $3.3
billion, its branches and service center operations, and purchased $327.7
million of loans. On November 29, 2002, we prepaid the entire $100.0 million
of our 9.125% Subordinated Notes due 2007 at a premium of 4.563%.
Additionally, on December 9, 2002, the Bank redeemed the entire $50.0 million
of its outstanding 10% Subordinated Notes due 2009. In December of 2002, we received approval from the FRB to pay the
cumulative distributions on our Capital Securities. On December 31, 2002, we
paid the cumulative deferred distributions, interest on the deferred
distributions and the current quarterly distribution. The total amount paid
per share as of December 31, 2002 was $6.10 for the 10 quarterly distributions
plus $0.715 in accrued interest. The scheduled quarterly distributions
remained subject to FRB approval until the dissolution of the Bank as of
September 2003. Leasing Expenses Leasing expenses were $10.9 million for the fourth quarter of 2002. At
December 31, 2002, approximately 4,839 of the 11,428 vehicles in our automobile
lease portfolio, or 42%, were considered impaired under Statement of Financial
Accounting Standards No. 144. If the market values of the individual vehicles
declined by $250, an additional 2% of the leases would have been deemed to be
impaired and, therefore, potentially subject to an impairment charge. Income Taxes We recorded a tax benefit of $4.9 million for the fourth quarter of 2002.
During the fourth quarter of 2002, we reduced our valuation allowance for
deferred tax assets from $24.0 million to $21.5 million in recognition of
additional future operating income from BVAC available to absorb existing
deferred tax benefits. Our 2002 effective tax rate of 72% differed from the federal statutory
rate due primarily to state income taxes, the valuation allowance on deferred
tax assets, disposition of nondeductible goodwill and nondeductible
compensation associated with the Plan. 25




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##### Table of Contents



Going Concern Basis Results of Operations  Nine Months ended September 30, 2002 Our net income for the first nine months of 2002, including net
adjustments required to convert from the going concern basis of accounting to
the liquidation basis of accounting effective September 30, 2002, totaled $71.7
million, or $11.35 per diluted share. Excluding the liquidation adjustments,
our operating income before taxes totaled $5.9 million for the first nine
months of 2002. Under the liquidation basis of accounting, our assets were valued at their
estimated net realizable values and liabilities included accruals for estimated
costs associated with carrying out the Plan. We recorded pre-tax income
totaling $266.5 million related to the mark-to-market valuation of our assets
and liabilities in connection with our adoption of the liquidation basis of
accounting. Also during the third quarter of 2002, we recorded $18.9 million of
impairment charges, net of taxes, to write-off goodwill related to three of our
commercial lending businesses which was not expected to be realized upon the
disposition of these businesses. As required by Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets, which we
adopted as of January 1, 2002, the impairment loss was measured and recorded as
of the date of adoption and recognized as the cumulative effect of a change in
accounting principle as of January 1, 2002. Our results for the first nine months of 2002 reflected the impact of
asset sales consummated to generate the funds necessary to close the U.S. Bank
transaction. Through September 30, 2002, we completed the sale of
approximately $1.0 billion of multi-family mortgage and commercial real estate
loans to Washington Mutual. Additionally, we securitized and sold
approximately $450.0 million of our auto installment contracts, $56.5 million
of franchise loans, $25.3 million of factored receivables, $103.6 million of
mortgage-backed securities and $59.0 million of other securities. Our results for the first nine months of 2002 included a charge of $13.1
million related to the settlement of litigation with JP Morgan Chase Bank
relating to a complaint filed against Bay View Franchise Mortgage Acceptance
Company, which we sold during 2001. The settlement resulted in the disposition
of approximately $12.0 million of nonperforming franchise loans from our
consolidated balance sheet. We completed the sale of our San Mateo-based factoring business, Bay View
Funding, to a group of investors led by the factoring companys management team
in June 2002. Through this transaction, we converted approximately $6.5
million of goodwill to tangible equity. 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 had 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. Our net interest income and net interest margin for the first nine months
of 2002 were $85.2 million and 3.56%, respectively. Our interest-earning
assets, excluding our auto-related operating lease assets, totaled $3.4 billion
at September 30, 2002. Average interest-earning assets, excluding our
auto-related operating lease assets, for the first nine months of
2002 were $3.2
billion. 26




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##### Table of Contents



Average Balance Sheet The following table illustrates average yields on our interest-earning
assets and average rates on our interest-bearing liabilities for the period
indicated. These average yields and rates are derived by dividing interest
income by the average balances of interest-earning assets and by dividing
interest expense by the average balances of interest-bearing liabilities for
the year indicated. Average balances of interest-earning assets and
interest-bearing liabilities were calculated by averaging the relevant
month-end amounts for the period. AVERAGE BALANCES, YIELDS AND RATESFor the Nine Months Ended September 30, 2002Average
    
    
    
    
    
    AverageBalance
    
    Interest
    
    Yield/Rate(Dollars in thousands)AssetsInterest-earning assets:Loans and leases
    
    $
    2,158,992
    
    
    $
    122,208
    
    
    
    7.70
    %Mortgage-backed
securities(1)
    
    
    231,499
    
    
    
    8,314
    
    
    
    4.78Investments(1)
    
    
    794,862
    
    
    
    14,717
    
    
    
    2.45Total interest-earning assets
    
    
    3,185,353
    
    
    
    145,239
    
    
    
    6.08
    %Other assets
    
    
    680,673Total assets
    
    $
    3,866,026Liabilities and Stockholders EquityInterest-bearing liabilities:Deposits
    
    $
    3,141,636
    
    
    $
    44,509
    
    
    
    1.89
    %Borrowings(2)
    
    
    270,718
    
    
    
    15,559
    
    
    
    7.67Total interest-bearing liabilities
    
    
    3,412,354
    
    
    
    60,068
    
    
    

    2.35
    %Other liabilities
    
    
    107,646Total liabilities
    
    
    3,520,000Stockholders equity
    
    
    346,026Total liabilities and stockholders
equity
    
    $
    3,866,026Net interest income/net interest spread
    
    
    
    
    
    $
    85,171
    
    
    
    3.73
    %Net interest-bearing liabilities
    
    $
    (227,001
    )Net interest
margin(3)
    
    
    
    
    
    
    
    
    
    
    3.56
    %
  (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 excludes expenses related to
our Capital Securities.  (3)
    
    Annualized net interest income divided by average
interest-earning assets. Our net interest margin, calculated in accordance with GAAP, excludes the
revenue from our auto leasing assets, but includes the associated funding
costs. Because our 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 in accordance with
GAAP. 27




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##### Table of Contents



For the first nine months of 2002, interest income was $145.2 million and
the average yield on interest-earning assets was 6.08% while interest expense
on our deposits was $44.5 million and the average cost of deposits was 1.89%.
The following table summarizes our deposit costs by product for the period: For the Nine MonthsEnded September 30, 2002Average Balance
    
    Average Rate(Dollars in thousands)Savings
    
    $
    159,805
    
    
    
    0.58
    %Money Market
    
    
    991,639
    
    
    
    1.72Checking accounts
    
    
    734,123
    
    
    
    0.84Total transaction accounts
    
    
    1,885,567
    
    
    
    1.28Retail certificates of deposit
    
    
    1,219,779
    
    
    
    2.83Brokered certificates of deposit
    
    
    36,290
    
    
    
    2.35Total deposits
    
    $
    3,141,636
    
    
    
    1.89
    %
 For the first nine months of 2002, interest expense on our borrowings was
$15.6 million and the average cost of borrowings was 7.67%. These amounts
exclude the expense associated with our Capital Securities. Provision for Losses on Loans and Leases The provision for losses on loans and leases for the first nine months of
2002 was $10.7 million. Our provision for the first nine months of 2002
reflects the impact of a $2.6 million recovery on the sale of charged-off high
loan-to-value home equity loans. With our adoption of the liquidation basis of
accounting, we reallocated the allowance for losses on loans and leases,
effective September 30, 2002, to a mark-to-market allowance for loans and
leases. Noninterest Income For the first nine months of 2002, noninterest income was $91.6 million
and included net gains on sales of assets totaling $18.6 million. The net
gains consisted of an $11.8 million gain related to the securitization and sale
of approximately $450.0 million of auto installment contracts, a $6.3 million
gain on the sale of multi-family loans and commercial real estate to Washington
Mutual and a $1.3 million gain on the sale of mortgage-backed and other
securities. These gains were partially offset by a $0.4 million loss on the
sale of Bay View Funding and a $0.4 million loss on sales of loans and other
franchise-related assets. 28




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##### Table of Contents



Noninterest Expense General and Administrative Expenses General and administrative expenses were $93.0 million for the first nine
months of 2002. The following table illustrates the ratio of general and
administrative expenses to average total assets, including auto-related
securitized assets, on an annualized basis for the nine months ended September
30, 2002: For the NineMonths EndedSeptember 30, 2002(Dollars in thousands)General and administrative expenses
    
    $
    93,001Average managed assets, including auto-related
securitized assets
    
    $
    4,073,742Annualized general and administrative expenses to
average managed assets, including auto-related
securitized assets
    
    
    3.04
    %
 Leasing Expenses Leasing expenses were $44.0 million for the first nine months of 2002. At
September 30, 2002, approximately 5,934 of the 13,631 vehicles in our
automobile lease portfolio, or 44%, were considered impaired under Statement of
Financial Accounting Standards No. 144. As an illustration of the sensitivity
of these assumptions - if the market values of the individual vehicles had
declined by $250, an additional 3% of the leases would have been deemed to be
impaired and, therefore, potentially subject to an impairment charge. Real Estate Owned Net expense related to our real estate owned was $1.0 million for the
first nine months of 2002. In addition, we recorded $266,000 of provision for
losses on real estate owned during the first nine months of 2002. 29




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##### Table of Contents



Amortization of Intangible Assets As of January 1, 2002, we adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, which requires that
certain goodwill and intangible assets with indefinite useful lives no longer
be amortized but instead be tested for impairment at least annually.
Subsequently, we only amortized identifiable assets with definite useful lives,
including core deposit intangibles and certain goodwill. Amortization expense
related to these intangible assets was $1.0 million for the first nine months
of 2002. For the nine months ended September 30, 2002, we recorded $18.9 million of
impairment charges, net of taxes, for goodwill not expected to be realized upon
the disposition of our asset-based lending, factoring and commercial leasing
businesses. As required by the provisions of Statement No. 142, the impairment
loss was measured and recorded as of the date of adoption and recognized as the
cumulative effect of a change in accounting principle as of January 1, 2002. Income Taxes We recorded tax expense of $181.8 million for the nine months ended
September 30, 2002. We also recorded a deferred tax benefit of $2.3 million on
the cumulative effect of a change in accounting principle, which is presented
net of this tax benefit. As a result of the Plan, income tax expense included
the effect of establishing a valuation allowance of $24.0 million at September
30, 2002 on the realizability of deferred tax assets in years after 2002. The
realizability of deferred tax assets and the related valuation allowance were
based on total projected future income through the estimated completion date of
our liquidation, as contemplated by the Plan, of September 30, 2005. The effective tax rate used in computing the $181.8 million tax expense
for the first nine months of 2002 was 71.5%. This effective tax rate was
higher than the federal statutory rate due primarily to state income taxes, the
valuation allowance for deferred tax assets, amortization and disposition of
nondeductible goodwill and nondeductible compensation associated with the Plan. As of September 30, 2002, in anticipation of the close of the sale of the
Banks retail banking assets to U.S. Bank and other 2002 asset sales
transactions, we estimated that we would utilize approximately $143.6 million
of our net deferred tax assets. Capital Securities On December 21, 1998, we issued $90.0 million of 9.76% Capital Securities
through Bay View Capital I, a business trust formed to issue the securities.
The Capital Securities accrue quarterly cumulative distributions at an annual
rate of 9.76% of the liquidation value of $25 per share. Dividend expense on
the Capital Securities was $7.9 million for the first nine months of 2002. In September of 2000, we entered into an agreement with the Federal
Reserve Bank of San Francisco (the FRB) which required that we obtain its
approval prior to disbursing any dividends associated with our Capital
Securities. Beginning with the third quarter of 2000, we began deferring
distributions quarterly in accordance with the terms of the Capital Securities.
During this deferral period, distributions to which holders are entitled
continued to accrue at an annual rate of 9.76% of the liquidation amount of $25
per Capital Security, plus accumulated additional distributions at the same
rate, compounded quarterly, on any unpaid distributions. Deferred
distributions and interest, which were fully accrued, were $21.8 million at
September 30, 2002. At a meeting held on October 3, 2002, holders of the Capital Securities
approved a waiver of those provisions of the legal instruments governing the
Capital Securities and the Companys Junior Debentures that would have, absent
the waiver, prevented us from disposing of our assets pursuant to our Plan.
Capital Securities holders also approved the amendment of certain provisions of
the legal instruments governing the Capital Securities and the Junior
Debentures that allowed early redemption of the Capital Securities at the
option of each holder of the Capital Securities. 30




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##### Table of Contents



In December of 2002, we received approval from the FRB to pay the
cumulative deferred distributions on our Capital Securities, and on December
31, 2002, we paid the distributions and cumulative interest on the deferred
distributions. The total amount paid per share as of December 31, 2002 was
$6.10 for the 10 quarterly distributions plus $0.715 in accrued interest. As a
result of the Banks dissolution, effective September 30, 2003, we ceased to be
a bank holding company and are no longer subject to supervision, examination
and regulation by the FRB. Results of Operations  Year ended December 31, 2001 For the year ended December 31, 2001, our consolidated net loss was $101.2
million, or $19.89 per diluted share. The net loss for 2001 was primarily due
to charges incurred in connection with a strategic plan adopted during 2001.
These charges included $70.1 million associated with the revaluation of
franchise-related assets, $59.5 million of provision for loan and lease losses
related to franchise loans, $18.7 million of additional provision for
impairment primarily as a result of writing down residual values associated
with the auto lease portfolio, $10.5 million in net losses on sales of assets,
$8.2 million in FHLB prepayment penalties related to prepayments of high-cost
borrowings, and $6.9 million of restructuring charges primarily related to a
reduction of our workforce. Net Interest Income and Net Interest Margin Our net interest income and net interest margin for the year ended
December 31, 2001 were $122.2 million and 3.18%, respectively. Our
interest-earning assets, excluding our auto-related operating lease assets,
totaled $3.0 billion at December 31, 2001. Average interest-earning assets,
excluding our auto-related operating lease assets, for the year ended December
31, 2003 were $3.8 billion. Average Balance Sheet The following table illustrates average yields on our interest-earning
assets and average rates on our interest-bearing liabilities for the year ended
December 31, 2001. These average yields and rates are derived by dividing
interest income by the average balances of interest-earning assets and by
dividing interest expense by the average balances of interest-bearing
liabilities for the year indicated. Average balances of interest-earning
assets and interest-bearing liabilities were calculated by averaging the
relevant month-end amounts. 31




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##### Table of Contents



AVERAGE BALANCES, YIELDS AND RATESFor the Year Ended December 31, 2001Average
    
    
    
    
    
    AverageBalance
    
    Interest
    
    Yield/Rate(Dollars in thousands)AssetsInterest-earning assets:Loans and leases
    
    $
    2,787,990
    
    
    $
    243,163
    
    
    
    8.72
    %Mortgage-backed
securities(1)
    
    
    468,397
    
    
    
    31,695
    
    
    
    6.77Investments(1)
    
    
    591,393
    
    
    
    27,887
    
    
    
    4.72Total interest-earning assets
    
    
    3,847,780
    
    
    
    302,745
    
    
    
    7.87
    %Other assets
    
    
    728,656Total assets
    
    $
    4,576,436Liabilities and Stockholders EquityInterest-bearing liabilities:Deposits
    
    $
    3,500,083
    
    
    $
    135,736
    
    
    
    3.88
    %Borrowings(2)
    
    
    626,296
    
    
    
    44,761
    
    
    
    7.15Total interest-bearing liabilities
    
    
    4,126,379
    
    
    
    180,497
    
    
    
    4.37
    %Other liabilities
    
    
    123,249Total liabilities
    
    
    4,249,628Stockholders equity
    
    
    326,808Total liabilities and stockholders
equity
    
    $
    4,576,436Net interest income/net interest spread
    
    
    
    
    
    $
    122,248
    
    
    
    3.50
    %Net interest-bearing liabilities
    
    $
    (278,599
    )Net interest
margin(3)
    
    
    
    
    
    
    
    
    
    
    3.18
    %
  (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 excludes expenses related to
our Capital Securities.  (3)
    
    Annualized net interest income divided by average
interest-earning assets. For the year ended December 31, 2001, interest income was $302.7 million
and the average yield on interest-earning assets was 7.87%. 32




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##### Table of Contents



For the year ended December 31, 2001, interest expense on our deposits was
$135.7 million and the average cost of deposits was 3.88%. The following table
summarizes our deposit costs by product for the year ended December 31, 2001: For the Year EndedDecember 31, 2001Average Balance
    
    Average Rate(Dollars in thousands)Savings
    
    $
    150,111
    
    
    
    1.18
    %Money Market
    
    
    1,190,820
    
    
    
    3.52Checking accounts
    
    
    489,867
    
    
    
    1.00Total transaction accounts
    
    
    1,830,798
    
    
    
    2.65Retail certificates of deposit
    
    
    1,592,812
    
    
    
    5.13Brokered certificates of deposit
    
    
    76,473
    
    
    
    7.24Total deposits
    
    $
    3,500,083
    
    
    
    3.88
    %
 For the year ended December 31, 2001, interest expense on our borrowings
was $44.8 million and the average cost of borrowings was 7.15%. Interest
expense excludes dividends on our Capital Securities. Provision For Losses on Loans and Leases The provision for losses on loans and leases was $71.9 million for the
year ended December 31, 2001 and included $58.9 million of provision related to
franchise loans, $6.9 million related to home equity loans and $6.1 million
related to commercial and other loans. Noninterest Income For the year ended December 31, 2001, noninterest income was $107.2
million and included net losses on sales of assets totaling $10.5 million. The
losses were primarily due to a $22.9 million loss on the sale of BVFMAC, a
$10.3 million loss on the sale of home equity loans in June 2001, $3.7 million
in mark-to-market charges related to our hedges and $1.6 million of writedowns
of our residual interests and other assets related to our auto loan
securitizations. These losses were partially offset by $13.5 million in net
gains on sales of mortgage-backed securities and other investments securities,
$10.1 million of contingent gains received during the first quarter of 2001
related to December 2000 asset sales and $3.6 million net gains on franchise
loan sales during 2001. We serviced a $2.2 billion off-balance sheet portfolio of franchise loans
through June 22, 2001, the effective date of the sale of BVFMAC and its
servicing portfolio. The related servicing fee income was $2.9 million for the
year ended December 31, 2001. Noninterest Expense General and Administrative For the year ended December 31, 2001, general and administrative expenses
were $155.3 million and included $8.2 million related to the prepayment of
FHLB advances, $2.6 million related to our issuance of stock options during
the second quarter with below market exercise prices, $2.4 million in legal and
professional fees related to the implementation of our new strategic plan, a
$1.0 million accrual related to postretirement health care benefits and $2.5
million in other non-recurring expenses. 33




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##### Table of Contents



The following table illustrates the ratio of our general and
administrative expenses to average managed assets, including auto-related
securitized assets, for the year: For the Year EndedDecember 31, 2001(Dollars in thousands)General and administrative expenses
    
    $
    155,287Average managed assets, including auto-related securitized assets
    
    $
    4,869,314Annualized general and administrative expenses to
average managed assets, including auto-related securitized assets
    
    
    3.19
    %
 The following table illustrates our efficiency ratio for the year ended
December 31, 2001: For the Year EndedDecember 31, 2001(Dollars in thousands)General and administrative
expenses
    
    $
    155,287Operating revenues, as defined
    
    $
    185,609Efficiency ratio
    
    
    83.7
    %
 Restructuring Charges During 2001, we recorded a total of $6.9 million in restructuring charges,
primarily for employee severance costs related to a reduction in our workforce
and facilities charges. Revaluation of Franchise-Related Assets For the year ended December 31, 2001, writedowns of certain
franchise-related assets resulted in $70.1 million of pre-tax expense. These
writedowns included a $31.7 million charge on a sale of $278 million of
franchise loans, a $13.6 million writedown of franchise servicing assets, $12.6
million of writedowns of retained interests in franchise loan securitizations,
$5.0 million of writedowns of equity investments, and $1.9 million of
writedowns of servicer advances. Leasing Expenses For the year ended December 31, 2001, leasing expenses were $86.1 million,
and included $18.7 million of impairment charges. At December 31, 2001,
approximately 9,000 of the 18,272 vehicles in our automobile lease portfolio,
or 49%, were considered impaired under Statement of Financial Accounting
Standards No. 121. Real Estate Owned The net expense related to our real estate owned was $2.1 million for the
year ended December 31, 2001. Additionally, we recorded $2.9 million of
provision for losses on real estate owned during 2001. 34




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##### Table of Contents



Amortization of Intangible Assets Amortization expense related to intangible assets was $11.3 million for
the year ended December 31, 2001. Income Taxes For the year ended December 31, 2001, the Company recorded an income tax
benefit of $85.9 million; our effective tax rate was 45.9%. Our effective tax
rate differed from the federal statutory rate of 35.0% due primarily to the
impact of nondeductible goodwill, state income taxes, and the impact of a $26.0
million valuation allowance established against our gross deferred tax assets
in 2000 that was eliminated in 2001. Capital Securities Dividend expense on the Capital Securities was $9.8 million for the year
ended December 31, 2001. Deferred dividends associated with our agreement with
the FRB, as previously discussed, were $14.1 million at December 31, 2001. 35




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##### Table of Contents



Balance Sheet Analysis Our total assets were $364.1 million at December 31, 2003 on a going concern basis, compared to
$875.5 million at December 31, 2002 on a liquidation basis. The decrease of $511.4 million was, in
general, attributable to the liquidation of assets and the satisfaction of
liabilities of the Bank completed under our Amended Plan. At year-end, we
distributed $263.2 million, or $40.00 per share, in cash to our common
stockholders and redeemed $63.5 million, or approximately 74%, of the
outstanding Capital Securities issued by our Bay View Capital I Trust. Cash and Cash Equivalents At December 31, 2003, our cash and cash equivalents totaled $11.6 million
and consisted of $11.5 million of cash deposited at depository institutions and
$0.1 million of money market funds. At December 31, 2002, our cash and cash
equivalents totaled $207.8 million and consisted of $56.1 million of cash
deposited at depository institutions, $95.7 million of Federal Funds and $56.0
million of commercial paper and money market funds. Restricted Cash We held $32.2 million and $15.5 million of restricted cash at December 31,
2003 and 2002, respectively. Restricted cash was comprised of cash collateral
pledged to secure letters of credit, cash retained in reserve accounts
established by BVACs auto securitization trusts for purposes of providing
credit enhancement for our asset-backed bond issuances, cash collateral to meet
margin requirements of counterparties to BVACs hedging contracts, cash
collateral pledged to secure the Companys financing secured by our auto lease
cash flows, and cash collateral retained to cure potential borrowing base
deficiencies on BVACs warehouse line of credit. Retained Interests in Securitizations The following table provides information, by securitization transaction,
on the balance of retained interests in securitizations of auto installment
contracts as of the dates indicated: At December 31,2003
    
    2002Available-for-sale
    
    (Dollars in thousands)Transaction:1999-LG-1
    
    $
    
    
    
    $
    3,7112000-LJ-1
    
    
    
    
    
    
    4,2132002-LJ-1
    
    
    18,744
    
    
    
    23,9462003-LJ-1
    
    
    9,846
    
    
    
    Total retained
interests in
securitizations
    
    $
    28,590
    
    
    $
    31,870
 During 2003 and 2002, we securitized and sold auto installment contracts
of $193.3 million and $453.2 million, respectively. We retained interests in
these securitizations with initial balances of $9.5 million and $23.2 million
for 2003 and 2002, respectively. During 2003, BVAC exercised clean-up calls
on its 1999-LJ-1 and 2000-LJ-1 automobile receivable backed notes and
repurchased installment contracts from the asset-backed bond trusts with par
values of $21.8 million and $33.8 million and average coupon rates of 12.52%
and 10.25%, respectively. In connection with our acquisition of FMAC in 1999, we acquired retained
interests in franchise loan and lease securitizations. We also retained
interests in franchise loans that we securitized and sold during 1999 and 2000.
During 2002, we wrote-off the remaining balance of these franchise
securitization residual assets, totaling $4.9 million, primarily as a result of
deterioration in the franchise loans underlying the securities. 36




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##### Table of Contents



Mortgage-backed and Other Securities Prior to initiating our liquidation of the Bank, we purchased high-quality
mortgage-backed and other securities including U.S. government agency notes and
other short-term securities, to supplement our loan production. The following
table provides information on the balance of mortgage-backed and other
securities as of the dates indicated: At December 31,2003
    
    2002Available-for-sale
    
    (Dollars in thousands)Mortgage-backed securities:GNMA, Fannie Mae and Freddie Mac
    
    $
    5,335
    
    
    $
    31,431Collateralized mortgage obligations
    
    
    558
    
    
    
    1,085Total mortgage-backed securities
    
    
    5,893
    
    
    
    32,516Asset-backed securities
    
    
    246
    
    
    
    6,267Total mortgage-backed and other
securities available-for-sale
    
    $
    6,139
    
    
    $
    38,783
 The balance of this portfolio, totaling $6.1 million as of December 31,
2003, is held in our available-for-sale portfolio. During 2003, we sold $12.5
million of mortgage-backed securities and $2.7 million of asset-backed
securities, realizing losses of $30 thousand. We did not purchase any
mortgage-backed or other securities during 2003. During 2002, we sold $180.1
million of mortgage-backed securities and $74.8 million of other securities,
primarily trust preferred and asset-backed securities, realizing gains of $1.2
million. We purchased $60.5 million of mortgage-backed securities and $55.9
million of asset-backed securities during the year. We do not maintain a trading portfolio. Unrealized losses of $54,000 on
securities available-for-sale were recorded upon our re-adoption of the going
concern basis of accounting on October 1, 2003, and were included in
stockholders equity (net of taxes) at December 31, 2003. As previously discussed, we used the liquidation basis of accounting from
September 30, 2002 through September 30, 2003. Under the liquidation basis of
accounting, mortgage-backed and other securities were carried at market value
and unrealized gains and losses were recognized in income as liquidation basis
adjustments. Upon our adoption of the liquidation basis of accounting at
September 30, 2002, we recognized $2.0 million of mark-to-market gains on our
mortgage-backed and other securities. We subsequently recognized $253 thousand
and $795 thousand of mark-to-market losses during the fourth quarter of 2002
and the first nine months of 2003, respectively. 37




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##### Table of Contents



Loans and Leases The following table shows the composition of our loan and lease portfolio
as of the dates indicated: At December 31,2003
    
    2002% of
    
    
    
    
    
    % ofAmount
    
    Total
    
    Amount
    
    Total(Dollars in thousands)Loans and leases receivable:Auto installment contracts (1)
    
    $
    161,578
    
    
    
    93.0
    %
    
    $
    142,357
    
    
    
    45.8
    %Other loans and leases:Multi-family mortgage loans
    
    
    
    
    
    
    
    
    
    
    2,443
    
    
    
    0.8Commercial mortgage loans
    
    
    
    
    
    
    
    
    
    
    7,712
    
    
    
    2.5Franchise loans
    
    
    6,428
    
    
    
    3.7
    
    
    
    46,928
    
    
    
    15.1Asset-based loans, syndicated loans, factored
receivables and commercial leases
    
    
    844
    
    
    
    0.5
    
    
    
    104,362
    
    
    
    33.5Business loans
    
    
    4,802
    
    
    
    2.8
    
    
    
    7,212
    
    
    
    2.3Total other loans and leases
    
    
    12,074
    
    
    
    7.0
    
    
    
    168,657
    
    
    
    54.2Loan and leases before premiums,
discounts, deferred fees and costs, net
    
    
    173,652
    
    
    
    100.0
    %
    
    
    311,014
    
    
    
    100.0
    %Premiums, discounts, deferred fees
and costs, net (2)
    
    
    4,296
    
    
    
    
    
    
    
    Loans and leases receivable (3)
    
    $
    177,948
    
    
    
    
    
    
    $
    311,014
  (1) Auto installment contracts exclude auto-related operating lease assets.  (2) Amounts at December 31, 2003 are related to auto installment contracts.  (3) All loans and leases are classified as held-for-sale at December 31, 2003
and December 31, 2002. The decrease in loans and leases receivable from December 31, 2002 to
December 31, 2003 was attributable to loan sales pursuant to the Amended Plan
and repayments. During 2003, we completed the sale and/or securitization of
approximately $339.8 million of loans and received an additional $129.6 million
of loan repayments. Other than BVACs purchases of auto installment contracts,
we ceased all other loan production activities during the fourth quarter of
2002. 38




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##### Table of Contents



The following table illustrates the purchase and origination activity in
our loan and lease portfolio for the periods indicated: For the Year Ended December 31,2003
    
    2002(Dollars in thousands)Loan purchases and originations:Auto installment contracts
    
    $
    279,521
    
    
    $
    314,731Multi-family and commercial mortgage loans
    
    
    
    
    
    
    217,788Home equity loans and lines of credit
    
    
    
    
    
    
    87,452Asset-based loans, syndicated loans, factored receivables
and commercial leases
    
    
    
    
    
    
    29,658Business loans
    
    
    
    
    
    
    36,590Total purchases and originations
    
    $
    279,521
    
    
    $
    686,219
 Auto Installment Contracts During 2003, BVAC purchased $279.5 million of installment contracts on new
and used vehicles. The year-to-date volume consisted of 9,762 contracts with
weighted-average contract rates of 8.35% and weighted-average FICO scores of
733. As previously mentioned, during 2003, BVAC also called its 1999-LJ-1 and
2000-LJ-1 automobile receivable backed notes and repurchased installment
contracts from the asset-backed bond trusts with par values of $21.8 million
and $33.8 million and average coupon rates of 12.52% and 10.25%, respectively.
At December 31, 2003, BVAC was servicing 30,808 contracts representing $562.8
million of managed loans. We believe BVACs purchase volumes for 2003 were somewhat below our
expectations for several reasons. During the year, incentive financing from
auto manufacturers, including zero percent financing out to a term of 72
months, was widely available on new vehicles. These products encroached on
BVACs traditional market in extended-term contracts, which appeal to monthly
payment-oriented buyers of new vehicles. Incentive financing offered on new
vehicles also drew a segment of BVACs used vehicle buyers/borrowers into new
vehicle purchases. In the past years recessionary environment, BVAC chose to
remain focused on credit quality rather than market share, and also reduced its
purchases of installment contracts from certain independent dealers. In addition, BVAC has historically aligned itself with smaller, franchised
and independent dealers. In recent years, however, the industry has
experienced intense merger and acquisition activity that has led to the
emergence of large, regional and national automobile dealership organizations,
causing BVAC to lose production volume from its existing dealer base. In
response, BVAC began a campaign to establish relationships with these regional
and national dealer organizations during 2003 and, as of December 31, 2003, has
signed agreements with five of these organizations representing 370 dealership
stores. During 2004, BVAC will continue to pursue this strategy. BVAC is continuing a geographic expansion plan that it initiated in late
2002. From its established presence in 17 states, primarily in the West,
Midwest and Florida, BVAC entered seven Mid-Atlantic states in 2003. In 2004,
BVAC plans to enter nine additional states primarily in New England, as well as
Oklahoma. BVAC securitized and/or sold approximately $240.5 million of automobile
installment contracts during 2003. Gains of $0.9 million were realized on
these transactions. Repayments of installment contracts totaled $79.0 million
during 2003. Other Loans and Leases During 2003, we liquidated $149.9 million from our portfolio of other
loans and leases including $99.3 million of sales and $50.6 million of loan
repayments. These loan sales and repayments were comprised of $91.5 million of
asset-based loans, $33.4 million of franchise loans, $10.8 million of
syndicated loans, $7.0 million of commercial real estate loans, $3.9 million of
multi-family mortgage loans and $3.3 million of business loans, factored
receivables and 39




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##### Table of Contents



commercial leases. At December 31, 2003, the net carrying
value of our remaining investment in loans to be liquidated was $12.1 million. Credit Quality We define nonperforming assets as nonaccrual loans and leases, real estate
owned, 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. We do not record interest on nonaccrual loans and
leases. We charge-off auto installment contracts that are 120 days delinquent. The following table illustrates our nonperforming assets as of the dates
indicated: At December 31,2003
    
    2002(Dollars in thousands)Nonaccrual loans and leases
    
    $
    1,924
    
    
    $
    24,683Real estate owned
    
    
    4,955
    
    
    
    2,402Other repossessed assets
    
    
    254
    
    
    
    183Nonperforming assets
    
    $
    7,133
    
    
    $
    27,268
 The decrease in total nonperforming assets at December 31, 2003, compared
to December 31, 2002, was primarily due to a decrease in nonaccruing franchise,
syndicated and commercial real estate loans, primarily resulting from loan
sales and prepayments partially offset by an increase in real estate owned. We
transferred $7.0 million of nonperforming franchise loans to real estate owned
and recognized a loss of $0.5 million during 2003. Our nonperforming assets
included valuation allowances of $1.4 million and $16.4 million at December 31,
2003 and 2002, respectively. Nonperforming assets excluding franchise-related
assets were $1.4 million at December 31, 2003, compared to $6.3 million at
December 31, 2002, while non-franchise nonaccrual loans and leases were $0.9
million at December 31, 2003 compared to $5.9 million at December 31, 2002. Interest on nonaccrual loans and leases that was not recorded in income
was $1.6 million for the year ended December 31, 2003. Actual interest that we
realized on these nonaccrual loans and leases during 2003 was immaterial. 40




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##### Table of Contents



The following table illustrates nonperforming asset balances and
nonperforming assets as a percentage of consolidated assets by their original
loan and lease type: Nonperforming Assets as a Percentage ofConsolidated Total AssetsAt December 31,2003
    
    2002(Dollars in thousands)Auto installment contracts
    
    $
    338
    
    
    
    0.09
    %
    
    $
    284
    
    
    
    0.03
    %Franchise loans
    
    
    5,757
    
    
    
    1.58
    
    
    
    21,005
    
    
    
    2.40Asset-based loans, factoring
loans and commercial leases
    
    
    857
    
    
    
    0.24
    
    
    
    4,850
    
    
    
    0.55Commercial real estate
    
    
    181
    
    
    
    0.05
    
    
    
    948
    
    
    
    0.11Multi-family mortgage
    
    
    
    
    
    
    0.00
    
    
    
    84
    
    
    
    0.01Business loans
    
    
    
    
    
    
    0.00
    
    
    
    97
    
    
    
    0.01Total
    
    $
    7,133
    
    
    
    1.96
    %
    
    $
    27,268
    
    
    
    3.11
    %
 The following table illustrates loans and leases delinquent 60 days or
more as a percentage of gross loans and leases by their original loan and lease
type: Loans and Leases Delinquent 60 Days or More as aPercentage of Gross Loans and LeasesAt December 31,2003
    
    2002(Dollars in thousands)Auto installment contracts
    
    $
    185
    
    
    
    0.10
    %
    
    $
    272
    
    
    
    0.09
    %Franchise loans
    
    
    
    
    
    
    0.00
    
    
    
    16,064
    
    
    
    5.16Commercial real estate
    
    
    
    
    
    
    0.00
    
    
    
    734
    
    
    
    0.23Asset-based loans, factoring
loans and commercial leases
    
    
    563
    
    
    
    0.32
    
    
    
    517
    
    
    
    0.17Multi-family mortgage
    
    
    
    
    
    
    0.00
    
    
    
    84
    
    
    
    0.03Business loans
    
    
    
    
    
    
    0.00
    
    
    
    82
    
    
    
    0.03Total
    
    $
    748
    
    
    
    0.42
    %
    
    $
    17,753
    
    
    
    5.71
    %
 Allowance for Loan and Lease Losses (ALLL) Prior to September 30, 2002, the Company maintained an ALLL. Upon
adoption of the liquidation basis of accounting, the Company ceased to have the
ALLL because its loans were carried at their net realizable value. Upon
re-adoption of the going concern basis of accounting on October 1, 2003, the
Company carries its loans at the lower of cost or market since all of its loans
are classified as available-for-sale. The following discussion relates to the
periods from January 1, 2001 to September 30, 2002. Credit risk and potential loss are inherent in the lending process. The
purpose of the ALLL is to absorb losses that are probable and estimable in our
loan portfolio. The ALLL is augmented through charges to earnings called
provisions. Known losses are charged to the ALLL. Management seeks to reduce
credit risk and therefore potential loss by administering established lending
policies and underwriting procedures combined with continuous monitoring of the
portfolio. The adequacy of the ALLL was formally evaluated on a quarterly basis. As
discussed in more detail below, specific credits and the portfolio in general
are evaluated by several methods incorporating historical performance,
collateral protection, cash flow and analysis of current economic conditions.
This evaluation culminates with a judgment on the probability of collection
based on existing and probable near-term events. Discontinued lending 41




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##### Table of Contents



operations receive the same scrutiny as ongoing operations but do not have
the additional risk inherent in accepting new business. Deposits During the second quarter of 2002, we began acquiring brokered
certificates of deposit to provide additional liquidity in anticipation of
funding the U.S. Bank sale transaction. As previously discussed, on November
1, 2002, we completed a sale of the Banks retail banking assets to U.S. Bank.
U.S. Bank assumed the Banks retail deposits totaling $3.3 billion, its
branches and service center operations, and purchased $327.7 million of loans.
At December 31, 2002, $224.2 million of brokered certificates of deposit were
outstanding with a weighted-average rate of 2.35%; these deposits matured
during the first quarter of 2003. The dissolution of the Bank was completed on
September 30, 2003, and the last of the Banks deposits were repaid prior to
the dissolution. Borrowings At December 31, 2003, our borrowings totaled $179.1 million including
$138.2 million on BVACs warehouse credit facility, $16.1 million on a
financing secured by the auto lease portfolio contractual cash flows, and $24.8
million of Junior Debentures issued to the Bay View Capital I Trust. Warehouse credit facility- During the second quarter of 2003, BVAC
obtained a $250.0 million revolving warehouse credit facility to finance BVACs
current portfolio of auto installment contracts and its future originations of
auto installment contracts. BVAC intends to periodically securitize and sell
its production of automotive loans in order to repay the line of credit. Financing secured by auto lease portfolio contractual cash flows- On
December 31, 2001, we completed a financing secured by the contractual cash
flows of our auto operating lease portfolio. The transaction was recorded as a
secured financing and resulted in an increase in other borrowings of $136.5
million at an initial imputed interest rate of 5.25%. There have been no new auto
leases originated since June 2000 and therefore, the auto operating lease cash
flows decrease monthly and are scheduled to conclude in November 2005. Junior Debentures issued to the Bay View Capital I Trust- In December
1998, we issued, through Bay View Capital I Trust, $90.0 million in Capital
Securities yielding 9.76%, which mature on December 31, 2028. As previously
mentioned, effective July 1, 2003, we adopted Statement of Financial Accounting
Standards No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity,  which resulted in the
reclassification of our Capital Securities from their prior classification as a
mezzanine item to liabilities. During the third quarter of 2003, we
completed an offer of optional redemption of our Capital Securities and
redeemed $4.5 million of the original balance. On December 31, 2003, we
redeemed an additional $63.5 million, or approximately 74%, of the Capital
Securities leaving an outstanding balance of $22.0 million. We currently
anticipate redeeming the remaining Capital Securities during 2004. Effective December 31, 2003, we adopted FASB Financial Interpretation No.
46, Consolidation of Variable Interest Entities, and accordingly, deconsolidated Bay
View Capital I Trust. As a result, as of December 31, 2003, the 9.76% Capital
Securities of Bay View Capital I Trust are no longer reflected on our
Consolidated Statement of Financial Condition while the underlying 9.76% Junior
Subordinated Deferrable Interest Debentures, which were acquired by Bay View
Capital I Trust, are reflected as borrowings. In August 1997, we issued $100.0 million of 9.125% Subordinated Notes,
maturing on August 15, 2007 and on August 18, 1999, the Bank issued $50.0
million of 10% Subordinated Notes, maturing August 2009. On November 29, 2002,
we called the $100.0 million of 9.125% Subordinated Notes at a premium of
4.563% and on December 9, 2002, the Bank called the $50.0 million of 10%
Subordinated Notes at par. 42




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##### Table of Contents



Liquidity and Capital Resources The
objective of our liquidity management is currently twofold  to ensure
that funds are available to finance BVACs purchases, warehousing and
securitization/sale of installment contracts and to complete the liquidation of
the Bank. At
December 31, 2003, we had $43.8 million of cash and cash equivalents of which
approximately $32.2 million was restricted. Restricted cash is largely
comprised of the following  cash collateral pledged to secure letters of
credit, cash retained in reserve accounts established by BVACs auto
securitization trusts for purposes of providing credit enhancement for our
asset-backed bond issuances, cash collateral to meet margin requirements of
counterparties to BVACs hedging contracts, cash collateral pledged to secure
the financing secured by our auto lease cash flows, and cash collateral
retained to cure potential borrowing base deficiencies on BVACs warehouse line
of credit. Since the U.S. Bank transaction, we have used the proceeds from our
liquidation, and sales and a securitization of auto installment contracts to
fund BVACs purchases of installment contracts, repay borrowings and maturing
brokered certificates of deposit, pay a $40.00 per share distribution to our
common stockholders and to meet other working capital needs. With our adoption
of a process of partial liquidation, BVAC is the sole operating subsidiary that
has ongoing operations. With the exception of BVACs assets and liabilities
and our operating auto lease assets, we are proceeding with the remaining
liquidation and anticipate that this process will be substantially completed
during 2004. The liquidation of the auto leases, which will be funded from the
proceeds from sales of the vehicles as they come off of expiring lease
contracts, is anticipated to be completed by the end of the third quarter of
2005, consistent with the maturities of these leases. Our uses of liquidity
are now largely limited to funding BVACs purchases of installment contracts
and its other working capital needs. On December 31, 2002, following approval by the FRB of San Francisco, we
paid cumulative deferred distributions, interest on the deferred distributions
and the current quarterly distribution on our Capital Securities. During 2003,
we paid the quarterly dividends as scheduled. On December 30, 2003, we
distributed $263.2 million, or $40.00 per share in cash, to common stockholders
and, on December 31, 2003, redeemed $63.5 million, or approximately 74%, of the
outstanding Capital Securities of the Bay View Capital I Trust. We currently anticipate redeeming the remaining $22.0 million of the Bay
View Capital I Trust, 9.76% Cumulative Capital Securities during 2004. We also
anticipate making additional cash distributions of approximately $14.50 per
share to common stockholders through a series of six quarterly distributions
beginning in the second quarter of 2004 and continuing through the third
quarter of 2005. The repayment of the Capital Securities and the cash
distributions to stockholders will be funded with existing cash and cash
equivalents as well as proceeds from the disposition of remaining assets during
2004 and 2005. During the fourth quarter, BVAC pledged the balance of its
warehouse inventory of installment contracts and drew on its credit facility.
Subsequently, BVAC will fund its purchases of installment contracts with its
credit facility and will periodically securitize or sell these contracts in
order to provide it with liquidity to continue its purchases. Our stockholders equity was re-established upon our re-adoption of a
going concern basis of accounting effective October 1, 2003. Stockholders
equity totaled $155.9 million at December 31, 2003. With the Banks dissolution on September 30, 2003, we ceased to be a bank
holding company. Consequently, we are no longer subject to the regulatory
capital guidelines administered by the FRB. 43




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##### Table of Contents



Stock Repurchase Program In August 1998, our Board of Directors authorized the repurchase of up to
$50.0 million in shares of our common stock. We have not repurchased any
shares of our common stock since 1999. At December 31, 2003, we had
approximately $17.6 million in remaining authorization available for future
share repurchases. Impact of Inflation and Changing Prices Our consolidated financial statements presented herein have been prepared
in accordance with GAAP, 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 consumer finance company are
monetary in nature, interest rates have a more significant impact on a consumer
finance company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. 44




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk Asset/Liability Management Interest rate risk, the fluctuation of market interest rates, impacts the
value of our fixed-rate auto installment contracts, which are held for sale.
It also impacts the net interest income component of our earnings because we
fund purchases of fixed-rate installment contracts with a floating-rate
warehouse credit facility. The rate on the warehouse facility, a commercial
paper conduit facility, is tied to commercial paper rates and subject to
frequent adjustments to reflect prevailing commercial paper rates. Fixed-rate Auto Installment Contracts The installment contracts we purchase are fixed-rate contracts. We
purchase these contracts with the intention of periodically selling the
contracts through asset-backed securitization transactions or sales of whole
loan pools. Investors in these securitization or whole loan sale transactions
require a yield that is commensurate with prevailing market interest rates.
The prices offered by investors in these transactions reflect prevailing market
interest rates at the time of these transactions, which creates price risk for
the Company during the period it warehouses, or owns, these fixed-rate
contracts. Accordingly, our earnings are affected by changes in prevailing
market interest rates. Rising market interest rates generally reduce the value
of our fixed-rate installment contracts thereby diminishing the gains we would
realize in the sale or securitization of these contracts. Net Interest Income We fund purchases of fixed-rate installment contracts with our
floating-rate warehouse credit facility. While we own these contracts, we earn
net interest income, the excess of interest income earned on the contracts over
the interest paid on our warehouse credit facility. Changes in prevailing
market interest rates produce corresponding changes in the cost of our
floating-rate warehouse credit facility thereby creating interest rate risk.
Rising market interest rates generally increase the interest expense we incur
on our warehouse credit facility. To protect
the Company from interest risk, we use various derivative
financial instruments including interest rate swap contracts to protect the
market value of our warehouse inventory of installment contracts and the net
interest income produced by our warehouse inventory. The market value of these
derivative instruments is designed to respond inversely to the market value of
our warehouse inventory resulting from changes in prevailing market interest
rates. These agreements are entered into as we purchase installment contracts;
the agreements are closed out at the time installment contracts are securitized
or sold. Our policy is to maintain a fully hedged position on our warehouse
inventory. At December 31, 2003, we had entered into SWAP contracts with a
total notional amount of $133.0 million and an unrealized loss
of $1.6 million,
under which we pay a fixed interest rate of 2.29% and receive a floating interest rate of
1.18%. These contracts mature in September 2004 and September 2006. An
increase of 100 or 200 basis points will result in an approximate gain of $0.5
million and $2.5 million, respectively, on these contracts; while a decrease of
100 basis points will result in an approximate loss of $3.8 million. As a result of our re-adoption of the going concern basis of accounting
effective October 1, 2003, we account for changes in the market value of
derivative instruments as prescribed by Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities. Our swap agreements are not treated as hedge instruments under
Statement No. 133 and are being carried at fair value, with changes in such
fair value charged or credited to earnings. Prior to our re-adoption of the going concern basis of accounting, we
accounted for changes in the market value of derivative instruments using the
liquidation basis of accounting. Accordingly, changes in the market value of
these derivative instruments were reflected in our consolidated statements of
net assets in liquidation under pre-tax loss from operations, while offsetting
changes in the market value of underlying installment contracts were included
in changes in estimated values of assets and liabilities. 45




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##### Table of Contents



The following table provides information about the Companys interest
rate-sensitive financial instruments by expected maturity date as of December
31, 2003 (dollars in thousands): Years Ending December 31,
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Fair ValueAssets:Securities available-for-salePrincipal amounts
    
    $
    3,303
    
    
    $
    2,596
    
    
    $
    1,754
    
    
    $
    13,056
    
    
    $
    (86
    )
    
    $
    7,967
    
    
    $
    28,590Weighted-average yield
    
    
    12.12
    %
    
    
    12.11
    %
    
    
    12.12
    %
    
    
    12.01
    %
    
    
    12.50
    %
    
    
    12.50
    %Mortgage-backed and other securities available-for-salePrincipal amounts
    
    $
    6,139
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,139Weighted-average yield
    
    
    5.71
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Installment contracts held-for-salePrincipal amounts
    
    $
    165,874
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    167,213Weighted-average yield
    
    
    7.57
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Other loans held-for-salePrincipal amounts
    
    $
    12,074
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,074Weighted-average yield
    
    
    8.51
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Liabilities:Borrowings
 warehouse credit facilityPrincipal amounts
    
    $
    138,221
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    138,221Weighted-average interest rate
    
    
    2.50
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Borrowings
 other borrowingsPrincipal amounts
    
    $
    13,909
    
    
    $
    2,146
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    16,055Weighted-average interest rate
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %9.76% Junior subordinated deferrable
interest debenturesPrincipal amounts
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    24,784
    
    
    $
    24,784Weighted-average interest rate
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    9.76
    %Interest Rate Derivatives:Interest rate swapsNotional amounts
    
    $
    48,000
    
    
    $
    10,000
    
    
    $
    75,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,624Average pay rate
    
    
    1.35
    %
    
    
    1.51
    %
    
    
    2.99
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Average receive rate
    
    
    1.18
    %
    
    
    1.18
    %
    
    
    1.18
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
 46




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data Bay View Capital Corporation and Subsidiaries
Consolidated Statement of Financial Condition (Going Concern Basis) as of December 31, 2003 and
Consolidated Statement of Net Assets (Liquidation Basis) as of December 31, 2002 December 31, 2003
    
    December 31, 2002Going ConcernBasis(As
Restated,See Note 3)
    
    Liquidation Basis(Dollars in thousands)ASSETSCash and cash equivalents:Cash and due from depository institutions
    
    $
    11,434
    
    
    $
    56,070Short-term investments
    
    
    129
    
    
    
    151,68411,563
    
    
    
    207,754Restricted cash
    
    
    32,240
    
    
    
    15,541Securities available-for-sale:Retained interests in securitizations
    
    
    28,590
    
    
    
    31,870Mortgage-backed and other securities
    
    
    6,139
    
    
    
    38,783Loans held-for-sale:Installment contracts
    
    
    165,874
    
    
    
    142,357Other loans
    
    
    12,074
    
    
    
    168,657Investment in operating lease assets, net
    
    
    66,657
    
    
    
    191,005Investment in stock of the Federal Home Loan Bank of San Francisco
    
    
    
    
    
    
    16,075Investment in stock of the Federal Reserve Bank
    
    
    
    
    
    
    13,659Real estate owned, net
    
    
    4,955
    
    
    
    2,402Premises and equipment, net
    
    
    371
    
    
    
    1,327Repossessed vehicles
    
    
    438
    
    
    
    502Income taxes, net
    
    
    21,031
    
    
    
    Goodwill
    
    
    1,846
    
    
    
    Other assets
    
    
    12,340
    
    
    
    45,613Total assets
    
    $
    364,118
    
    
    $
    875,545LIABILITIES AND STOCKHOLDERS EQUITYDeposits  brokered certificates of deposit
    
    $
    
    
    
    $
    224,189Borrowings:Warehouse credit facility
    
    
    138,221
    
    
    
    Other borrowings
    
    
    16,055
    
    
    
    61,969Junior Subordinated Deferrable Interest Debentures
    
    
    24,784
    
    
    
    Income taxes, net
    
    
    
    
    
    
    8,646Deferred gain
    
    
    
    
    
    
    12,817Other liabilities
    
    
    17,500
    
    
    
    23,907Liquidation reserve
    
    
    11,626
    
    
    
    43,953Total liabilities
    
    
    208,186
    
    
    
    375,481Guaranteed Preferred Beneficial Interest in our Junior
Subordinated Deferrable Interest Debentures (Capital Securities)
    
    
    
    
    
    
    90,000Stockholders equity:Series preferred stock; authorized, 7,000,000 shares; outstanding, none
    
    
    Common stock ($.01 par value); authorized, 80,000,000 shares;
issued, 2003  6,579,333 shares; 2002  6,298,974 shares;
outstanding, 2003  6,575,890 shares; 2002  6,294,740 shares
    
    
    658Additional paid-in capital
    
    
    156,588Accumulated deficit
    
    
    (673
    )Treasury
stock, at cost; 2003  3,443 shares
    
    
    (587
    )Accumulated other comprehensive loss
    
    
    (54
    )Total stockholders equity
    
    
    155,932Total liabilities and stockholders equity
    
    $
    364,118
    
    
    $
    465,481Net assets in liquidation
    
    
    
    
    
    $
    410,064
 See notes to consolidated financial statements. 47




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##### Table of Contents



Bay View Capital Corporation
Consolidated Statement of Operations and Comprehensive Loss For the ThreeMonths EndedDecember 31, 2003(As
Restated, See Note 3)Going Concern Basis(Amounts inthousands, except pershare amounts)Interest income:Interest on loans and leases
    
    $
    3,757Interest on mortgage-backed securities
    
    
    166Interest and dividends on investment securities
    
    
    1,0134,936Interest expense:Interest on borrowings
    
    
    3,6123,612Net interest income
    
    
    1,324Noninterest income:Leasing income
    
    
    6,907Loan fees and charges
    
    
    213Loan servicing income
    
    
    1,132Gain on sale of assets and liabilities, net
    
    
    842Other, net
    
    
    1,24110,335Noninterest expense:General and administrative
    
    
    5,747Leasing expenses
    
    
    5,938Real estate owned operations, net
    
    
    83112,516Loss before income tax benefit
    
    
    (857
    )Income tax benefit
    
    
    (184
    )Net loss
    
    $
    (673
    )Basic loss per share
    
    $
    (0.10
    )Diluted loss per share
    
    $
    (0.10
    )Weighted-average basic shares outstanding
    
    
    6,419Weighted-average diluted shares outstanding
    
    
    6,419Net loss
    
    $
    (673
    )Other comprehensive loss, net of tax:Change in unrealized loss on securities
available-for-sale, net of tax benefit of
$35 for the three months ended December 31,
2003
    
    
    (54
    )Other comprehensive loss
    
    
    (54
    )Comprehensive loss
    
    $
    (727
    )
 See notes to consolidated financial statements. 48




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##### Table of Contents



Bay View Capital Corporation
Consolidated Statements of Changes in Net Assets in Liquidation (Liquidation Basis) For the Nine
    
    For the ThreeMonths Ended
    
    Months EndedSeptember 30, 2003
    
    December 31, 2002(Dollars in thousands)Net assets in liquidation at beginning of period
    
    $
    410,064
    
    
    $
    413,675Pre-tax loss
    
    
    (4,595
    )
    
    
    (6,124
    )Changes in estimated values of assets and liabilities
    
    
    (5,995
    )
    
    
    (2,761
    )Income tax benefit
    
    
    6,252
    
    
    
    4,886Net loss
    
    
    (4,338
    )
    
    
    (3,999
    )Other changes in net assets in liquidation
    
    
    4,088
    
    
    
    388Net assets in liquidation at end of period
    
    $
    409,814
    
    
    $
    410,064
 See notes to consolidated financial statements. 49




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##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss) For the Nine
    
    For the YearMonths Ended
    
    EndedSeptember 30,
    
    December 31,2002
    
    2001Going Concern Basis(Dollars in thousands, except pershare amounts)Interest income:Interest on loans and leases
    
    $
    122,208
    
    
    $
    243,163Interest on mortgage-backed securities
    
    
    8,314
    
    
    
    31,695Interest and dividends on investment securities
    
    
    14,717
    
    
    
    27,887145,239
    
    
    
    302,745Interest expense:Interest on deposits
    
    
    44,509
    
    
    
    135,736Interest on borrowings
    
    
    4,413
    
    
    
    29,900Interest on Senior Debentures and Subordinated Notes
    
    
    11,146
    
    
    
    14,86160,068
    
    
    
    180,497Net interest income
    
    
    85,171
    
    
    
    122,248Provision for losses on loans and leases
    
    
    10,700
    
    
    
    71,890Net interest income after provision for losses on loans and leases
    
    
    74,471
    
    
    
    50,358Noninterest income:Leasing income
    
    
    56,188
    
    
    
    92,305Loan fees and charges
    
    
    3,571
    
    
    
    5,542Loan servicing income
    
    
    663
    
    
    
    4,077Account fees
    
    
    5,858
    
    
    
    7,947Sales commissions
    
    
    5,247
    
    
    
    5,906Gain (loss) on sale of assets and liabilities, net
    
    
    18,625
    
    
    
    (10,547
    )Other, net
    
    
    1,413
    
    
    
    1,93991,565
    
    
    
    107,169Noninterest expense:General and administrative:Compensation and employee benefits
    
    
    47,704
    
    
    
    74,727Occupancy and equipment
    
    
    13,466
    
    
    
    20,331Professional services
    
    
    10,808
    
    
    
    16,198Marketing
    
    
    3,875
    
    
    
    4,706Data processing
    
    
    2,696
    
    
    
    4,410Deposit insurance premiums and regulatory fees
    
    
    5,424
    
    
    
    9,300Postage, telephone & travel
    
    
    4,492
    
    
    
    8,027Prepayment penalty fees
    
    
    
    
    
    
    8,231Other, net
    
    
    4,536
    
    
    
    9,35793,001
    
    
    
    155,287Other noninterest expense:Litigation settlement expense
    
    
    13,100
    
    
    
    Restructuring expenses
    
    
    
    
    
    
    6,935Revaluation of franchise-related assets
    
    
    
    
    
    
    70,146Leasing expenses
    
    
    43,984
    
    
    
    86,120Real estate owned operations, net
    
    
    956
    
    
    
    2,085Provision for losses on real estate owned
    
    
    266
    
    
    
    2,936Amortization of intangible assets
    
    
    993
    
    
    
    11,280152,300
    
    
    
    334,789Income (loss) from operations
    
    
    13,736
    
    
    
    (177,262
    )Adjustment for liquidation basis
    
    
    266,510
    
    
    
    Income (loss) before income tax expense (benefit)
    
    
    280,246
    
    
    
    (177,262
    )Income tax expense (benefit)
    
    
    181,792
    
    
    
    (85,866
    )Dividends on Capital Securities
    
    
    7,873
    
    
    
    9,774Income (loss) before cumulative effect of change in accounting principle
    
    
    90,581
    
    
    
    (101,170
    )Cumulative effect of change in accounting principle, net of
applicable taxes of $2.3 million
    
    
    (18,920
    )
    
    
    Net income (loss)
    
    $
    71,661
    
    
    $
    (101,170
    )
 50




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##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss) (continued) For the Nine
    
    For the YearMonths Ended
    
    EndedSeptember 30,
    
    December 31,2002
    
    2001Going Concern Basis(Dollars in thousands, except pershare amounts)Basic earnings (loss) per share before cumulative effect of change
in accounting principle
    
    $
    14.44
    
    
    $
    (19.89
    )Cumulative effect of change in accounting principle, net
    
    
    (3.01
    )
    
    
    Net basic earnings (loss) per share
    
    $
    11.43
    
    
    $
    (19.89
    )Diluted earnings (loss) per share before cumulative effect of change
in accounting principle
    
    $
    14.35
    
    
    $
    (19.89
    )Cumulative effect of change in accounting principle, net
    
    
    (3.00
    )
    
    
    Net diluted earnings (loss) per share
    
    $
    11.35
    
    
    $
    (19.89
    )Weighted-average basic shares outstanding
    
    
    6,272
    
    
    
    5,087Weighted-average diluted shares outstanding
    
    
    6,313
    
    
    
    5,087Net income (loss)
    
    $
    71,661
    
    
    $
    (101,170
    )Other comprehensive income, net of tax:Change in unrealized gain on securities available-for-sale,
net of tax expense of $362 for 2001
    
    
    
    
    
    
    513Minimum pension liability adjustment, net of tax benefit of $207 for 2001
    
    
    
    
    
    
    (294
    )Other comprehensive income
    
    
    
    
    
    
    219Comprehensive income (loss)
    
    $
    71,661
    
    
    $
    (100,951
    )
 See notes to consolidated financial statements. 51




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##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Consolidated Statements of Stockholders Equity and Net Assets in Liquidation RetainedNumber of
    
    
    
    
    
    
    
    
    
    Additional
    
    EarningsShares
    
    Common
    
    Preferred
    
    Paid-in
    
    (Accumulated
    
    Treasury(Dollars in thousands, except per share amounts)
    
    Issued
    
    Stock
    
    Stock
    
    Capital
    
    Deficit)
    
    StockBalance at
January 1, 2001
    
    
    3,264
    
    
    $
    326
    
    
    $
    
    
    
    $
    456,045
    
    
    $
    (156,877
    )
    
    $
    (1,081
    )Exercise of stock options, including tax benefits
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    94
    
    
    
    
    
    
    
    Distribution of directors retirement plan shares
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    Distribution of restricted shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (273
    )
    
    
    
    
    
    
    273Proceeds from issuance of common stock, net of
expenses of $2.0 million
    
    
    2,397
    
    
    
    240
    
    
    
    
    
    
    
    107,760
    
    
    
    
    
    
    
    Proceeds from issuance of 5,991,369 shares of
preferred stock, net of expenses of $1.1 million
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    26,340
    
    
    
    
    
    
    
    Conversion of preferred stock to common stock
    
    
    599
    
    
    
    60
    
    
    
    (60
    )
    
    
    
    
    
    
    
    
    
    
    Expense recognized on stock options with below
market strike price
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,219
    
    
    
    
    
    
    
    Unrealized gain on securities available-for-sale,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minimum pension liability adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in debt of ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,170
    )
    
    
    Balance at December 31, 2001
    
    
    6,263
    
    
    
    626
    
    
    
    
    
    
    
    595,258
    
    
    
    (258,047
    )
    
    
    (808
    )Exercise of stock options, including tax benefits
    
    
    12
    
    
    
    2
    
    
    
    
    
    
    
    568
    
    
    
    
    
    
    
    Distribution of directors retirement plan shares
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    165
    
    
    
    
    
    
    
    Exercise of stock warrants
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    212
    
    
    
    
    
    
    
    Expense recognized on stock options with below
market strike price
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,033
    
    
    
    
    
    
    
    Change in debt of ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,661
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    Liquidation adjustment on securities available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Liquidation adjustment on pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Transfer of stockholders equity to net assets in
liquidation
    
    
    
    
    
    
    (628
    )
    
    
    
    
    
    
    (600,236
    )
    
    
    186,381
    
    
    
    808Balance at September 30, 2002
    
    
    6,282
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in Net Assets in Liquidation from September
30, 2002 through September 30, 2003
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Re-establish
stockholders equity  October 1, 2003
    
    
    6,374
    
    
    
    638
    
    
    
    
    
    
    
    146,727
    
    
    
    
    
    
    
    (701
    )Cash distribution on liquidated assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjustment related to re-adoption of going concern
basis of accounting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,095
    
    
    
    
    
    
    
    Exercise of stock options, including tax benefits
    
    
    197
    
    
    
    20
    
    
    
    
    
    
    
    8,714
    
    
    
    
    
    
    
    Exercise of stock warrants
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    166
    
    
    
    
    
    
    
    Distribution of restricted shares
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (114
    )
    
    
    
    
    
    
    114Net loss (As
Restated, See Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (673
    )
    
    
    Unrealized loss on securities available-for-sale,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at
December 31, 2003(As Restated, See Note 3)
    
    
    6,576
    
    
    $
    658
    
    
    $
    
    
    
    $
    156,588
    
    
    $
    (673
    )
    
    $
    (587
    )
   [Continued from above table, first column(s) repeated] UnrealizedGain (Loss)
    
    Minimum
    
    Debt ofon Securities
    
    Pension
    
    EmployeeAvailable-
    
    Liability
    
    Stock
    
    Total
    
    Net Assetsfor-Sale,
    
    Adjustment,
    
    Ownership
    
    Stockholders
    
    in(Dollars in thousands, except per share amounts)
    
    Net of Tax
    
    Net of Tax
    
    Plan
    
    Equity
    
    LiquidationBalance at
January 1, 2001
    
    $
    10
    
    
    $
    
    
    
    $
    (574
    )
    
    $
    297,849
    
    
    $
    Exercise of stock options, including tax benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94
    
    
    
    Distribution of directors retirement plan shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    Distribution of restricted shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from issuance of common stock, net of
expenses of $2.0 million
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108,000
    
    
    
    Proceeds from issuance of 5,991,369 shares of
preferred stock, net of expenses of $1.1 million
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,400
    
    
    
    Conversion of preferred stock to common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expense recognized on stock options with below
market strike price
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,219
    
    
    
    Unrealized gain on securities available-for-sale,
net of tax
    
    
    513
    
    
    
    
    
    
    
    
    
    
    
    513
    
    
    
    Minimum pension liability adjustment, net of tax
    
    
    
    
    
    
    (294
    )
    
    
    
    
    
    
    (294
    )
    
    
    Change in debt of ESOP
    
    
    
    
    
    
    
    
    
    
    (497
    )
    
    
    (497
    )
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,170
    )
    
    
    Balance at December 31, 2001
    
    
    523
    
    
    
    (294
    )
    
    
    (1,071
    )
    
    
    336,187
    
    
    
    Exercise of stock options, including tax benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    570
    
    
    
    Distribution of directors retirement plan shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165
    
    
    
    Exercise of stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212
    
    
    
    Expense recognized on stock options with below
market strike price
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,033
    
    
    
    Change in debt of ESOP
    
    
    
    
    
    
    
    
    
    
    1,071
    
    
    
    1,071
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,661
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    Liquidation adjustment on securities available-
for sale, net of tax
    
    
    (523
    )
    
    
    
    
    
    
    
    
    
    
    (523
    )
    
    
    Liquidation adjustment on pension liability
    
    
    
    
    
    
    294
    
    
    
    
    
    
    
    294
    
    
    
    Transfer of stockholders equity to net assets in
liquidation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (413,675
    )
    
    
    413,675Balance at September 30, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    413,675Change in Net Assets in Liquidation from September
30, 2002 through September 30, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,861
    )Re-establish stockholders equity  October 1, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146,664
    
    
    
    (146,664
    )Cash distribution on liquidated assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (263,150
    )Adjustment related to re-adoption of going concern
basis of accounting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,095
    
    
    
    Exercise of stock options, including tax benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,734
    
    
    
    Exercise of stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166
    
    
    
    Distribution of restricted shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss (As Restated, See Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (673
    )
    
    
    Unrealized loss on securities available-for-sale,
net of tax
    
    
    (54
    )
    
    
    
    
    
    
    
    
    
    
    (54
    )
    
    
    Balance at December 31, 2003 (As Restated, See Note 3)
    
    $
    (54
    )
    
    $
    
    
    
    $
    
    
    
    $
    155,932
    
    
    $
    
 See notes to consolidated financial statements. 52




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Bay View Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows For the Year Ended December 31,2003(As
Restated,See Note 3)
    
    2002
    
    2001(Dollars in thousands)CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss) and certain changes in net assets in liquidation
    
    $
    (5,011
    )
    
    $
    67,662
    
    
    $
    (101,170
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Amortization of intangible assets
    
    
    
    
    
    
    993
    
    
    
    11,280Net increase in loans and leases held-for-sale resulting from purchases,
net of repayments
    
    
    (204,478
    )
    
    
    
    
    
    
    Proceeds from securitizations and/or sales of loans and leases
held-for-sale
    
    
    340,808
    
    
    
    
    
    
    
    Provision for losses on loans and leases and real estate owned
    
    
    
    
    
    
    11,118
    
    
    
    74,826Depreciation and amortization of premises and equipment
    
    
    539
    
    
    
    3,110
    
    
    
    4,751Depreciation and amortization of investment in operating lease assets
    
    
    28,487
    
    
    
    44,452
    
    
    
    56,960Accretion of retained interests in securitizations
    
    
    (2,822
    )
    
    
    (1,087
    )
    
    
    (1,947
    )Amortization of premiums and accretion of discount
    
    
    (6,568
    )
    
    
    5,278
    
    
    
    11,685Non-cash compensation expense
    
    
    
    
    
    
    4,033
    
    
    
    Revaluation of franchise-related assets
    
    
    
    
    
    
    
    
    
    
    70,146(Gain) loss on sale of assets and liabilities, net
    
    
    (1,629
    )
    
    
    (18,706
    )
    
    
    10,547Change in fair value of derivative instruments
    
    
    1,624
    
    
    
    
    
    
    
    Increase in restricted cash
    
    
    (16,699
    )
    
    
    (15,541
    )
    
    
    Decrease (increase) in other assets
    
    
    8,390
    
    
    
    165,812
    
    
    
    (54,251
    )Decrease in other liabilities
    
    
    (25,859
    )
    
    
    (11,036
    )
    
    
    (7,504
    )Decrease in reserve for estimated costs during the period of liquidation
    
    
    (28,485
    )
    
    
    (8,573
    )
    
    
    Adjustment for liquidation basis
    
    
    5,995
    
    
    
    (263,749
    )
    
    
    Adjustment to re-adopt going concern basis of accounting
    
    
    1,095
    
    
    
    
    
    
    
    Cumulative effect of change in accounting principle, net of taxes
    
    
    
    
    
    
    18,920
    
    
    
    Other, net
    
    
    2,467
    
    
    
    734
    
    
    
    1,852Net cash provided by operating activities
    
    
    97,854
    
    
    
    3,420
    
    
    
    77,175CASH FLOWS FROM INVESTING ACTIVITIESNet decrease in loans and leases held-for-investment resulting from
originations, net of repayments
    
    
    
    
    
    
    11,919
    
    
    
    47,559Purchases of loans and leases, net
    
    
    
    
    
    
    
    
    
    
    (12,933
    )Decrease in investment in operating lease assets
    
    
    85,475
    
    
    
    103,892
    
    
    
    83,520Purchases of mortgage-backed securities
    
    
    
    
    
    
    (60,499
    )
    
    
    (188,869
    )Purchases of investment securities
    
    
    (9,485
    )
    
    
    (78,480
    )
    
    
    (118,152
    )Principal payments on mortgage-backed securities
    
    
    13,236
    
    
    
    138,448
    
    
    
    174,255Principal payments on investment securities
    
    
    14,314
    
    
    
    47,413
    
    
    
    20,121Proceeds from securitizations and/or sales of loans and leases held-for-sale
excluding $326.0 million net loan sale to U.S. Bank on November 1, 2002
    
    
    
    
    
    
    1,690,902
    
    
    
    539,859Proceeds from sale of mortgage-backed securities available-for-sale
    
    
    12,523
    
    
    
    181,772
    
    
    
    392,166Proceeds from sale of investment securities available-for-sale
    
    
    2,735
    
    
    
    75,466
    
    
    
    26,321Proceeds from retained interests in securitizations
    
    
    4,380
    
    
    
    
    
    
    
    Proceeds from sale of real estate owned
    
    
    2,702
    
    
    
    6,684
    
    
    
    4,389Additions to premises and equipment, net
    
    
    (152
    )
    
    
    (448
    )
    
    
    (593
    )Decrease in investment in stock of the Federal Home Loan Bank
of San Francisco
    
    
    16,075
    
    
    
    8,082
    
    
    
    16,033Decrease (increase) in investment in stock of the Federal Reserve Bank
    
    
    13,659
    
    
    
    (1,793
    )
    
    
    7,724Net cash provided by investing activities
    
    
    155,462
    
    
    
    2,123,358
    
    
    
    991,400
 53




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Bay View Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued) For the Year Ended December 31,2003
    
    2002
    
    2001(As Restated,See Note 3)(Dollars in thousands)CASH FLOWS FROM FINANCING ACTIVITIESNet increase (decrease) in deposits
    
    
    (224,189
    )
    
    
    291,545
    
    
    
    (511,385
    )Sale of deposits and other liabilities to U.S. Bank, net of $326.0 million of
loans and $5.1 million of other assets
    
    
    
    
    
    
    (2,503,163
    )
    
    
    Proceeds from advances from the Federal Home Loan Bank of San Francisco
    
    
    
    
    
    
    2,490,000
    
    
    
    205,000Repayment of advances from the Federal Home Loan Bank of San Francisco
    
    
    
    
    
    
    (2,490,000
    )
    
    
    (1,008,800
    )Repayment of repurchase agreements
    
    
    
    
    
    
    
    
    
    
    (103,241
    )Repayment of Subordinated Debt
    
    
    
    
    
    
    (154,563
    )
    
    
    Proceeds from warehouse line
    
    
    160,054
    
    
    
    
    
    
    
    Payments of warehouse line outstanding
    
    
    (21,833
    )
    
    
    
    
    
    
    (94,134
    )Net increase (decrease) in other borrowings
    
    
    (44,614
    )
    
    
    (75,567
    )
    
    
    135,872Redemption of Capital Securities
    
    
    (68,000
    )
    
    
    
    
    
    
    Proceeds from issuance of common stock
    
    
    12,225
    
    
    
    1,609
    
    
    
    108,167Proceeds from issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    26,400Dividends paid to preferred stockholders
    
    
    
    
    
    
    (273
    )
    
    
    Dividends paid to common stockholders
    
    
    (263,150
    )
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    (449,507
    )
    
    
    (2,440,412
    )
    
    
    (1,242,121
    )Net decrease in cash and cash equivalents
    
    
    (196,191
    )
    
    
    (313,634
    )
    
    
    (173,546
    )Cash and cash equivalents at beginning of year
    
    
    207,754
    
    
    
    521,388
    
    
    
    694,934Cash and cash equivalents at end of year
    
    $
    11,563
    
    
    $
    207,754
    
    
    $
    521,388Cash paid during the year for:Interest
    
    $
    13,013
    
    
    $
    97,803
    
    
    $
    198,692Income taxes
    
    $
    13,534
    
    
    $
    1,771
    
    
    $
    202Supplemental non-cash investing and financing activities:Loans transferred to real estate owned
    
    $
    6,970
    
    
    $
    387
    
    
    $
    16,494Loans transferred from held-for-investment to held-for-sale
    
    $
    
    
    
    $
    2,289,672
    
    
    $
    328,402
    (1)Loans securitized and transferred to securities available-for-sale
    
    $
    9,485
    
    
    $
    22,638
    
    
    $
    Securities transferred from held-to-maturity to available-for-sale
    
    $
    
    
    
    $
    
    
    
    $
    631,663Conversion of preferred stock to common stock
    
    $
    
    
    
    $
    
    
    
    $
    26,400
  (1) Net of loans transferred from held-for-sale to held-for-investment. See notes to consolidated financial statements. 54




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Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2003 Note 1. Basis of Presentation Bay View Capital Corporation (the Company, we, us, or our) is a
financial services company headquartered in San Mateo, California. The consolidated financial statements include the accounts of the Company,
a Delaware corporation, and our wholly-owned subsidiaries: Bay View Acceptance
Corporation (BVAC), a Nevada corporation, along with its subsidiaries, Bay
View Receivables Corporation, a Delaware corporation and Bay View Transaction
Corporation, a Delaware corporation; and our subsidiaries, Bay View
Securitization Corporation, a Delaware corporation; Bay View Capital I, a
Delaware business trust; FMAC Insurance Services, a Delaware corporation; FMAC
2000-A Holding Company, a California corporation; FMAC Franchise Receivables
Corporation, a California corporation; Bay View Commercial Finance Group, a
California corporation; XBVBKRS, Inc., a California corporation; MoneyCare,
Inc., a California corporation; Bay View Auxiliary Corporation, a California
corporation; and Bay View Bank, N.A. (the Bank), a national bank which was
dissolved effective September 30, 2003. All significant intercompany accounts
and transactions have been eliminated. The consolidated
financial statements as of December 31, 2003
and for the three months ended December 31, 2003, the nine
months ended September 30, 2002 and the year ended December 31, 2001 have been
prepared on a going concern basis. The consolidated financial statements for the nine months ended September 30, 2003 and as of and for the three
months ended December 31, 2002 have been prepared under the liquidation basis
of accounting. Plan of Dissolution and Stockholder Liquidity On October 3, 2002,
a special meeting of the Companys stockholders was
held to vote on the Companys proposed plan of dissolution and stockholder
liquidity (the Plan) and the sale of the Banks retail banking assets to U.S.
Bank. Both of these proposals were approved by a majority of the common
stockholders. As a result of these approvals and the close of the U.S. Bank
transaction on November 1, 2002, the Company adopted liquidation basis
accounting effective September 30, 2002 in accordance with GAAP. Accordingly,
assets were valued at their estimated net realizable values and liabilities
included accruals for estimated costs associated with carrying out the Plan. In
accordance with liquidation basis accounting, our stockholders equity was
transferred to net assets in liquidation. Our net assets in liquidation
totaled $410.1 million at December 31, 2002 or $64.30 in net assets in
liquidation per outstanding share based on 6,374,716 diluted shares in
liquidation. The Plan outlined the steps necessary to liquidate the Company, including
the sale of the Banks retail banking assets to U.S. Bank. Following the sale,
the remaining assets of the Company were to be sold in an orderly manner and the
liabilities and expenses were to be paid, including the outstanding debt of both
the Company and the Bank and the Capital Securities. Once these transactions
were completed, the Company would distribute the net proceeds of the
asset sales to its stockholders. On November 1, 2002, the Company completed the U.S. Bank transaction. At
the closing of the transaction, U.S. Bank paid the Bank the sum of: (i) a 14%
deposit premium (based on the average daily balances of deposits for the 30
calendar days ending on the business day prior to the closing date) plus $5.0
million, or approximately $463.7 million; (ii) the principal amount of the
loans acquired of approximately $337.2 million less a loan loss reserve of
approximately $2.2 million; (iii) the net book value of real property and
personal property utilized by the branches and improvements thereto and other
assets assumed of approximately $15.2 million and (iv) the face amount of coins
and currency of approximately $9.8 million. The Bank paid to U.S. Bank at the
closing an amount equal to the deposits being assumed by U.S. Bank of
approximately $3.3 billion, less the amounts payable by U.S. Bank to the Bank
as described above. 55




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The Company and the Bank obtained regulatory approvals necessary for the
early redemption of their outstanding debt securities in the fourth quarter of
2002. The Companys $100.0 million of 9.125% Subordinated Notes were redeemed
at the applicable price of par plus a premium of 4.563% on November 29, 2002
and the Banks $50.0 million of 10% Subordinated Notes were redeemed at par on
December 9, 2002. After receiving the required regulatory approvals, the Company paid the
accrued distributions and interest of $24.5 million on the Capital Securities
on December 31, 2002. The Company initially
recorded pre-tax income totaling $266.5 million
related to the mark-to-market adjustments in its assets and liabilities in
connection with its adoption of liquidation basis accounting for the quarter
ended September 30, 2002. The valuation adjustments primarily consisted of the
following:  
    
    $463.7 million deposit premium, which was calculated as 14% of non-brokered retail deposits based on October average
deposit levels plus $5.0 million pursuant to the agreement with U.S. Bank;
    
    $91.0 million reduction in goodwill related to the deposits being sold;
    
    $37.0 million mark-to-market reduction related to loan balances reflecting the Companys estimated net realizable value of
its remaining loan portfolios under an accelerated timeline to sell such loans pursuant to the plan of dissolution and
stockholder liquidity;
    
    $51.1 million in charges related to the sale of the Companys retail banking assets including $26.6 million in severance
payments, $12.7 million in investment banking and other professional fees, and $11.8 million in net accruals for closed
facilities and other contracts and settlements;
    
    $8.8 million in charges related to the prepayment of the Companys and the Banks Subordinated Notes including a $4.2
million write-off of issuance costs and $4.6 million in prepayment penalties;
    
    $4.9 million write-off of franchise loan securitization residual assets; and
    
    $3.7 million write-off of unamortized issuance costs on the Capital Securities in anticipation of these securities being
called in 2003. The Company recorded an additional $6.0 million and $2.8 million net
pre-tax adjustments related to mark-to-market valuation of its assets and
liabilities for the first nine months of 2003 and the quarter ended December
31, 2002, respectively. The valuation adjustments were primarily due to
decreases in the market value of the auto lease and the loan portfolio. Plan of Partial Liquidation Because of changing market conditions in the auto finance sector, as
discussed elsewhere herein, we believed that the near-term sale or distribution
of the stock of BVAC to stockholders was no longer the best method of achieving
maximum stockholder value. Accordingly, during the fourth quarter of 2003, the
Companys Board of Directors amended the Plan and converted it to a plan of
partial liquidation (the Amended Plan) under which the Company will complete
the liquidation of the assets and satisfaction of the liabilities it assumed
from the Bank after the Banks September 30, 2003 dissolution, distribute the
proceeds to its stockholders through a series of cash distributions, and
continue to operate BVAC on an ongoing basis. In accordance with the Amended
Plan, the Company distributed $40.00 per share in cash to common stockholders on
December 30, 2003. The Company intends to make further distributions of the
proceeds to its stockholders through a series of cash distributions. The decision to engage in a partial liquidation and continue to operate
BVAC on an ongoing basis, warranted the termination of our use of the
liquidation basis of accounting. Effective October 1, 2003, the Company
discontinued the use of the liquidation basis of accounting and re-adopted the
going concern basis of accounting. Accordingly, the Company re-established its
stockholders equity effective October 1, 2003. For the period from September
30, 2002 through September 30, 2003, the Company used the liquidation basis of
accounting. 56




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In connection with its re-adoption of the going concern basis of
accounting, we recognized $0.7 million of pre-tax expense and $1.1 million of
additions to stockholders equity, recording the following adjustments -  
    
    Goodwill: Re-established the $1.8 million of goodwill that existed
prior to our adoption of the liquidation basis of accounting; this
goodwill related to our acquisition of BVACs predecessor entity,
California Thrift & Loan
    
    Premium on investment in BVAC: Reversed $10.0 million of premium over
the book value of BVAC, which was recorded as deferred gain under the
liquidation basis of accounting, restoring the historical cost basis in
our equity investment in BVAC
    
    Installment contracts: Reversed unrealized gains which were recorded
under the liquidation basis of accounting and restored the lower of cost
or market valuation
    
    Mortgage-backed securities: Restored Statement No. 115 available-for-sale
accounting
    
    Accrued liabilities: Reversed $1.7 million of accruals related to
certain severance and occupancy costs which were recorded under the
liquidation basis of accounting
    
    Stockholders equity: Restored stockholders equity as of October 1,
2003 Note 2. Summary of Significant Accounting Policies Going Concern Basis Included in the accounting policies below are the assumptions used in
reporting the amount of our assets and liabilities reflecting our re-adoption
of going concern basis accounting effective October 1, 2003. These policies
apply to our reported financial position and results of operations as of and
for the quarter ended December 31, 2003 and for reporting periods prior to
September 30, 2002. Basis of Financial Presentation and Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America, sometimes
referred to as GAAP, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent 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. Material estimates
particularly susceptible to possible changes in the near term relate to the
determination of the investment in operating lease assets, retained
interest in securitizations and deferred tax
assets. Cash and Cash Equivalents Cash and cash equivalents consist of cash and 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 with banks. Prior to its dissolution effective
September 30, 2003, the Bank was required to maintain reserves against customer
deposits by keeping balances with the Federal Reserve Bank of San Francisco in
a noninterest-earning cash account. The Bank held no cash reserve at the
Federal Reserve Bank of San Francisco at December 31, 2002. The average
required reserve balance for the Bank totaled $1.5 million in 2002. 57




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Restricted Cash Restricted
cash is comprised of the following  cash collateral pledged to
secure letters of credit, cash retained in reserve accounts established by
BVACs auto securitization trusts for purposes of providing credit enhancement
for our asset-backed bond issuances, cash collateral to meet margin
requirements of counterparties to BVACs hedging contracts, cash collateral
pledged to secure the financing secured by our auto lease cash flows, and cash
collateral retained to cure potential borrowing base deficiencies on BVACs
warehouse line of credit. Securities Securities are identified as either available-for-sale or held-to-maturity
at purchase and accounted for accordingly. At December 31, 2003, all our
securities are classified as available-for-sale. 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. Historically, unrealized losses on securities
held-to-maturity were realized and charged against earnings when it was
determined that a decline in value which was other than temporary had occurred. 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. Retained Interests in Securitizations BVAC periodically transfers auto installment contracts to securitization
trusts, which then issue asset-backed securities. BVAC has structured these
transactions as sales of the installment contracts. In order to enhance the
credit rating of these asset-backed securities, BVAC deposits cash into a
restricted cash account established within the securitization trusts. Excess
cash flow within the securitization trusts  resulting from interest income
received on the installment contracts in excess of interest paid to investors
in the asset-backed securities, credit losses and trust expenses  is utilized
to build the restricted cash account to pre-designated levels and provide
further credit enhancement. Once these pre-designated levels are attained,
excess cash flow is distributed to BVAC. In accounting for these
securitization transactions, BVAC typically recognizes a gain on the sale
transaction and a related asset  a retained interest in the securitization -
that represents the present value of the cash deposit and excess cash flow
anticipated to be produced by the securitization trust over the life of the
asset-backed securities. Retained interests related to our loan securitizations are classified as
securities available-for-sale and are reported at fair value. We are not aware
of an active market for the purchase and sale of these retained interests 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 managements best estimates of the key
assumptions, including credit losses, prepayment speeds, and discount rates
commensurate with the risks involved. During 2002, we wrote-off the entire balance of our retained interest in
franchise loan securitizations totaling $4.9 million upon our adoption of
liquidation basis accounting. There were no impairment charges related to
retained interests during 2003. We recorded impairment charges relating to
retained interests of $12.6 million and $26.3 million for the years ended
December 31, 2002 and 2001, respectively. Loans and Leases We continue to purchase auto installment contracts through BVAC but ceased
all other loan production activities during the fourth quarter of 2002. 58




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Auto Installment Contracts Auto installment contracts that we purchase have been designated as either
held-for-sale or held-for-investment. We pay a premium to the dealers for the
auto contracts we purchase. Installment contracts held-for-investment are
recorded at cost including premiums or discounts, deferred fees and costs and
the allowance for loan and lease losses. The dealer premiums are capitalized
net of the origination fees we charge dealers at the time the loan is granted.
We recognize these net dealer premiums as a yield adjustment over the life of
the related contract using an accelerated amortization method, generally the
sum-of-the-years digits method. When a contract is charged off, sold or paid
off, unamortized net dealer premiums are written off against interest income at
that time. Installment contracts designated as held-for-sale or transferred
from held-for-investment to held-for-sale are recorded at the lower of cost or
estimated fair value upon transfer. Nonperforming installment contracts are defined as contracts which are 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.
Installment contracts that are delinquent 120 days are charged-off. We may
also designate contracts which are less than 90 days delinquent as
nonperforming when the full collection of principal and/or interest is
doubtful. We generally recognize interest income on impaired contracts on a
cash basis when received. Since September 30, 2002, based on managements intent to periodically
sell and securitize the auto installment contracts, all of our installment
contracts have been classified as held-for-sale and carried at the lower of
cost or estimated fair value on an aggregate basis. Estimated fair value for
these contracts is based on prices for similar contracts in the secondary whole
loan or securitization markets. Net unrealized losses, if any, are recognized
through a valuation allowance by charges to earnings and recorded in
noninterest expenses. Other Loans Prior to September 30, 2002, we also originated or purchased
single-family, multi-family and commercial real estate loans, home equity loans
and lines of credit, franchise loans, asset-based loans, factoring loans and
commercial leases. We ceased our single-family loan origination operations in
1996. Loans and leases that were originated or purchased were identified as
either held-for-sale or held-for-investment. Loans and leases
held-for-investment were recorded at cost including premiums or discounts,
deferred fees and costs and the allowance for loan and lease losses. Loans and
leases classified as held-for-sale primarily consisted of franchise loans.
Loans and leases classified as held-for-sale were 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 was based on prices for similar loans and leases in the
secondary whole loan or securitization markets or estimates of proceeds to be
obtained through a workout and payoff. Interest on loans and leases was
accrued as income to the extent considered collectible. Loans and leases
classified as held-for-investment were carried at amortized cost and were not
adjusted to the lower of cost or market because we had the ability and the
intent to hold these loans and leases for the foreseeable future. Generally,
we discontinued interest accruals on loans and leases 90 days or more past due.
Interest income on nonaccrual loans and leases was generally recognized on a
cash basis when received. We charged fees for originating loans and leases at the time the loan or
lease was granted. We recognized these origination fees, net of certain direct
costs where applicable, 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 was
discontinued on nonperforming loans and leases. When a loan or lease paid
off, unamortized net deferred origination fees were included in interest income
at that time. When a loan or lease was sold, unamortized net deferred
origination fees were included in the gain or loss on the sale. Impairment of a loan occurs when, based on current information and events,
it was probable that we will be unable to collect all amounts due according to
the contractual terms of the loan agreement. We considered 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 designated loans less than 90 days delinquent as
nonperforming when the 59




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full collection of principal and/or interest was
doubtful. Troubled debt restructurings were loans which have been modified
based upon interest rate concessions and/or payment concessions. Homogeneous
loans were collectively evaluated on an aggregate basis for impairment. We
historically considered our single-family residential and home equity loans as
homogeneous loans. Impaired loans were measured based upon the present value
of expected future cash flows discounted at the loans effective interest rate
or, as a practical equivalent, at the loans observable market price or the
fair value of the collateral if the loan was collateral dependent. Our
impaired real estate-based loans were generally measured based on the fair
value of the collateral because they were collateral dependent. We generally
recognize interest income on impaired loans on a cash basis when received. Charge-offs were recorded on impaired loans through September 30, 2002 for
the difference between the valuation of the loan and the recorded investment,
net of any specific allowance. In determining charge-offs for specific loans,
management evaluated the creditworthiness and financial status of the borrower
and also analyzed cash flows and current property appraisals. Allowance for Loan and Lease Losses For the period after September 30, 2003, all loans and leases were
classified as held-for-sale. Accordingly, no allowance for loan and lease
losses was required. Prior to September 30, 2002, the allowance for loan and
lease losses was established through a provision charged to expense and was
maintained at a level that we believed was sufficient to cover estimated
probable losses in the portfolio. In determining the level of the allowance
for loan and lease losses, we evaluated specific credits and the portfolio in
general using several methods that included historical performance, collateral
values, cash flows and analysis of current economic conditions. This
evaluation culminated with a judgment on the probability of collection based on
existing and probable near term events. The underwriting of new credits may
have been changed or modified depending on the results of these ongoing
evaluations. Discontinued lending operations received the same scrutiny as
ongoing operations but did not have the additional risk inherent in accepting
new business. Our methodology provided for three allowance components. The
first component represented an allowance for loans and leases that were
individually evaluated. The second component represented an allowance for
groups of homogeneous loans and leases that currently exhibited no identifiable
weaknesses and were collectively evaluated. We determined allowances 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 was
an unallocated allowance which was based on factors that were not necessarily
associated with a specific credit, group of loans or leases or loan or lease
category. These factors included 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 allowance reflected our efforts to ensure that the overall
allowance appropriately reflected the probable losses inherent in the loan and
lease portfolio. Loan Sales and Servicing Prior to adopting Statement of Financial Accounting Standards No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, we recorded servicing assets, in accordance with Statement No.
125, for the present value of any retained interest in a transferred asset
representing servicing fees net of related costs. Retained interests in excess
of such servicing fees were recorded on a net present value basis and
classified as available-for-sale securities at fair value. The balance of
these assets was $73,000 at December 31, 2003 and $620,000 at December 31,
2002. There were no impairment charges for 2003 and 2002. Amortization of
servicing assets and any related impairments are included in noninterest income
and noninterest expense, respectively, as the associated servicing revenue is
received and expenses are incurred. Gains or losses on the securitizations and/or sales of loans and leases
were recorded in earnings at the time of the transaction when control over the
loans and leases was surrendered and consideration other than beneficial
interests in the loans and leases was received. 60




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Investment in Operating Lease Assets We purchased and/or originated auto leases characterized as operating
leases from March 1998 through June 2000. The asset was recorded as a fixed
asset and depreciated on a straight-line basis 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. Lease asset balances
were $139.4 million and $313.4 million at December 31, 2003 and 2002,
respectively. Accumulated depreciation and amortization related to the lease
assets totaled $72.7 million and $122.4 million at December 31, 2003 and 2002,
respectively. At December 31, 2003, future minimum lease payments to be
received by us under operating leases were $14.1 million and $2.5 million for
the years ending December 31, 2004 and 2005, respectively. The Company performs a quarterly impairment analysis of its automobile
operating lease portfolio in accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which we adopted effective January 1, 2002. Statement No. 144, which
supersedes Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, retains the fundamental
provisions of Statement No. 121 related to the recognition and measurement of
the impairment of long-lived assets to be held and used and the measurement of
long-lived assets to be disposed of by sale. There was no financial statement
impact upon adoption of Statement No. 144. A lease is considered impaired if
its gross future undiscounted cash flows are less than the net book value of
the lease. The net book value of the lease is defined as the original
capitalized cost of the automobile, including initial direct capitalized costs,
less the cumulative amount of depreciation recorded against the automobile and
the cumulative amount of amortization of the initial direct capitalized costs
recorded since the inception of the lease and less any impairment charges
recorded-to-date on that lease. In determining gross future undiscounted cash flows, the Company contracts
with Automotive Lease Guide, commonly referred to as ALG, to provide estimates
of the residual value of the underlying automobiles at the end of their lease
terms assuming that the vehicles are in average condition. The Company then
estimates the probability that i.) the automobiles will be purchased by the
lessee prior to the end of the lease term, ii.) the automobile will be
purchased by the lessee at the end of the lease term, either at a discount or
at the full contractual residual amount, or iii.) the automobile will be
returned to the lessor at the end of the lease term. These probabilities are
estimated using a number of factors, including the Companys experience-to-date
and industry experience. Using the projected ALG residual values, the Companys experience-to-date
relative to the projected ALG residual values (for example, for vehicle classes
where actual amounts realized were less than what ALG had projected, the
Company reduces the projected ALG residual values to equal the Companys
experience-to-date), and the probabilities of each of the three disposition
scenarios discussed above occurring, the Company determines a
probability-weighted gross future undiscounted cash flow for each automobile
lease. For
those leases where the gross future undiscounted cash flows are
less than net book value, the lease is considered impaired. For those leases considered impaired, the Company then estimates the fair
value of the lease. The fair value is determined by calculating the present
value of the future estimated cash flows again assuming the probabilities of
each of the three disposition scenarios. The present value is calculated using
current market rates, which the Company estimates as the original contract
lease rate. An impairment charge is then recorded for the difference between
the carrying value and the estimated fair value. The Company recorded
impairment charges of $8.5 million and $1.0 million for the year ended December
31, 2003 and 2002, respectively. At December 31, 2003, approximately 109 of
the 5,341 vehicles in the Companys automobile lease portfolio were considered
impaired under Statement No. 144. At December 31, 2002, approximately 4,389 of
11,428 lease contracts were considered impaired. At December 31, 2003 and
2002, the Company recorded $18.0 million and $26.8 million, respectively, in
impairment and additional monthly depreciation charges, net of losses, against
its automobile operating lease portfolio. 61




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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 to earnings for adverse changes in the fair
value of the property. Prior to September 2002, the difference upon
foreclosure, if any, is charged-off against the allowance for losses on loans
and leases. 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 a
straight-line basis over the estimated useful lives for each of the various
asset categories. These useful lives range from two to ten years. Intangible Assets Goodwill and other intangible assets were all written off as of September
30, 2002 with the adoption of liquidation basis accounting. The goodwill and
core deposit intangibles associated with the deposits sold to U.S. Bank were
realized in anticipation of the close of that transaction. As a result of our
re-adoption of the going concern basis of accounting as of October 1, 2003, we
re-established goodwill of $1.8 million in BVAC related to the acquisition of
California Thrift & Loan in 1996. As required by the provisions of Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets, which the Company adopted as of January 1, 2002, this BVAC goodwill
will be tested for impairment at least annually. During 2002, the Company recorded $18.9 million in impairment charges, net
of taxes, for goodwill related to three of the Companys commercial lending
businesses which was not expected to be realized upon the disposition of these
businesses. As required by the transitional provisions of Statement No. 142,
the impairment loss was measured and recorded as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle as of
January 1, 2002. Prior to September 30, 2002, core deposit premiums arose from the purchase
of deposits and were amortized using an accelerated method over the estimated
life of the deposit base acquired, generally eight to ten years. We
continually evaluated the periods of amortization to determine whether later
events and circumstances warranted revised estimates. In addition, the market
value of core deposit premiums was re-evaluated on an annual basis to assess if
any impairment existed and to determine the carrying value that was eligible to
be included as a component of regulatory capital. Goodwill was amortized to expense on a straight-line basis over periods of
up to 20 years. On a periodic basis, we reviewed our goodwill for events or
changes in circumstances that indicated that the estimated undiscounted future
cash flows from these acquisitions was less than the carrying amount of the
goodwill. If it became probable that impairment existed, a reduction in the
carrying amount was recognized. 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 62




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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. Liquidation Reserve The liquidation reserve represents the estimated costs associated with
remaining liquidating activities. At December 31, 2003, the liquidation reserve of $11.6 million
included accruals for severance, facilities and other expenses of $2.0 million,
$6.4 million and $3.2 million, respectively. As disclosed
in Note 1, we decided to continue to operate BVAC on an ongoing basis
and, as a result, we re-adopted the going concern basis of accounting
effective October 1, 2003. Accordingly, we reversed previously accrued
severance and facilities costs totaling $1.7 million as of October 1,
2003. Risk Management Instruments Risk management instruments, also referred to as derivative instruments,
must qualify and be designated as hedges upon their inception and must be
effective throughout the hedge period in order to receive hedge accounting
treatment. To qualify as hedges, among other things, risk management
instruments must be linked to specific assets or liabilities or pools of
similar assets or liabilities. We use risk management instruments to modify interest rate characteristics
of certain assets or liabilities to hedge against our exposure to interest rate
fluctuations, reducing the effects these fluctuations might have on associated
cash flows or values. If a hedged asset or liability is sold or paid off before maturity of the
hedging derivative, the derivative is closed out or settled, and any net
settlement amount upon the close-out or termination of the derivative is
recognized in earnings. In connection with our use of risk management instruments, 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 risk management instruments by adhering to a strict counterparty selection
process and by establishing maximum exposure limits with individual
counterparties. We account for changes in the market value of derivative instruments as
prescribed by Statement of Financial Accounting Standards No. 133, Accounting
for Derivatives and Hedging Activities. Statement No. 133 establishes
accounting and reporting standards for derivative instruments and requires that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the statement of financial condition as
either an asset or liability measured at its fair value. Statement No. 133
further dictates that the accounting treatment for gains or losses from changes
in the derivative instruments fair value is contingent on whether the
derivative instrument qualifies as a hedge under the standard. If the
derivative instrument does not qualify as a hedge, the gains or losses are
reported in the consolidated statement of income when they occur. If the
derivative instrument qualifies as a hedge under the standard, depending on the
type of risk being hedged, the gains and losses are either reported in the
consolidated statement of income, offsetting the fair value change in the
hedged item, or reported as accumulated other comprehensive income in the
equity section of the consolidated statement of financial condition. The
standard further requires that an entity formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. Stock-Based Compensation We adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, which amends Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation. This Statement
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. It
also amends the disclosure requirements to require prominent disclosure in both
annual and interim 63




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financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Statement No. 123 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. Compensation expense of $2.0 million and $5.2 million were recorded in
2002 and 2001, respectively, based on APB 25. There was no compensation
expense recorded under APB 25 for the three months ended December 31, 2003.
Had compensation expense related to our stock option awards to employees and
directors been determined under the fair value method prescribed under
Statement No. 123, we would have recorded an additional $2.0 million and $2.6
million of expenses in 2002 and 2001, respectively. Our net loss and loss
per share would have been the pro forma amounts illustrated in the table below
for the periods indicated: For the Three
    
    For the Nine
    
    For the YearMonths Ended
    
    Months Ended
    
    EndedDecember 31,
    
    September 30,
    
    December 31,2003
    
    2002
    
    2001(Dollars in thousands, except per share amounts)As reported net loss in Consolidated Statements of
Operations and Comprehensive Income (Loss)
    
    $
    (673
    )
    
    $
    71,661
    
    
    $
    (101,170
    )Stock-based employee compensation included in net
loss as reported
    
    
    
    
    
    
    
    
    
    
    Stock-based employee compensation expense
determined under fair value method, net of taxes
    
    
    
    
    
    
    (1,990
    )
    
    
    (2,614
    )Pro forma net loss, after stock based employee
compensation expense
    
    $
    (673
    )
    
    $
    69,671
    
    
    $
    (103,784
    )Net gain
(loss) per share - basic:As reported
    
    $
    (0.10
    )
    
    $
    11.43
    
    
    $
    (19.89
    )Pro forma
    
    $
    (0.10
    )
    
    $
    11.11
    
    
    $
    (20.40
    )Net gain
(loss) per share - diluted:As reported
    
    $
    (0.10
    )
    
    $
    11.35
    
    
    $
    (19.89
    )Pro forma
    
    $
    (0.10
    )
    
    $
    11.04
    
    
    $
    (20.40
    )
 64




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Earnings Per Share From September 30, 2002 through September 30, 2003, we reported our
results using the liquidation basis of accounting, under which earnings per
share information is not presented. Accordingly, the earnings per share
information set forth below is for reporting periods where we use the going
concern basis of accounting to report our results of operations. Basic earnings per share are calculated by dividing net earnings or loss
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.
For the three months ended December 31, 2003 and the year ended December 31,
2001, average dilutive potential common shares of 39,068 and 3,441
respectively, related to shares issuable upon the exercise of options were not
included in the computation because they were anti-dilutive. The following table illustrates the calculation of basic and diluted
earnings (loss) per share for the periods indicated: For the Three
    
    For the Nine
    
    For the YearMonths Ended
    
    Months Ended
    
    EndedDecember 31,
    
    September 30,
    
    December 31,2003
    
    2002
    
    2001(Amounts in thousands, except per share amounts)Income (loss) before cumulative effect of change in
accounting principle
    
    $
    (673
    )
    
    $
    90,581
    
    
    $
    (101,170
    )Cumulative effect of change in accounting principle,
net of taxes of $2.3 million
    
    
    
    
    
    
    (18,920
    )
    
    
    Net income (loss)
    
    $
    (673
    )
    
    $
    71,661
    
    
    $
    (101,170
    )Weighted-average basic shares outstanding
    
    
    6,419
    
    
    
    6,272
    
    
    
    5,087Add: Dilutive potential common shares
    
    
    
    
    
    
    41
    
    
    
    Weighted-average diluted shares outstanding
    
    
    6,419
    
    
    
    6,313
    
    
    
    5,087Basic earnings (loss) per share before cumulative
effect of change in accounting principle
    
    $
    (0.10
    )
    
    $
    14.44
    
    
    $
    (19.89
    )Cumulative effect of change in accounting
principle, net
    
    
    
    
    
    
    (3.01
    )
    
    
    Net basic earnings (loss) per share
    
    $
    (0.10
    )
    
    $
    11.43
    
    
    $
    (19.89
    )Diluted earnings (loss) per share before cumulative
effect of change in accounting principle
    
    $
    (0.10
    )
    
    $
    14.35
    
    
    $
    (19.89
    )Cumulative effect of change in accounting
principle, net
    
    
    
    
    
    
    (3.00
    )
    
    
    Net diluted earnings (loss) per share
    
    $
    (0.10
    )
    
    $
    11.35
    
    
    $
    (19.89
    )
 Accounting Changes and Recent Accounting Pronouncements In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement replaced the
accounting and reporting provisions of Emerging Issues Task Force (EITF) Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). It requires that costs associated with an exit or disposal
activity be recognized when a liability is incurred rather than at the date an
entity commits to an exit plan. The Company adopted Statement No. 146 upon its 65




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re-adoption of going concern basis
accounting effective October 1, 2003. In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 expands on the
accounting guidance of Statements No. 5, 57, and 107 and incorporates without
change the provisions of FASB Interpretation No. 34 which was superseded. FIN
45 elaborates on the existing disclosure requirements for most guarantees and
requires that guarantors recognize a liability for the fair value of guarantees
at inception. The disclosure requirements of this Interpretation were
effective for financial statement periods ending after December 15, 2002. The
initial recognition and measurement provisions of FIN 45 were applied on a
prospective basis to guarantees issued or modified after December 31, 2002.
Significant guarantees that have been entered into by the Company are disclosed
in Note 18. The adoption of this Interpretation did not have a material impact
on the Companys financial position or results of operations. In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46 sets forth criteria for
the identification of a variable interest entity (VIE), and the consolidation
of the assets, liabilities, noncontrolling interests, and results of operations
of a VIE in a companys consolidated financial statements. A variable interest
entity exists when either the total equity investment at risk is not sufficient
to permit the entity to finance its activities by itself, or the equity
investors lack a controlling financial interest or they have voting rights that
are not proportionate to their economic interest. A company that holds
variable interests in an entity is required to consolidate that entity if the
companys interest in the VIE is such that the company will absorb a majority
of the VIEs expected losses and/or receive a majority of the VIEs expected
residual returns. FIN 46 also requires additional disclosures by primary
beneficiaries and other significant variable interest holders. In December
2003, the FASB issued FIN 46R, a revision of FIN 46. FIN 46R delays the
effective date of FIN 46 for all entities created subsequent to January 31,
2003 and non-SPEs (special-purpose entities) created prior to February 1, 2003
to reporting periods ending after March 15, 2004. Entities created prior to
February 1, 2004 and defined as SPEs must apply either the provisions of FIN
46 or early adopt the provisions of FIN 46R by the first reporting period
ending after December 15, 2003. As of December 31, 2003, the Company does not
have any VIEs which would be consolidated under the provisions of FIN 46R.
Based on FIN 46, the Company deconsolidated Bay View Capital I Trust effective
December 31, 2003. As a result, the 9.76% Capital Securities of Bay View
Capital I Trust are no longer reflected on the Companys Consolidated Statement
of Financial Condition at December 31, 2003 while the Companys underlying
9.76% Junior Subordinated Deferrable Interest Debentures, which were acquired
by Bay View Capital I Trust, are reflected as borrowings of the Company. In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. This Statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under Statement No. 133. Statement No. 149 was effective
for contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The provisions of this
Statement, with certain exceptions, were required to be applied prospectively.
Adoption of Statement No. 149 did not have a significant impact on the
Companys financial position or results of operations. In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity. This Statement establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
Company adopted Statement No. 150 effective July 1, 2003. Implementation of
Statement No. 150 resulted in the reclassification of the Companys Capital
Securities from their prior classification as a mezzanine item to
liabilities. Consequently, the dividend expense on these Capital Securities is now reflected in interest expense. 66




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In December 2003, the FASB issued Statement of Financial Accounting
Standards No. 132R, a revision of Statement No. 132, Employers Disclosures
about Pensions and Other Postretirement Benefits, an amendment of FASB
Statements Nos. 87, 88, and 106. The Statement expands the disclosure
requirements of Statement No. 132 to include information describing types of
plan assets, investment strategy, measurement date(s), plan obligations, cash
flows, and components of net period benefit costs of defined pension plans and
other defined benefit postretirement plans. The Statement is effective for
financial statements with fiscal years ending after December 15, 2003. The
expanded disclosures required by Statement No. 132R do not apply to the
Companys benefit plans which were all terminated at year-end. In December 2003, under clearance of the FASB, the Accounting Standards
Executive Committee (AcSEC) of the AICPA issued Statement of Position (SOP
03-2), Accounting for Certain Loans or Debt Securities Acquired in a
Transfer. This SOP establishes accounting standards for discounts on
purchased loans when the discount is attributable to credit quality. The SOP
requires that the loan discount, rather than contractual amounts, establishes
the investors estimate of undiscounted expected future principal and interest
cash flows as a benchmark for yield and impairment measurements. The SOP
prohibits the carryover or creation of a valuation allowance in the initial
accounting for these loans. This SOP is effective for loans acquired in years
ending after December 15, 2004. The Company believes that adopting this
Statement will not have a material impact on the Companys financial position
or results of operations. Reclassifications In addition to the
reclassifications discussed above, certain other reclassifications have been made to prior
year balances in order to conform to the current year presentation. Liquidation Basis Included in the accounting policies below are the assumptions used in the
valuation of assets and liabilities of the Company reflecting the use of
liquidation basis accounting for the period September 30, 2002 through
September 30, 2003. Only those policies that are different from going concern
basis are included. Basis of Financial Presentation and Use of Estimates The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts of assets
and liabilities as reported in the consolidated statement of net assets
(liquidation basis) and disclosures of contingent 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. Material estimates particularly susceptible to possible changes in
the near term relate to the determination of the mark-to-market adjustments on
loans and leases, investment in operating lease assets and deferred tax assets. Securities All securities were classified as available-for-sale and reported at net
realizable value. Valuations were determined from published information or
quotes by registered securities brokers. Securities for which quotes are not
readily available were valued based on the present value of discounted
estimated future cash flows. Adjustments to net realizable value, if any, were
recorded on a quarterly basis in earnings through the adjustment for
liquidation basis. Interest on securities continued to be accrued as income to
the extent considered collectible. 67




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Loans and Leases We classified all loans and leases as held-for-sale and reported them at
net realizable value. Net realizable value for these loans and leases was
based on existing external bids from sales contracts or letters of intent or
prices for similar loans and leases in the secondary whole loan or
securitization markets or estimates of proceeds to be obtained through a
workout and payoff. Declines in net realizable value, if any, were recorded on
a quarterly basis as a charge through the adjustment for liquidation basis.
Accounting policies for interest income and loan fee recognition,
classification and accounting treatment of impaired loans, including
nonperforming loans and troubled debt restructurings have not changed. Allowance for Loan and Lease Losses Effective September 30, 2002, the balance of the allowance for loan and
lease losses was reallocated as mark-to-mark adjustments to individual loans
and leases and groups of homogeneous loans as part of the adoption of
liquidation basis accounting. Real Estate Owned We recorded real estate owned at net realizable value as of the date of
foreclosure. The difference upon foreclosure between book value and net
realizable value, if any, was expensed to adjustment for liquidation basis.
Adjustments to net realizable value, if any, were recorded on a quarterly basis
as a charge through the adjustment for liquidation basis. Revenues and other
expenses associated with real estate owned were 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. This is considered to approximate net realizable value in
accordance with liquidation basis accounting. Depreciation and amortization
are computed on a straight-line basis over the estimated useful lives for each
of the various asset categories. These useful lives range from two to ten
years. Intangible Assets Goodwill and other intangible assets were all written off as of September
30, 2002 with the adoption of liquidation basis accounting. The goodwill and
core deposit intangibles associated with the deposits sold to U.S. Bank were
realized in anticipation of the close of that transaction. The goodwill
related to the Companys commercial business units, including Asset-Based
Lending, Factored Receivables and Commercial Leasing, was written off as
current estimated fair values of those businesses were below book value based
on bids from interested buyers of the businesses. Deferred gain The deferred
gain represents estimated after-tax gain related to the
future sale of the automobile lending business. As this transaction
was not
under contract or assured, the estimated after-tax gain was not recognized, but
rather is recorded as a deferred gain. Reserve for Estimated Costs during the Period of Liquidation The reserve for estimated costs during the period of liquidation include
severance payments and costs related to facility closures, investment banking
and other professional fees and estimated litigation expense and settlements.
These expense accruals were reviewed for adequacy on a quarterly basis. Changes
to the accruals, if necessary, were charged to earnings as changes in estimated
values of assets and liabilities. 68




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In addition to the $51.1 million in charges related to our adoption of
liquidation basis accounting, $2.6 million was transferred from existing
restructuring accruals to the reserve for estimated costs. At December 31,
2002, the reserve for estimated costs during the period of liquidation was $44.0
million, including accruals for severance and facilities of $29.0 million and
$9.4 million, respectively. At December 31, 2003, the remaining balance of the
liquidation reserve was $11.6 million, including accruals for severance and
facilities of $2.0 million and $6.4 million, respectively. Note 3. Restatement of Consolidated Financial Statements as of and for the
Three Months ended December 31, 2003 Subsequent to the issuance of our consolidated financial statements as of
and for the three months ended December 31, 2003, we determined that we
incorrectly applied FASB Statement No. 91, Accounting for Nonrefundable Fees
and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases, to our auto finance subsidiarys portfolio of auto contracts
held-for-sale for the three-month period that began October 1, 2003, when we
readopted the going concern basis of accounting, and ended December 31, 2003.
As a result, we have restated our going concern basis consolidated financial
statements as of and for the three months ended December 31, 2003 to eliminate
the recognition of amortization expense related to premiums and deferred origination costs and fees associated with auto
contracts held-for-sale. The restatement increased total assets and  net income as of and for the three months ended December 31, 2003 by $182 thousand. On June 30, 2004, we effected a 1-for-10 reverse stock split of the issued
and outstanding shares of the Companys common stock. As a result, the
Companys issued common stock was reduced from 65,910,689 shares prior to the
reverse stock split to 6,590,461 shares following the reverse stock split,
including an adjustment for fractional shares. Our restated consolidated financial statements also include adjustments to reflect this reverse stock
split. Accordingly, all shares outstanding and per share amounts are presented
herein on a post-reverse stock split basis for all periods reported. Except as set forth above, we have not updated the disclosures contained
herein to reflect any events that have occurred after the Original Filing. The
following table shows the impact of the restatement on net income, basic and
diluted earnings per share and assets as of and for the three months ended December 31, 2003: As of and For theThree MonthsEndedDecember 31,2003(Amounts inthousands, exceptper shareamounts)Net

loss:Net loss as

previously reported
    
    $
    (855
    )Net loss as

restated
    
    $
    (673
    )Weighted-average basic shares outstanding
    
    
    6,419Add: Dilutive

potential common shares
    
    
    Weighted-average diluted shares outstanding
    
    
    6,419Basic loss per

share:Basic loss per

share as previously reported
    
    $
    (0.13
    )Restatement

adjustment
    
    
    0.03Basic loss per

share as restated
    
    $
    (0.10
    )Diluted loss

per share:Diluted loss

per share as previously reported
    
    $
    (0.13
    )Restatement

adjustment
    
    
    0.03Diluted loss

per share as restated
    
    $
    (0.10
    )Interest

income:Interest

income as previously reported
    
    $
    4,636Interest

income as restated
    
    $
    4,936Loans

held-for-sale, Installment contracts:Loans

held-for-sale, Installment contracts as previously reported
    
    $
    165,574Loans

held-for-sale, Installment contracts as restated
    
    $
    165,874Income taxes,

net:Income taxes,

net as previously reported
    
    $
    21,149Income taxes,

net as restated
    
    $
    21,031Total

Assets:Total assets

as previously reported
    
    $
    363,936Total assets

as restated
    
    $
    364,118


Note 4. Regulatory Matters

During the third quarter of 2000, we entered into formal agreements with
the Office of the Comptroller of the Currency (OCC) and the Federal Reserve
Bank of San Francisco. The provisions of both agreements, among other things,
required the Bank and the Company to adopt a new budget as well as new
strategic, earnings and capital plans, which were provided to both regulatory
agencies in 2001. Additionally, the agreements restricted the Banks and the
Companys ability to declare or distribute any dividends without the prior
approval of the OCC and the Federal Reserve Bank, respectively. The agreement
further required the prior written approval of the Federal Reserve Bank to
increase the principal balance of any category of debt above the levels
outstanding as of June 30, 2000. Finally, the Company could not repurchase
any stock without the prior written approval of the Federal Reserve Bank.

The Bank completed its plan of dissolution and liquidation as of September
30, 2003. Under the plan, the Bank satisfied or discharged all of its known
and currently due and payable liabilities, and transferred its remaining assets
and liabilities to the Company, the Banks sole stockholder. As a result of
the Banks dissolution, the Company and its subsidiaries are no longer subject
to supervision, examination and regulation by the FRB, the OCC or the Federal
Deposit Insurance Corporation.

69



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Note 5. Retained Interests in Securitizations All retained interests in securitizations were classified as
available-for-sale at December 31, 2003 and 2002. We did not maintain a
trading portfolio during 2003 and 2002. The following tables illustrate
activity in our retained interests in loan securitizations for the periods
indicated: For the Year Ended December 31, 2003Change inBeginning
    
    2003
    
    Cash
    
    
    
    
    
    Realized
    
    Unrealized
    
    EndingBalance
    
    Securitizations
    
    Received
    
    Accretion
    
    Gain (Loss)
    
    Gain (Loss)
    
    Balance(Dollars in thousands)1999-LG-1
    
    $
    3,711
    
    
    $
    
    
    
    $
    (3,500
    )
    
    $
    
    
    
    $
    (211
    )
    
    $
    
    
    
    $
    2000-LJ-1
    
    
    4,213
    
    
    
    
    
    
    
    (4,380
    )
    
    
    
    
    
    
    167
    
    
    
    
    
    
    
    2002-LJ-1
    
    
    23,946
    
    
    
    
    
    
    
    (7,496
    )
    
    
    2,294
    
    
    
    
    
    
    
    
    
    
    
    18,7442003-LJ-1
    
    
    
    
    
    
    9,485
    
    
    
    
    
    
    
    361
    
    
    
    
    
    
    
    
    
    
    
    9,846Totals
    
    $
    31,870
    
    
    $
    9,485
    
    
    $
    (15,376
    )
    
    $
    2,655
    
    
    $
    (44
    )
    
    $
    
    
    
    $
    28,590
 For the Year Ended December 31, 2002Change inBeginning
    
    2002
    
    Cash
    
    
    
    
    
    Realized
    
    Unrealized
    
    EndingBalance
    
    Securitizations
    
    Received
    
    Accretion
    
    Loss
    
    Loss
    
    Balance(Dollars in thousands)FMAC 1998-D
    
    $
    570
    
    
    $
    
    
    
    $
    
    
    
    $
    48
    
    
    $
    (618
    )
    
    $
    
    
    
    $
    1999-LG-1
    
    
    4,979
    
    
    
    
    
    
    
    (1,268
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,711FMAC 2000-A
    
    
    3,995
    
    
    
    
    
    
    
    
    
    
    
    334
    
    
    
    (4,329
    )
    
    
    
    
    
    
    2000-LJ-1
    
    
    4,330
    
    
    
    
    
    
    
    (62
    )
    
    
    
    
    
    
    
    
    
    
    (55
    )
    
    
    4,2132002-LJ-1
    
    
    
    
    
    
    23,241
    
    
    
    
    
    
    
    705
    
    
    
    
    
    
    
    
    
    
    
    23,946Totals
    
    $
    13,874
    
    
    $
    23,241
    
    
    $
    (1,330
    )
    
    $
    1,087
    
    
    $
    (4,947
    )
    
    $
    (55
    )
    
    $
    31,870
 The losses
realized during the years ended December 31, 2003 and 2002 on
our retained interests in franchise securitizations were due to other than temporary
declines in the estimated values of these securities. These declines in value
were primarily attributable to higher than projected credit losses resulting
from deterioration in the credit quality of the underlying franchise loans during the
year. 70




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The following table illustrates the significant assumptions utilized in
the valuation of retained interests as of the dates indicated: At December 31,2003
    
    2002Auto installment contractsWeighted-average discount rate
    
    
    12.0%-12.5
    %
    
    
    14.0%-15.0
    %Range of projected annual credit losses
    
    
    1.00
    %
    
    
    1.00
    %Range of projected cumulative credit losses
    
    
    1.71%-1.90
    %
    
    
    1.62%-3.20
    %Prepayment speed
    
    1.6 ABS
    
    1.5 ABS-1.6 ABS
 At December 31, 2003, the decreases in the current fair value of our
retained interests in securitizations of auto installment contracts as a result
of immediate 10% and 20% adverse changes in significant assumptions materially
impacted by adverse changes are as follows: At December 31, 2003Auto InstallmentContractsCarrying amount/fair value of retained interests
    
    $
    28,590Decrease in fair value from 10% adverse change in discount rate
    
    
    722Decrease in fair value from 20% adverse change in discount rate
    
    
    1,449Decrease in fair value from 10% adverse change in projected
credit losses
    
    
    500Decrease in fair value from 20% adverse change in projected
credit losses
    
    
    1,034
 We did not purchase any investment securities during 2003. In 2002, we
purchased $52.9 million of asset-backed securities and $3.0 million of Federal
Home Loan Bank structured notes. We securitized and sold $193.3 million and $453.2 million of auto
installment contracts during 2003 and 2002, respectively. We retained
interests in these securitizations with initial balances of $9.5 million and
$23.2 million for 2003 and 2002, respectively. Also during 2003, BVAC called
its 1999-LJ-1 and 2000-LJ-1 automobile receivable backed notes and repurchased
installment contracts from the asset-backed bond trusts with par values of
$21.8 million and $33.8 million and average coupon rates of 12.52% and 10.25%,
respectively. During 2002, we wrote-off the entire balance of $4.9 million of
franchise securitization residual assets upon our adoption of liquidation basis
accounting, primarily as a result of further deterioration in the franchise
loans underlying the securities. 71




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Note 6. Mortgage-backed Securities and Other Securities We hold or have held 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. We also hold
other securities including asset-backed securities and U.S. government agency
notes which had no other than temporary impairment at December 31, 2003. All
mortgage-backed and other securities were classified as available-for-sale at
December 31, 2003 and 2002. The following tables illustrate our
mortgage-backed and other securities as of the dates indicated: At December 31, 2003Amortized
    
    Gross Unrealized
    
    FairCost
    
    Gains
    
    (Losses)
    

    Value(Dollars in thousands)Available-for-sale:Mortgage-backed securitiesFannie Mae
    
    $
    5,410
    
    
    $
    
    
    
    $
    (75
    )
    
    $
    5,335Collateralized mortgage obligations
    
    
    571
    
    
    
    
    
    
    
    (13
    )
    
    
    558Total mortgage-backed securities
    
    
    5,981
    
    
    
    
    
    
    
    (88
    )
    
    
    5,893Asset-backed securities
    
    
    246
    
    
    
    
    
    
    
    
    
    
    
    246Total available-for-sale
    
    $
    6,227
    
    
    $
    
    
    
    $
    (88
    )
    
    $
    6,139
 At December 31, 2002Net Realizable Value(Dollars in thousands)Available-for-sale:Mortgage-backed securities:Fannie Mae
    
    $
    18,096Freddie Mac
    
    
    13,335Collateralized mortgage obligations
    
    
    1,085Total mortgage-backed securities
    
    
    32,516Asset-backed securities
    
    
    6,267Total available-for-sale
    
    $
    38,783
 The weighted-average
yield on mortgage-backed securities classified as
available-for-sale at December 31, 2003 was 6.21%. The weighted-average yield
on mortgage-backed securities classified as available-for-sale at December 31,
2002 was 6.48%. The amount of adjustable-rate mortgage-backed securities was
$0.6 million at December 31, 2003 and $1.1 million at December 31, 2002. Prior
to the dissolution of the Bank, we have used mortgage-backed securities as full
or partial collateral for advances or other credit facilities provided by the
Federal Home Loan Bank of San Francisco. The total par value of pledged
mortgage-backed securities was $20.5 million at December 31, 2002. Proceeds from sales
of mortgage-backed securities classified as
available-for-sale during 2003 were $12.5 million. Gains we recognized on these
sales were insignificant during 2003. Proceeds from sales of mortgage-backed
securities classified as available-for-sale during 2002 were $181.8 million.
Gross gains of $1.1 million were realized on these sales. Proceeds from sales
of mortgage-backed securities classified as available-for-sale during 2001 were
$392.2 million. Gross gains of $13.4 million were realized on these sales. Proceeds from the sale of asset-backed securities classified as
available-for-sale in 2003 totaled $2.7 million. Losses of $30,000 were
recognized on these sales. Proceeds from the sale of asset-backed securities
classified as available-for-sale in 2002 were $75.5 million. Gains of $42,000
were recognized on these sales. Proceeds from sales of asset-backed securities
classified as available-for-sale in 2001 were $19.8 million. A gross gain of
$130,000 was realized on the sale. Additionally, we recognized a $6.5 million
contingent gain related to the December 2000 sales of asset-backed securities
during the first quarter of 2001. There were no sales of asset-backed
securities classified as held-to-maturity during 2003, 2002 or 2001. 72




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Note 7. Loans and Leases The following table illustrates our loan and lease portfolio as of the
dates indicated: December 31,2003
    
    2002(Dollars in thousands)Loans and leases receivable:Auto installment contracts (1)
    
    $
    161,578
    
    
    $
    142,357Other loans and leases:Multi-family mortgage loans
    
    
    
    
    
    
    2,443Commercial mortgage loans
    
    
    
    
    
    
    7,712Franchise loans
    
    
    6,428
    
    
    
    46,928Asset-based loans, syndicated loans, factored
receivables and commercial leases
    
    
    844
    
    
    
    104,362Business loans
    
    
    4,802
    
    
    
    7,212Total other loans and leases
    
    
    12,074
    
    
    
    168,657Loan and leases before premiums and discounts and
deferred fees and costs, net
    
    
    173,652
    
    
    
    311,014Premiums and discounts and deferred fees and costs, net
    
    
    4,296
    
    
    
    Loans and leases receivable (1)
    
    $
    177,948
    
    
    $
    311,014
 (1) All loans and leases are classified as held-for-sale at December 31, 2003 and 2002. During 2003, we
completed the sale of $339.8 million of loans and received
an additional $129.6 million of loan repayments. These loan sales and
repayments, totaling $469.4 million, were comprised of $319.5 million of auto
installment contracts, $91.5 million of asset-based loans, $33.4 million of
franchise loans, $10.8 million of syndicated loans, $7.0 million of commercial
real estate loans, $3.9 million of multi-family mortgage loans and $3.3 million
of business loans, factored receivables and commercial leases. During 2002, we
completed the sale of $859.6 million of multi-family mortgage loans, $207.7
million of commercial real estate loans, $157.4 million of home equity loans,
$139.4 million of single-family loans, $67.8 million of business loans, $60.6
million of franchise loans, $50.8 million of factored receivables, $21.1
million of commercial leases and $2.7 million of consumer loans. During 2001,
we sold $488.2 million of franchise loans, $142.8 million of home equity loans,
which included approximately $90.0 million of high loan-to-value home equity
loans, and $7.0 million of commercial loans. We securitized and sold approximately $193.3 million of automobile
installment contracts during 2003. Gains of $0.8 million were recognized on
this transaction. We securitized and sold $453.2 million of our auto
installment contracts during 2002. We recognized a gross gain of $11.8 million
on the securitization. There were no loan securitizations in 2001. We
retained servicing responsibilities and subordinated interests in all of our
securitizations. The investors and the securitization trusts have no recourse
to our other assets for failure of debtors to pay when due. Our retained
interests are subordinate to investors interests. Their value is subject to
credit, prepayment, and interest rate risks on the transferred financial
assets. We serviced participating interests in mortgage and auto installment
contracts that we securitized and/or sold of $405.1 million at December 31,
2003 and $514.7 million at December 31, 2002. The total of impaired loans and leases, consisting entirely of nonaccrual
loans and leases, were $7.1 million and $24.7 million at December 31, 2003 and
2002, respectively. Interest on nonaccrual loans and leases that was not
recorded in income was $1.6 million for the year ended December 31, 2003, $5.9
million for 2002 and $8.6 million for 2001. Cash interest that we recognized
on these nonaccrual loans and leases was not significant in 2003, 2002 or 2001.
At December 31, 2003, we had no commitments to lend additional funds to these
borrowers. The average investment in impaired loans and leases was $11.0
million for the year ended December 31, 2003, $63.2 million for 2002 and $95.1
million for 2001. 73




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The following table includes off-balance sheet amounts related to
securitized financial assets and illustrates delinquencies, net charge-offs,
and components of securitized financial assets and other assets managed
together with them: Principal Amount ofLoans and Leases
    
    Loans Delinquent 60Receivable (1)
    
    Days or More
    
    Net Charge-offs (2)For the Year EndedAt December 31,
    
    December 31,2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002(Dollars in thousands)Mortgage loans
    
    $
    
    
    
    $
    10,155
    
    
    $
    
    
    
    $
    817
    
    
    $
    773
    
    
    $
    Home equity loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    845Auto installment contracts (3)(4)
    
    
    555,906
    
    
    
    629,843
    
    
    
    636
    
    
    
    970
    
    
    
    6,944
    
    
    
    6,871Franchise loans and leases (3)
    
    
    6,428
    
    
    
    46,928
    
    
    
    755
    
    
    
    16,064
    
    
    
    11,608
    
    
    
    11,237Asset-based loans, syndicated loans,
factored receivables, commercial leases
and business loans
    
    
    5,646
    
    
    
    111,574
    
    
    
    563
    
    
    
    600
    
    
    
    12,330
    
    
    
    6,145Total loans managed or securitized
    
    $
    567,980
    
    
    $
    798,500
    
    
    $
    1,954
    
    
    $
    18,451
    
    
    $
    31,655
    
    
    $
    25,098Less:Loans and leases securitized
    
    
    390,032
    
    
    
    487,486Loans and leases receivable
    
    $
    177,948
    
    
    $
    311,014
 (1)
    
    All loans and leases are classified as held-for-sale at December 31, 2003
and 2002.(2)
    
    All charge-offs and recoveries of loans and
leases receivables were recorded against the ALLL through
September 30, 2002. From September 30, 2002 through
September 30, 2003, all charge-offs and recoveries are recorded as
mark-to-market valuation adjustments in accordance with
liquidation basis accounting. With the Companys re-adoption of going
concern basis accounting, all charge-offs and recoveries
are recorded as noninterest income or expense.(3)
    
    Includes off-balance sheet amounts associated with securitized assets.(4)
    
    Includes $6.3 million and $4.2 million in net charge-offs related to
off-balance sheet auto installment contracts for 2003
and 2002, respectively. 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 theNine Months
    
    At and For theEnded
    
    Year EndedSeptember 30,
    
    December 31,2002
    
    2001(Dollars in thousands)Balance at beginning of period
    
    $
    49,791
    
    
    $
    73,738Transfers of loans to held-for-sale
    
    
    (10,658
    )
    
    
    (53,606
    )Charge-offs
    
    
    (23,771
    )
    
    
    (51,696
    )Recoveries
    
    
    2,887
    
    
    
    9,465Net charge-offs
    
    
    (20,884
    )
    
    
    (42,231
    )Provision for losses on loans and leases
    
    
    10,700
    
    
    
    71,890Reallocation of allowance as mark-to-market adjustments to
individual loans and leases and groups of homogeneous loans
in liquidation
    
    
    (28,949
    )
    
    
    Balance at end of period
    
    $
    
    
    
    $
    49,791
 74




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Upon our adoption of liquidation basis accounting effective September 30,
2002, we reallocated the balance of the allowance for loan and lease losses as
mark-to-market adjustments to individual loans and leases and groups of
homogeneous loans in liquidation. Prior to this reallocation, an allowance for
loan and lease losses was provided for all impaired loans and leases. The
total allowance for loan and lease losses was $49.8 million at December 31,
2001. The portion of the total allowance for loan and lease losses that was
attributable to impaired loans was $26.2 million at December 31, 2001. Prior to our adoption of liquidation basis accounting, we transferred
loans from held-for-investment to held-for-sale resulting in a $10.7 million
reduction to the allowance for loan and lease losses during the first nine
months of 2002 related to the sale and payoff of multi-family mortgage,
commercial real estate, auto and franchise and other commercial loans. During
2001, we transferred loans from held-for-investment to held-for-sale resulting
in a $53.6 million reduction to the allowance for loan and lease losses related
to mark-to-market adjustments on these loans, consisting of $48.8 million in
net reductions related to franchise loans and $4.8 million related to the sale
of home equity loans. Note 8. Premises and Equipment The following table illustrates our premises and equipment as of the dates
indicated: At December 31,2003
    
    2002 (1)(Dollars in thousands)Leasehold improvements
    
    $
    487
    
    
    $
    1,771Furniture and equipment
    
    
    7,746
    
    
    
    11,510Other
    
    
    
    
    
    
    108,233
    
    
    
    13,291Less:Accumulated depreciation
and amortization
    
    
    (7,862
    )
    
    
    (11,964
    )Total
    
    $
    371
    
    
    $
    1,327
 (1)
    
    Stated at net realizable value at December 31, 2002. Depreciation and amortization expense related to premises and equipment
totaled $0.5 million for the year ended December 31, 2003, $3.1 million for
2002 and $4.8 million for 2001. Note 9. Accounting for Goodwill and Other Intangible Assets With our re-adoption of the going concern basis of accounting, we
re-established goodwill of $1.8 million in BVAC related to our acquisition of
California Thrift & Loan in 1996. As of January 1, 2002, we adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, which requires that
certain goodwill and intangible assets with indefinite useful lives no longer
be amortized but instead be tested for impairment at least annually. As of
January 1, 2002, the amortization of the existing goodwill ceased and
amortization of the other identifiable assets with definite useful lives
continued to be amortized. 75




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In accordance with Statement No. 142, the effect of this accounting change
is reflected prospectively. Supplemental comparative disclosure as if the
change had been retroactively applied to the prior year period is as follows: For the YearEndedDecember 31,2001(Amounts in thousands, except pershare amounts)Reported net earnings (loss)
    
    $
    (101,170
    )Goodwill amortization, net of tax
    
    
    9,694Adjusted net earnings (loss)
    
    $
    (91,476
    )Reported net basic earnings (loss) per share
    
    $
    (19.89
    )Goodwill amortization
    
    
    1.91Adjusted net basic earnings (loss) per share
    
    $
    (17.98
    )Reported net diluted earnings (loss) per share
    
    $
    (19.89
    )Goodwill amortization
    
    
    1.91Adjusted net diluted earnings (loss) per share
    
    $
    (17.98
    )
 We completed
the first and second steps of the transitional goodwill
impairment test as of June 30, 2002 and September 30, 2002, respectively. We
recorded $18.9 million in impairment charges, net of taxes, for goodwill not
expected to be realized upon the disposition of our Asset-Based Lending,
Factored Receivables and Commercial Leasing businesses. As required by the
transitional provisions of Statement No. 142, the impairment loss was measured
and recorded as of the date of adoption and recognized as the cumulative effect
of a change in accounting principle as of January 1, 2002. At December 31,
2003, management determined that there was no impairment of goodwill based on our
annual assessment. Amortization expense for core deposit and other intangibles was $1.0
million for the year ended December 31, 2002 and $1.3 million for 2001.
Amortization expense for goodwill was $10.0 million for the year ended December
31, 2001. Note 10. Deposits During 2002, we sold all of the Banks retail deposits, totaling $3.3
billion, to U.S. Bank as part of the transaction to sell the 57-branch retail
banking business. During the second quarter of 2002, we began acquiring
brokered certificates of deposit to provide additional liquidity in
anticipation of funding the U.S. Bank sale transaction. At December 31, 2002,
the Banks deposits totaled $224.2 million and consisted solely of the brokered
certificates of deposit, all of which matured by March 31, 2003. The following table illustrates interest expense on deposits, by deposit
type, for the periods indicated: For the Year Ended December 31,2003
    
    2002
    
    2001(Dollars in thousands)Savings accounts
    
    $
    
    
    
    $
    775
    
    
    $
    1,637Checking and money market accounts
    
    
    
    
    
    
    19,366
    
    
    
    46,938Retail and brokered certificates
of deposit
    
    
    703
    
    
    
    31,387
    
    
    
    87,161Total
    
    $
    703
    
    
    $
    51,528
    
    
    $
    135,736
 76




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##### Table of Contents



Note 11. Borrowings During
the second quarter of 2003, BVAC obtained a $250.0 million
revolving warehouse credit facility to finance BVACs current portfolio of
auto contracts and its future purchases of auto
contracts. At December
31, 2003, there was $138.2 million outstanding under this revolving line of
credit with an all-in cost of 2.50%. BVAC intends to periodically securitize
and sell its production of auto contracts in order to repay the line of
credit. On December 31, 2001, we completed a financing secured by our auto lease
cash flows and recorded $136.5 million in other borrowings at an initial rate
of 5.25%. Since there have been no new auto leases originated since June 2000,
the contractual auto lease cash flows decrease monthly and are scheduled to
conclude in December 2005. The transaction was treated as a sale for tax
purposes that allowed us to capture expiring net operating loss carryforwards
and partially reverse the related valuation allowance on deferred tax assets.
At December 31, 2003, the balance of other borrowings related to the financing
secured by our auto lease contractual cash flows was $16.1 million. The
recorded effective rate of the borrowing for 2003 was 0.36%. As of December 31, 2003, we had $24.8 million of outstanding debt
represented by 9.76% Junior Subordinated Deferrable Interest Debentures (the
Junior Debentures) that were issued by the Company to Bay View Capital I, a
Delaware business trust we sponsor. The Junior Debentures support the $22.0
million of outstanding 9.76% Cumulative Capital Securities (the Capital
Securities) that were issued by Bay View Capital I and trade on the New York
Stock Exchange under the symbol (BVS). Effective December 31, 2003, in
accordance with the requirements of Financial Accounting Standards Board
Financial Interpretation No. 46, Consolidating of Variable
Interest Entities, we
deconsolidated Bay View Capital I and the Capital Securities. As a result of
this deconsolidation, as of December 31, 2003, the debt reflected in our
consolidated financial statements now reflects the Junior Debentures while no
longer reflecting the Capital Securities. Note 12. Notes and Debentures On August 18, 1999, the Bank issued $50.0 million in Subordinated Notes.
The Subordinated Notes were unsecured obligations of the Bank and were
subordinated in right of payment to all existing and future senior
indebtedness, as defined, of the Bank. The Subordinated Notes were to mature
on August 31, 2009, with a call provision at our option any time after August
31, 2002 at par. The issuance had 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. On December 9, 2002, the Bank redeemed the entire $50.0 million of
its outstanding Subordinated Notes. Interest expense on the Subordinated Notes
was $4.9 million for the year ended December 31, 2002 and $5.3 million for
2001. On August 28, 1997, the Company issued $100.0 million in Subordinated
Notes registered under the Securities Act of 1933, as amended. The
Subordinated Notes were unsecured obligations of the Company and were
subordinated in right of payment to all existing and future senior
indebtedness, as defined, of the Company. The Subordinated Notes were to
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 had 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 America First Eureka Holdings, Inc. which we acquired in January 1998. On
November 29, 2002, the Company prepaid the entire $100.0 million of its
outstanding Subordinated Notes at a premium of 4.563%. Interest expense on the
Subordinated Notes was $8.6 million for the year ended December 31, 2002 and
$9.6 million for 2001. 77




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Note 13. Capital Securities On December 21, 1998, we issued $90.0 million in Capital Securities
through Bay View Capital I (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. 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 (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. We fully and unconditionally guarantee the
obligations of the Trust with respect to the Capital Securities to the extent
provided in the Guarantee Agreement. We
used a portion of the proceeds to repay our $50.0 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%. Prior to the
dissolution of the Bank, the Capital Securities had the added benefit of
qualifying as Tier 1 capital for regulatory capital purposes. See
Note 2, under Accounting Changes and Recent Accounting
Pronouncements. In September of 2000, we entered into an agreement with the FRB which
required that we obtain their approval prior to disbursing any dividends
associated with our Capital Securities. Beginning with the third
quarter of 2000, we began deferring distributions of the quarterly dividends in
accordance with the terms of the Capital Securities. During this deferral
period, distributions to which holders are entitled continued to accrue at an
annual rate of 9.76% of the liquidation amount of $25 per Capital Security,
plus accumulated additional distributions at the same rate, compounded
quarterly, on any unpaid distributions (to the extent permitted by law). In December of 2002, we received approval from the FRB to pay the
cumulative distributions on our Capital Securities. On December 31, 2002, we
paid the cumulative deferred distributions, interest on the deferred
distributions and the current quarterly distribution. The total amount paid
per share as of December 31, 2002 was $6.10 for the 10 quarterly distributions
plus $0.715 in accrued interest. Subsequent quarterly distributions remained
subject to FRB approval until the dissolution of the Bank as of September 2003.
As a result of the Banks dissolution, we ceased to be a bank holding company
and are no longer subject to supervision, examination and regulation by the
FRB. Dividend expense on the Capital Securities was $8.8 million for the year
ended December 31, 2003, $10.6 million for 2002 and $9.8 million for 2001.
Effective July 1, 2003, we adopted Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity.  Implementation of Statement No. 150 resulted in
the reclassification of our Capital Securities from their prior classification
as a mezzanine item to liabilities and required us to reflect the dividend
expense on the Capital Securities as interest on borrowings. At a meeting held on October 3, 2002, holders of the Capital Securities of
Bay View Capital I approved a waiver of those provisions of the legal
instruments governing the Capital Securities and the Companys 9.76%
Junior Subordinated Deferrable Interest Debentures that would, absent the
waiver, prevent the Company from disposing of all of its assets pursuant
to its Plan. Capital Securities holders also approved the amendment of
certain provisions of the legal instruments governing the Capital
Securities and the Junior Debentures that would allow early redemption of
the Capital Securities at the option of each holder of the Capital
Securities. During the third quarter of 2003, we completed an offer of
optional redemption of the Bay View Capital I Trust, 9.76% Cumulative
Capital Securities at a price of $25 per Capital Security plus accrued and
unpaid distributions through the date of redemption. Holders of the
Capital Securities elected to redeem 184,903 shares, or approximately
5.14% of the outstanding Capital Securities, under the offer that expired
on September 8, 2003. Additionally, on December 31, 2003, we redeemed
$63.5 million, or approximately 74%, of the outstanding Capital
Securities. These redemptions reduced the outstanding Capital Securities
from $90.0 million at December 31, 2002 to $22.0 million at December 31,
2003. 78




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##### Table of Contents



Note 14. Income Taxes The following table illustrates our consolidated income tax benefit for
the periods indicated: For the Year Ended
December 31, 2003Federal
    
    State
    
    Total(Dollars in thousands)Current provision
    
    $
    566
    
    
    $
    (7,111
    )
    
    $
    (6,545
    )Deferred provision
    
    
    (1,483
    )
    
    
    1,592
    
    
    
    109Total income tax benefit
    
    $
    (917
    )
    
    $
    (5,519
    )
    
    $
    (6,436
    )
 For the Year Ended December 31, 2002(Dollars in thousands)Current provision
    
    $
    
    
    
    $
    15,579
    
    
    $
    15,579Deferred provision
    
    
    147,926
    
    
    
    11,099
    
    
    
    159,025Total income tax expense
    
    $
    147,926
    
    
    $
    26,678
    
    
    $
    174,604
 For the Year Ended December 31, 2001(Dollars in thousands)Current provision
    
    $
    
    
    
    $
    1,130
    
    
    $
    1,130Deferred provision
    
    
    (68,118
    )
    
    
    (18,878
    )
    
    
    (86,996
    )Total income tax benefit
    
    $
    (68,118
    )
    
    $
    (17,748
    )
    
    $
    (85,866
    )
 The following table illustrates the reconciliation between the federal
statutory income tax rate and the effective income tax rate for the periods
indicated. The table reflects the inclusion of dividends on Capital Securities
in the determination of income (loss) before income tax expense (benefit): For the Year Ended December 31,2003
    
    2002
    
    2001Federal statutory income tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Amortization and disposition of nondeductible goodwill
    
    
    
    
    
    
    15.2
    
    
    
    (1.6
    )Valuation allowance
    
    
    
    
    
    
    8.9
    
    
    
    13.9State income, net of federal tax benefit
    
    
    39.2
    
    
    
    11.0
    
    
    
    7.0Sale of BVFMAC
    
    
    
    
    
    
    
    
    
    
    (4.3
    )Nondeductible compensation
    
    
    (16.3
    )
    
    
    2.0
    
    
    
    Expiration of tax operating loss carryforward
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Other, net
    
    
    (1.7
    )
    
    
    
    
    
    
    (2.5
    )Effective income tax rate
    
    
    56.2
    %
    
    
    72.1
    %
    
    
    45.9
    %
 Stockholders equity or net assets in liquidation were credited with a tax
benefit associated with the exercise of stock options of $0 for the year ended
December 31, 2003, $194,000 for 2002, and $0 for 2001. Stockholders equity or
net assets in liquidation were charged a tax associated with certain
adjustments recorded to convert from the liquidation basis to the going concern
basis of accounting (as described in Note 1), of $618 thousand for the year
ended December 31, 2003. 79




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##### Table of Contents



The following table illustrates the components of net deferred tax assets
as of the dates indicated: At December 31,2003
    
    2002(Dollars in thousands)Deferred tax assets:Net operating loss carryforwards
    
    $
    52,721
    
    
    $
    13,834Auto lease receivable financing
    
    
    6,297
    
    
    
    21,689Provision for losses on loans and leases
    
    
    1,813
    
    
    
    18,902Mark-to-market adjustments, net
    
    
    6,878
    
    
    
    4,317Other accrued expenses not deducted for tax purposes
    
    
    6,124
    
    
    
    6,694Alternative minimum tax credit carryforwards
    
    
    3,917
    
    
    
    3,603Securitizations
    
    
    
    
    
    
    7,684Other
    
    
    671
    
    
    
    1,150Gross deferred tax assets
    
    
    78,421
    
    
    
    77,873Valuation allowance
    
    
    21,495
    
    
    
    21,495Net deferred tax asset
    
    
    56,926
    
    
    
    56,378Deferred tax liabilities:Tax depreciation in excess of book depreciation
    
    
    (21,757
    )
    
    
    (38,662
    )Deferred gain on disposition of BVAC
    
    
    
    
    
    
    (10,190
    )Federal Home Loan Bank of San Francisco stock
dividends
    
    
    
    
    
    
    (1,374
    )Securitizations
    
    
    (19,019
    )
    
    
    Real estate partnership investments
    
    
    (25
    )
    
    
    (218
    )Gross deferred tax liabilities
    
    
    (40,801
    )
    
    
    (50,444
    )Net deferred tax asset
    
    $
    16,125
    
    
    $
    5,934
 The valuation allowance on deferred tax assets, which was $21.5 million as
of December 31, 2002, was unchanged as of December 31, 2003. In the
determination of deferred tax assets, net of the valuation allowance, the
Company considered the projected future net income available to absorb the
realization of deferred tax assets. Under the Companys prior plan of
complete liquidation, the determination of deferred tax assets was limited to
consideration of projected future net income through September 30, 2005, which
was the projected final liquidation date of the Company. The change in the
Companys net deferred tax assets includes a reduction of deferred tax
liability of approximately $10.2 million that had been established on the
premium for the projected disposition of BVAC. With the elimination of the
deferred tax liability on the BVAC premium and consideration of future income
beyond September 30, 2005, the net deferred tax assets increased from $5.9
million at December 31, 2002 to $16.1 million at December 31, 2003. The
Company recorded an income tax benefit of $6.4 million for the year
ended December 31, 2003, as compared to an income tax provision of $176.9
million for 2002, and a benefit of $85.9 million for 2001. The Companys
effective tax rate was 56.2% for 2003 as compared to 72.1% for 2002 and 45.9%
for 2001. The Companys 2003 effective rate differs from the 35.0% federal
statutory tax rate primarily due to nondeductible compensation and reduced
levels of state income and franchise taxes. For the year ended December 31, 2002, as a result of the Companys Plan,
income tax expense included the effect of establishing a valuation allowance of
$21.5 million on the realizability of deferred tax assets in years after 2002.
The realizability of deferred tax assets and the related valuation allowance
were based on total projected future income through the final liquidation of
the Company. During 2002, the Company also recorded a deferred tax benefit of
$2.3 million on the cumulative effect of the change in accounting principle,
which is presented net of this tax benefit. During 2002, the Company realized
approximately $138.0 million of its net deferred tax assets primarily as a
result of the Companys sale of its retail banking assets to U.S. Bank and
other asset sale transactions. During 2001, the Company executed certain transactions that resulted in
significant amounts of taxable income. These transactions included the sale of
the BVFMAC legal entity which generated significant taxable income related to
previously deferred gains in the franchise securitization trusts. The Company
also executed a financing secured by 80




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##### Table of Contents



the contractual cash flows of our auto operating lease portfolio that was
treated as a sale for income tax purposes and generated $136.5 million in
taxable income. Primarily as a result of these transactions, the Company
generated sufficient taxable income during the year to be able to utilize the
majority of its approximately $48.6 million of net operating loss carryforwards
expiring in 2001. In addition, the Company identified tax-planning strategies
which included the sale of certain assets obtained in connection with a
previous purchase business combination with significant built-in gains for tax
purposes which would be triggered in the event of a sale. Such a transaction
would not only generate significant levels of taxable income, but would also
increase the limitation on the utilization of the net operating loss
carryforward acquired in connection with a previous purchase business
combination. As a result, the Company eliminated the $26.0 million valuation
allowance against its gross deferred tax assets during 2001. At December 31, 2003, the federal net operating loss carryforwards were
$139.4 million, of which $95.2 million will expire in 2020 and $44.2 million
will expire in 2023. The Company has federal alternative minimum tax credits
of $3.9 million. These credits can be carried forward indefinitely to reduce
future regular tax. Effective for the 2002 and 2003 tax years, California tax law suspended
deductions for net operating loss carryforwards. As a result, the 2002 current
state tax provision has no utilization of California net operating loss
carryforwards, and, for 2003, the Company generated an additional California
net operating loss. At December 31, 2003, the California net operating loss
carryforwards were $66.7 million, of which $4.3 million will expire in 2004,
$2.2 million will expire in 2005, $42.9 million will expire in 2007, and $17.3
million will expire in 2008. Note 15. Stock Options As of December 31, 2003, we had five employee stock option plans and three
non-employee director stock option plans. The employee stock option plans were
as follows: the Amended and Restated 1986 Stock Option and Incentive Plan,
the Amended and Restated 1995 Stock Option and Incentive Plan, the 1998-2000
Performance Stock Plan (the 2001 Plan), the 1999 FMAC Stock Option,
Deferred Stock and Restricted Stock Plan, and the 2001 Stock Option and
Incentive Plan, which authorize the issuance of 175,943, 250,000, 40,000,
27,058 and 320,000 shares of common stock, respectively. The non-employee
director stock option plans were as follows: the Amended and Restated 1989
Non-Employee Director Stock Option and Incentive Plan, the 1998 Non-Employee
Director Stock Option and Incentive Plan, and the 2001 Non-Employee Director
Stock Option Plan, which authorize the issuance of up to 55,000, 20,000, and
50,000 shares of common stock, respectively. Excluding options for 347,700
shares granted in 2001 which were issued with exercise prices below the then
current market value, 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. Options
generally vest over periods ranging from 6 months to 3 years and expire over
periods ranging from 6 years to 13 years. Our stock options generally cancel automatically 90 days after termination
of employment and, notwithstanding any other provisions of our stock option
plans, all outstanding stock options will automatically cancel on the final
record date. A substantial number of our employees have terminated their
employment with us to become employees of U.S. Bank and a number of other
employees have been terminated or will be terminated as we continue to
liquidate assets. To prevent our terminated employees from losing the value in
their stock options as a result of the termination of their employment and to
motivate our remaining employees throughout the dissolution process, our Board
of Directors amended our stock option plans, to the extent necessary, to permit
the exercise of the options on a net issuance basis. This right entitled the
holder to elect to receive from us, in exchange for the shares subject to the
stock option, that number of shares of our common stock that has a value equal
to the total amount by which the market price of the shares on the date the
option is exercised exceeds the total exercise price of the shares subject to
the option. All of our stock option plans define a change in control as including a
sale of all or substantially all of our assets, and all of our stock option
plans provide for the automatic acceleration of the exercisability of stock
options in the event of a change in control with the exception of our 2001
Plan. The 2001 Plan provides for the acceleration of the exercisability of
stock options in such circumstances as the stock option committee of our Board
of Directors determines to be appropriate. On August 6, 2002, our stock option
committee determined that the consummation of the sale of the Banks retail
banking assets constitutes a change in control for purposes of the 2001 Plan
and recommended to the Board of Directors the acceleration of the
exercisability of the stock options under the 2001 Plan in order that all of
our option holders would be treated equally. On October 3, 2002, the Board of
Directors authorized such acceleration as of that date. Subsequently, the
stock option plans were treated as variable plans based on APB 25. As of
December 31, 2002, the acceleration of the exercisability of stock options
resulting from the change in control for all other plans had an insignificant
impact on our financial statements. During 2001, we recognized a total of $5.2 million in expenses related to
the issuance of 347,700 of stock options with below market exercise prices.
During the quarter ended September 30, 2002, we amortized the remaining balance
of $2.0 million of the deferred expense related to the issuance of stock
options with below market strike prices as part of our liquidation basis
valuation adjustments. 81




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##### Table of Contents



The following table illustrates the stock options available for grant as
of December 31, 2003: Non-EmployeeDirector StockEmployee Stock Option
    
    Option andand Incentive Plans
    
    Incentive Plans
    
    TotalShares reserved for issuance
    
    
    813,001
    
    
    
    125,000
    
    
    
    938,001Granted
    
    
    (923,989
    )
    
    
    (113,700
    )
    
    
    (1,037,689
    )Forfeited
    
    
    362,873
    
    
    
    25,500
    
    
    
    388,373Expired
    
    
    (48,669
    )
    
    
    (18,600
    )
    
    
    (67,269
    )Total available for grant
    
    
    203,216
    
    
    
    18,200
    
    
    
    221,416
 At December 31, 2003, we had outstanding options under the plans with
expiration dates ranging from the year 2004 through 2014, as illustrated in the
following table: Number of
    
    Exercise Price
    
    Weighted-AverageOption Shares
    
    Range
    
    Exercise PriceOutstanding at January 1, 2001
    
    
    282,149
    
    
    $
    54.10-344.10
    
    
    $
    154.30Granted
    
    
    374,400
    
    
    
    45.90-77.00
    
    
    
    47.80Exercised
    
    
    (2,033
    )
    
    
    45.90
    
    
    
    45.90Forfeited
    
    
    (26,736
    )
    
    
    54.10-344.10
    
    
    
    132.10Outstanding at December 31, 2001
    
    
    627,780
    
    
    $
    45.90-344.10
    
    
    $
    92.10Granted
    
    
    3,800
    
    
    
    66.40-68.40
    
    
    
    68.20Exercised
    
    
    (35,025
    )
    
    
    45.90-54.10
    
    
    
    46.90Forfeited
    
    
    (76,445
    )
    
    
    45.90-344.10
    
    
    
    139.80Outstanding at December 31, 2002
    
    
    520,110
    
    
    $
    45.90-344.10
    
    
    $
    88.00Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (330,783
    )
    
    
    45.90-54.10
    
    
    
    46.40Forfeited
    
    
    (102,597
    )
    
    
    54.10-316.30
    
    
    
    152.80Outstanding at December 31, 2003
    
    
    86,730
    
    
    $
    68.40-344.10
    
    
    $
    169.10Exercisable at December 31, 2001
    
    
    354,633
    
    
    $
    45.90-344.10
    
    
    $
    120.10Exercisable at December 31, 2002
    
    
    520,110
    
    
    $
    45.90-344.10
    
    
    $
    88.00Exercisable at December 31, 2003
    
    
    86,730
    
    
    $
    68.40-344.10
    
    
    $
    169.10
 82




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##### Table of Contents



The following table illustrates information about stock options
outstanding at December 31, 2003: OutstandingWeighted-Average
    
    
    
    
    
    ExercisableRange of
    
    Number of Options
    
    Remaining Life
    
    Weighted-Average
    
    Number of Options
    
    Weighted-AverageExercise Prices
    
    Outstanding
    

(in years)
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$      68.40-75.30
    
    
    11,550
    
    
    
    8.45
    
    
    $
    72.60
    
    
    
    11,550
    
    
    $
    72.6078.40-91.30
    
    
    11,100
    
    
    
    6.47
    
    
    
    87.00
    
    
    
    11,100
    
    
    
    87.0093.80-125.00
    
    
    9,130
    
    
    
    2.74
    
    
    
    106.80
    
    
    
    9,130
    
    
    
    106.80134.70-165.60
    
    
    12,400
    
    
    
    4.19
    
    
    
    147.30
    
    
    
    12,400
    
    
    
    147.30170.00-170.00
    
    
    700
    
    
    
    2.48
    
    
    
    170.00
    
    
    
    700
    
    
    
    170.00179.40-179.40
    
    
    10,350
    
    
    
    4.81
    
    
    
    179.40
    
    
    
    10,350
    
    
    
    179.40183.80-241.30
    
    
    11,650
    
    
    
    3.99
    
    
    
    203.70
    
    
    
    11,650
    
    
    
    203.70255.00-284.40
    
    
    9,550
    
    
    
    3.24
    
    
    
    262.90
    
    
    
    9,550
    
    
    
    262.90299.10-316.90
    
    
    9,550
    
    
    
    4.24
    
    
    
    310.10
    
    
    
    9,550
    
    
    
    310.10326.90-344.10
    
    
    750
    
    
    
    4.08
    
    
    
    332.60
    
    
    
    750
    
    
    
    332.60$   68.40-344.10
    
    
    86,730
    
    
    
    4.83
    
    
    $
    169.20
    
    
    
    86,730
    
    
    $
    169.20
 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. No compensation cost has been
recognized for our stock option awards to employees and directors in 2003, 2002
and 2001, except as discussed above. The weighted-average fair value of
options granted to employees and directors were $23.10 and $38.50 in 2002 and
2001, respectively. There were no options granted during 2003. See Note 2 for
a pro forma presentation of our net income (loss) and earnings (loss) per share
had compensation cost related to our stock option awards been determined under
the fair value method. 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 31,2003
    
    2002
    
    2001Dividend yield
    
    
    
    %
    
    
    
    %
    
    
    
    %Expected volatility of our common stock
    
    
    41
    %
    
    
    37
    %
    
    
    36
    %Expected
risk-free interest rate (1)
    
    
    2.30
    %
    
    
    2.73
    %
    
    
    4.30
    %Expected life of options in years
    
    
    3.59
    
    
    
    4.60
    
    
    
    4.84
  (1)
    
    The expected risk-free interest rate was calculated using a term
commensurate with the expected life of the options. 83




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Note 16. Employee Benefit Plans On July 22, 2002, our Board of Directors approved the termination,
effective as of September 30, 2002 and subject to regulatory approval, of the
qualified, noncontributory defined benefit retirement plan (the Eureka Plan)
that we assumed in our acquisition of America First Eureka Holdings. The
Eureka Plan was in a frozen status and no additional benefits had been accrued
since January 1, 1994. In November 2003, we received a favorable determination
from the Internal Revenue Service to proceed with the termination. As of
December 31, 2003, we accrued $0.9 million related to our liabilities to the
Eureka Plan and the costs associated with the termination. As of December 31,
2003, the plan assets approximated $1.5 million. In January 2004, and as part
of the termination process, we purchased an annuity at a cost of $2.4 million
from a third party annuity provider to provide benefits for all remaining
Eureka Plan participants. The termination process is in compliance with the
relevant regulations of the Department of Labor. The following tables set forth the funded status of the Eureka Plan and
related net periodic benefits cost for the years prior to the termination: For the YearEndedDecember 31,2002(Dollars inthousands)Projected benefit obligation at beginning of year
    
    $
    5,201Interest cost
    
    
    359Actuarial loss
    
    
    1,440Benefits paid
    
    
    (3,148
    )Projected benefit obligation at end of year
    
    $
    3,852Plan assets at beginning of year
    
    $
    4,430Actual return on plan assets
    
    
    (292
    )Employer contribution
    
    
    2,140Benefits paid
    
    
    (3,148
    )Plan assets at end of year
    
    $
    3,130
 As ofDecember 31,2002(Dollars inthousands)Fair value of plan assets
    
    $
    3,130Projected benefit obligation
    
    
    3,852Plan assets less than projected benefit obligation
    
    
    (722
    )Unrecognized loss from past experience different than originally
assumed and from effects of changes in assumptions
    
    
    1,540Recognition of previously unrecognized loss upon termination
of the plan
    
    
    (1,540
    )Total accrued benefit liability
    
    $
    (722
    )Weighted-average discount rate
    
    
    5.00
    %Expected long-term rate of return on assets
    
    
    1.50
    %
 84




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For the Year EndedDecember 31,2002
    
    2001(Dollars in thousands)Interest cost on projected benefit obligation
    
    $
    358
    
    
    $
    388Assumed return on plan assets
    
    
    (337
    )
    
    
    (417
    )Net periodic pension benefit
    
    $
    21
    
    
    $
    (29
    )
 As of December 31, 2003, we had 34,432 shares of our common stock held in
treasury under our non-qualified defined benefit retirement plan for
non-employee members of our Board of Directors. These shares were previously
repurchased in the open market at a cost of $587,000 to be distributed to certain non-employee members of our Board of Directors. As of
December 31, 2003, we had $689,000 included in other liabilities for the remaining
benefits owed to certain current and retired executive officers pursuant to a
terminated non-qualified supplemental retirement and health care benefits for
executive officers. As of December 31, 2003, we accrued $1.6 million in other
liabilities for postretirement health care benefits owed to certain retired
employees, officers and directors. Effective October 31, 2002, our Board of Directors approved the
termination of our Employee Stock Ownership Plan (ESOP). All participants
were fully vested as of October 1, 2002. Before the termination, we borrowed
from a financial institution and in turn lent it to the ESOP to purchase shares
of our common stock in the open market. As of December 2002, the ESOP debt was
fully paid. Interest expense of the ESOP debt amounted to $7,000 and $72,000
for the years ended December 31, 2002 and 2001, respectively. The ESOP held
36,144 shares and 36,182 shares of our common stock at December 31, 2003 and
2002, respectively. Prior to the termination, we made periodic contributions
to the ESOP 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 cash contributions to the ESOP
of $1.1 million and $1.3 million for the years ended December 31, 2002 and
2001, respectively. All shares of common stock held by the ESOP are treated
as outstanding shares in calculating both our basic and diluted earnings per
share. We recorded ESOP-related compensation expense of $0.5 million and $1.2
million for the years ended December 31, 2002 and 2001, respectively. 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
$0.4 million, $1.9 million and $2.6 million for the years ended December 31,
2003, 2002 and 2001, respectively. 85




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Note 17. Risk Management Instruments We use risk management instruments to modify interest rate characteristics
of certain assets or liabilities to hedge against our exposure to interest rate
fluctuations, reducing the effects these fluctuations might have on associated
cash flows or values. These risk management instruments, also referred to as
derivative instruments include interest rate exchange agreements
(swaps) and
interest rate option contracts (caps). 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. As a result of our re-adoption of the going concern basis of accounting
effective October 1, 2003 and the use of accounting prescribed by Statement No.
133 as discussed in Note 2, our derivative instruments are being carried at
fair value, with changes in such fair value charged or credited to earnings. Prior to our re-adoption of the going concern basis of accounting, we
accounted for changes in the market value of derivative instruments using the
liquidation basis of accounting. Accordingly, changes in the market value of
these derivative instruments were reflected in our consolidated statements of
net assets in liquidation under pre-tax loss from operations, while offsetting
changes in the market value of underlying installment contracts were included
in changes in estimated values of assets and liabilities. Swaps We were a party to swaps with a notional principal amount of $133.0
million at December 31, 2003. All of our swaps are common fixed-for-floating
swaps. We pay a fixed interest rate of 2.29% and receive a floating interest
rate of 1.18%. These contracts mature in September 2004 and September 2006.
We did not enter into swap agreements during 2002. The effect of interest rate
swaps was to increase interest expense by $349,000 for the year ended December
31, 2003. In addition, we recognized losses of $1.6 million during 2003 to
record our swaps at their fair value as required by Statement No. 133. Interest Rate Caps At December 31, 2002, we had interest rate caps with notional amounts
totaling $100.0 million. Our interest rate caps had cap rates at 7.00% and a
cap index based on the one- or the three-month LIBOR rate. These interest rate
caps were used to limit our exposure to rising interest rates on our
liabilities. Our interest rate caps expired during 2003. There was no
interest expense related to our interest rate caps during 2003, 2002 and 2001.
These caps were reported at their fair value of $0 at December 31, 2002.
Changes in fair value of our interest rate caps were reported as gains or
losses and were charged to earnings when incurred. Note 18. Commitments and Contingencies Premises At December 31, 2003, we occupied three offices including our
administrative corporate office and had an additional eleven offices that we
have vacated, and are subleasing under operating lease agreements expiring at
various dates through the year 2012. In most instances, these lease
arrangements include options to renew or extend the lease at market rates. We
also own leasehold improvements, furniture and equipment at our offices, all of
which are used in our business activities. We are a party to lease agreements for five former BVFMAC offices, all of
which were subleased at December 31, 2003. Rental expense was $1.2 million for
the year ended December 31, 2003, $9.1 million for 2002 and $10.7 million for
2001. Sublease rental income totaled $186,000 for the year ended December 31,
2003, $567,000 for 2002 and $490,000 for 2001. 86




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Future minimum payments under noncancellable lease obligations are
summarized below. These payments have not been reduced to reflect
approximately $3.5 million in sublease rental income from existing sublease
rental arrangements through the year 2008. Operating LeasePayments(Dollars in thousands)2004
    
    $
    3,2822005
    
    
    2,8972006
    
    
    2,4982007
    
    
    2,5342008
    
    
    2,253Thereafter
    
    
    6,538$
    20,002
 Included in the table above are future minimum lease payments of $16.8
million related to our liquidating activities. At December 31, 2003, we
accrued $6.4 million for future rent payments net of estimated sublease income
as facilities costs as described in Note 2. Loans At
December 31, 2003, we had no outstanding lending commitments. However, we had a contingent liability of $14.4 million related
to a credit enhancement that the Bank provided on bonds issued by a community housing development in Northern California, for
which we had pledged cash of a corresponding amount. At December 31, 2002, we had outstanding
commitments to originate $76.6 million in commercial loans and letters of
credit and $3.1 million in construction loans. There were no outstanding
recourse and subordination contingencies at December 31, 2003. We had
outstanding recourse and subordination contingencies relating to $15.6 million
of securitized and/or sold loans at December 31, 2002 (See Note 7). Litigation We are involved as plaintiff or defendant in various other legal actions
and are occasionally exposed to unasserted claims arising in the normal course
of business. In the opinion of management, after consultation with counsel,
the resolution of these other legal actions will not have a material adverse
effect on our consolidated financial condition or results of operations. 87




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Note 19. 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. At December 31, 2003, we determined the estimated fair value amounts by
using market information and valuation methodologies that we considered
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
or have realized 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, their underlying value. The following methods and assumptions have been used to estimate the fair
value of each class of financial instrument for which it was practicable to
estimate the value: Cash and cash equivalents: This category includes cash and deposits due
from depository institutions and money market funds. The cash equivalents were
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 was a reasonable estimate of fair
value. Securities: The fair values of investment securities and mortgage-backed
securities were based on published market prices or quotes obtained from
independent registered securities brokers. The fair values of retained
interests in loan and lease securitizations were 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 was
based on prices for similar loans 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 were based on historical experience and published data for
similar loans. Debt and other borrowings: Rates available to us for debt and other
borrowings with similar terms and remaining maturities were used to estimate
the fair value of existing debt, including our other borrowings and the Junior
Subordinated Deferrable Interest Debentures. For short-term borrowings, the
carrying amount was a reasonable estimate of fair value. Interest rate swaps: The fair value of 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. 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 was meaningful or practicable to provide an
estimate of fair value. 88




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Limitations: The fair value estimates presented herein were based on
pertinent information available to us as of December 31, 2003. 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. At
December 31, 2002, all of our financial instruments were carried at
net realizable value on our consolidated financial statements in accordance
with liquidation basis accounting. As such, all financial instruments are
carried at fair value at December 31, 2002. The following table illustrates the estimated fair values of our
financial instruments as of the date indicated: At December 31, 2003CarryingAmount
    
    EstimatedFair Value(Dollars in thousands)Financial assets:Cash and cash equivalents
    
    $
    43,803
    
    
    $
    43,803Investment securities
    
    
    28,836
    
    
    
    28,836Mortgage-backed securities
    
    
    5,982
    
    
    
    5,893Loans
    
    
    177,948
    
    
    
    179,287Financial liabilities:Other borrowings
    
    
    154,276
    
    
    
    154,276Junior Subordinated Deferrable Interest Debentures
    
    
    24,784
    
    
    
    24,784Interest rate swaps
    
    
    1,624
    
    
    
    1,624
 89




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Note 20. Segment and Related Information We
consider our auto finance business to be our sole line of business
subsequent to our adoption of the Plan on September 30, 2002.
Prior to September 30, 2002, we had two operating segments that we refer to as
business platforms. The platforms were determined primarily based upon the
characteristics of our interest-earning assets and their respective
distribution channels and reflect the way that we monitor, measure and evaluate
our primary business activities. Our platforms were as follows: A Retail Platform which was comprised of single-family real estate loans,
home equity loans and lines of credit, auto installment contracts and leases,
mortgage-backed securities and other investments, and consumer banking products
and services. The Retail Platforms revenues were derived from customers
throughout the United States. A Commercial Platform which was comprised of multi-family and commercial
real estate loans, franchise loans, franchise asset-backed securities,
asset-based loans, syndicated loans, factored receivables and commercial
leases, and business banking products and services. The Commercial Platforms
revenues were derived from customers throughout the United States. Each of our business platforms contributed to our overall operations. We
evaluated 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
expense allocations, and other noninterest expense, including the amortization
of intangible assets. In computing net interest income by platform, the interest expense
associated with our warehouse lines, which were used primarily to fund
franchise loans held-for-sale, was allocated directly to the Commercial
Platform. The interest expense associated with our remaining funding sources,
including dividends associated with our 9.76% Capital Securities, was allocated
to each platform on a pro-rata basis determined by the relative amount of
average interest-bearing liabilities, excluding warehouse lines, that were
required to fund the platforms interest-earning assets. The Retail Platform incurred the direct general and administrative
expenses related to operating our branch network, which served primarily to
generate deposits used to fund interest-earning assets in the Retail and
Commercial Platforms. A portion of these direct general and administrative
expenses was allocated to the Commercial Platform based upon the relative
amount of average interest-bearing liabilities that were required to fund the
platforms interest-earning assets. All indirect general and administrative expenses not specifically
identifiable with, or allocable to, our business platforms were included in
indirect corporate overhead. Indirect corporate overhead included expenses
associated with our administrative and support functions. Liquidation adjustments recorded during the third quarter of 2002 in
connection with our adoption of liquidation basis accounting effective
September 30, 2002 were not allocated to our business platforms. 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 (loss) for the periods
indicated. Reconciling items generally include indirect corporate overhead,
liquidation and valuation adjustments for 2002 and income taxes. 90




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For the Nine Months Ended September 30, 2002Retail
    
    Commercial
    
    Total(Dollars in thousands)Interest income
    
    $
    69,054
    
    
    $
    76,185
    
    
    $
    145,239Interest expense
    
    
    (40,182
    )
    
    
    (19,886
    )
    
    
    (60,068
    )Provision for losses on loans and leases
    
    
    (2,106
    )
    
    
    (8,594
    )
    
    
    (10,700
    )Noninterest income
    
    
    78,775
    
    
    
    12,790
    
    
    
    91,565Direct general and administrative expenses
    
    
    (68,712
    )
    
    
    (7,813
    )
    
    
    (76,525
    )Allocation of branch network general and administrative expenses
    
    
    18,466
    
    
    
    (18,466
    )
    
    
    Litigation settlement expense
    
    
    
    
    
    
    (13,100
    )
    
    
    (13,100
    )Leasing expenses
    
    
    (43,984
    )
    
    
    
    
    
    
    (43,984
    )Real estate owned operations, net
    
    
    
    
    
    
    (956
    )
    
    
    (956
    )Provision for losses on real estate owned
    
    
    
    
    
    
    (266
    )
    
    
    (266
    )Amortization of intangible assets
    
    
    (993
    )
    
    
    
    
    
    
    (993
    )Dividends on Capital Securities
    
    
    (4,809
    )
    
    
    (3,064
    )
    
    
    (7,873
    )Contribution by platform
    
    $
    5,509
    
    
    $
    16,830
    
    
    
    22,339Indirect corporate overhead
    
    
    
    
    
    
    
    
    
    
    (16,476
    )Adjustment for liquidation basis
    
    
    
    
    
    
    
    
    
    
    266,510Income tax expense
    
    
    
    
    
    
    
    
    
    
    (181,792
    )Cumulative effect of change in accounting principle, net of taxes
    
    
    
    
    
    
    
    
    
    
    (18,920
    )Net income
    
    
    
    
    
    
    
    
    
    $
    71,661At September 30, 2002:Interest-earning assets plus operating lease assets
    
    $
    3,277,407
    
    
    $
    358,258
    
    
    $
    3,635,665Noninterest-earning assets
    
    
    
    
    
    
    
    
    
    
    260,808Total assets
    
    
    
    
    
    
    
    
    
    $
    3,896,473
 For the Year Ended December 31, 2001Retail
    
    Commercial
    
    Total(Dollars in thousands)Interest income
    
    $
    139,115
    
    
    $
    163,630
    
    
    $
    302,745Interest expense
    
    
    (108,176
    )
    
    
    (72,321
    )
    
    
    (180,497
    )Provision for losses on loans and leases
    
    
    (8,419
    )
    
    
    (63,471
    )
    
    
    (71,890
    )Noninterest income (loss)
    
    
    114,575
    
    
    
    (7,406
    )
    
    
    107,169Direct general and administrative expenses
    
    
    (104,033
    )
    
    
    (22,988
    )
    
    
    (127,021
    )Allocation of branch network general and administrative expenses
    
    
    28,386
    
    
    
    (28,386
    )
    
    
    Restructuring charges
    
    
    (4,998
    )
    
    
    (1,937
    )
    
    
    (6,935
    )Revaluation of franchise-related assets
    
    
    (2,733
    )
    
    
    (67,413
    )
    
    
    (70,146
    )Leasing expenses
    
    
    (86,120
    )
    
    
    
    
    
    
    (86,120
    )Real estate owned operations, net
    
    
    (7
    )
    
    
    (2,078
    )
    
    
    (2,085
    )Provision for losses on real estate owned
    
    
    
    
    
    
    (2,936
    )
    
    
    (2,936
    )Amortization of intangible assets
    
    
    (8,366
    )
    
    
    (2,914
    )
    
    
    (11,280
    )Dividends on Capital Securities
    
    
    (5,774
    )
    
    
    (4,000
    )
    
    
    (9,774
    )Contribution by platform
    
    $
    (46,550
    )
    
    $
    (112,220
    )
    
    
    (158,770
    )Indirect corporate overhead
    
    
    
    
    
    
    
    
    
    
    (28,266
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    85,866Net loss
    
    
    
    
    
    
    
    
    
    $
    (101,170
    )At December 31, 2001:Interest-earning assets plus operating lease assets
    
    $
    1,793,499
    
    
    $
    1,541,310
    
    
    $
    3,334,809Noninterest-earning assets
    
    
    
    
    
    
    
    
    
    
    679,296Total assets
    
    
    
    
    
    
    
    
    
    $
    4,014,105
 91




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Note 21. Selected Quarterly Results of Operations (Unaudited) For the Year Ended December 31, 2003First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterGoingLiquidation Basis
    
    Concern Basis(Dollars in thousands, except per share amounts)Interest income
    
    $
    6,473
    
    
    $
    6,286
    
    
    $
    5,192
    
    
    $
    4,936Net interest income
    
    
    3,294
    
    
    
    3,783
    
    
    
    2,463
    
    
    
    1,324Loss before income tax benefit
    
    
    (836
    )
    
    
    (1,531
    )
    
    
    (2,228
    )
    
    
    (857
    )Adjustment for liquidation basis
    
    
    (1,664
    )
    
    
    (924
    )
    
    
    (3,407
    )
    
    
    Change in net assets in liquidation
from operations
    
    
    (1,698
    )
    
    
    (1,669
    )
    
    
    (971
    )
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (673
    )Basic loss per share
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    $
    (0.10
    )Diluted loss per share
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    $
    (0.10
    )
 For the Year Ended December 31, 2002First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterLiquidationGoing Concern Basis
    
    Basis(Dollars in thousands, except per share amounts)Interest income
    
    $
    53,693
    
    
    $
    52,483
    
    
    $
    39,063
    
    
    $
    17,247Net interest income
    
    
    33,144
    
    
    
    33,447
    
    
    
    18,580
    
    
    
    7,246Provision for losses on loans and leases
    
    
    4,900
    
    
    
    3,600
    
    
    
    2,200
    
    
    
    Income (loss) before income tax expense
(benefit)
    
    
    7,552
    
    
    
    (5,114
    )
    
    
    11,298
    
    
    
    (3,382
    )Adjustment for liquidation basis
    
    
    
    
    
    
    
    
    
    
    266,510
    
    
    
    (2,761
    )Net income (loss)
    
    
    6,914
    
    
    
    (4,082
    )
    
    
    87,749
    
    
    
    Change in net assets in liquidation
from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,999
    )Basic earnings (loss) per share
    
    $
    1.10
    
    
    $
    (0.65
    )
    
    
    N/A
    
    
    
    N/ADiluted earnings (loss) per share
    
    $
    1.10
    
    
    $
    (0.65
    )
    
    
    N/A
    
    
    
    N/A
 92




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REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors
Bay View Capital Corporation and Subsidiaries: We have audited the accompanying consolidated statement of financial
condition of Bay View Capital Corporation and Subsidiaries (the Company) as
of December 31, 2003 and the consolidated statement of net assets (liquidation
basis) as of December 31, 2002, and the related consolidated statements of
operations and comprehensive income (loss) and of stockholders equity for the
period from October 1, 2003 to December 31, 2003 and for the period from
January 1, 2002 to September 30, 2002, the consolidated statements of changes
in net assets in liquidation for the period from January 1, 2003
to September 30, 2003 and for the period from September 30, 2002 to December 31, 2002, and
the consolidated statements of cash flows for the years ended December 31, 2003
and 2002. These consolidated 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 audits. The consolidated
statements of operations and comprehensive loss, stockholders equity and cash
flows of the Company for the year ended December 31, 2001, before the revisions
in Note 9, were audited by other auditors who have ceased operations. Those
auditors expressed an unqualified opinion on those consolidated financial
statements in their report dated January 18, 2002. We
conducted our audits in accordance with standards of the Public
Company Accounting Oversight Board (United States). 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. As discussed in Note 1 to the consolidated financial statements, the
stockholders of the Company approved a plan of liquidation on October 3, 2002,
and the Company commenced liquidation effective September 30, 2002. As a
result, the Company changed its basis of accounting from the going concern
basis to the liquidation basis effective September 30, 2002. As further
discussed in Note 1 to the consolidated financial statements, the Board of
Directors of the Company approved a change of the plan of liquidation on
October 23, 2003. As a result, the Company changed its basis of accounting
from the liquidation basis to the going concern basis effective October 1,
2003. In our opinion, such consolidated financial statements present fairly, in
all material respects, (1) the financial position and the net assets
(liquidation basis) of the Bay View Capital Corporation and Subsidiaries at
December 31, 2003 and 2002, respectively, (2) the results of their operations
for the period from October 1, 2003 to December 31, 2003 and for the period
from January 1, 2002 to September 30, 2002, (3) the changes in their net assets
in liquidation for the period from January 1, 2003 to September 30, 2003 and
for the period from September 30, 2002 to December 31, 2002, and (4) their cash
flows for the years ended December 31, 2003 and 2002, in conformity with
accounting principles generally accepted in the United States of America. 93




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As
discussed in Note 2 to the consolidated financial statements, effective
January 1, 2002, the Company changed its method of accounting for previously
recognized goodwill and intangible assets to conform to Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets. As discussed above, the consolidated statements of operations and
comprehensive loss, stockholders equity and cash flows of the Company for the
year ended December 31, 2001 were audited by other auditors who have ceased
operations. As described in Note 2 and Note 9, these financial statements have
been revised to include the transitional disclosures required by Statement No.
142 which was adopted by the Company as of January 1, 2002. Our audit
procedures with respect to the disclosures in Note 9 with respect to 2001
included (i) agreeing the previously reported net income to the previously
issued consolidated financial statements and the adjustments to reported net
income representing amortization expense (including any related tax effects)
recognized in those periods related to goodwill as a result of initially
applying Statement No. 142 to the Companys underlying records obtained from
management, and (ii) testing the mathematical accuracy of the reconciliation of
adjusted net income to reported net income, and the related earnings per share
amounts. In our opinion, the disclosures for 2001 in Note 9 are appropriate.
However, we were not engaged to audit, review, or apply any procedures to the
2001 consolidated financial statements of the Company other than with respect
to such disclosures and, accordingly, we do not express an opinion or any other
form of assurance on the 2001 consolidated financial statements taken as a
whole. As discussed in Note 3 to the consolidated financial statements, the
accompanying 2003 consolidated financial statements have been restated.  /s/  Deloitte & Touche LLP San Francisco, California
March 12, 2004
(August 13, 2004 as to Note 3) 94




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The report of Arthur Andersen LLP presented below is a copy of a
previously issued Arthur Andersen LLP report. This report has not been
reissued by Arthur Andersen LLP nor has Arthur Andersen LLP provided a consent
to the inclusion of its report in this Form 10-K. The consolidated financial
statements as of December 31, 2001 and for the year then ended have been
revised to include the transitional disclosures required by Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(see Note 2 and Note 9). Report of Independent Public Accountants To the Board of Directors
Bay View Capital Corporation: We have audited the accompanying consolidated statement of financial
condition of Bay View Capital Corporation and subsidiaries (the Company) (a
Delaware Corporation) as of December 31, 2001 and the related consolidated
statement of operations and comprehensive income (loss), stockholders equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audit. The financial
statements of the Company as of December 31, 2000 and for the two years then
ended were audited by other auditors whose report dated February 14, 2001,
expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides a
reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bay View
Capital Corporation and subsidiaries as of December 31, 2001, and the results
of its operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP San Francisco, California
January 18, 2002 95




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 
 Item 9A. Controls and Procedures As we have previously reported, on July 22, 2004, Deloitte & Touche LLP advised
our Audit Committee and our management of a reportable condition that Deloitte &
Touche LLP considers a material weakness in our internal control relating to
financial reporting. The condition related to our incorrect amortization of
premiums paid, origination fees and direct costs of auto installment contracts
held for sale, which, under FASB Statement No. 91, should be deferred until the
contracts are sold. We were amortizing such deferred amount resulting in a
material misstatement in our consolidated financial statements as of and for the
three months ended December 31, 2003. Deloitte & Touche LLP attributed this
misstatement to insufficient qualified accounting personnel to identify and
resolve complex accounting issues and lack of appropriate resources resulting in
insufficient supervision and review of the financial reporting process. We have corrected our accounting for the aforementioned premiums paid,
origination fees and direct costs, and restated our consolidated financial statements as of and for the three months
ended December 31, 2003 (the Restatement). For
additional discussion of the Restatement and individual restatement adjustments,
see the Explanatory Note to this Amendment No. 1 to our Annual Report on Form
10-K for the fiscal year ended December 31, 2003, as originally filed with the
Securities and Exchange Commission on March 15, 2004 and Item 8. Financial
Statements and Supplementary DataNote 3. Restatement of Consolidated Financial
Statements as of and for the Three Months ended December 31, 2003. As of the end of the period covered by this Form 10-K/A, we carried out an
evaluation, under the supervision and with the participation of our principal
executive officer and principal financial officer, pursuant to Rule
13a-15
promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
Act), of the effectiveness of the design and operation of our disclosure
controls and procedures. In making the evaluation described above, we have
considered matters relating to the Restatement including the above described
reportable condition. Based upon this evaluation, our principal executive officer and principal
financial officer concluded that, except for the material weakness described
above, our disclosure controls and procedures are effective to ensure that
information required to be disclosed in our periodic reports filed or submitted
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange
Commissions rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed in
our reports filed under the Exchange Act is accumulated and communicated to
managements, including our principal executive officer and our principal
financial officer, to allow timely decisions regarding required disclosure.
There have been no changes in our internal controls over financial reporting
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting. Our principal executive officer and principal financial officer,
under the oversight of our Audit Committee, are developing a plan to correct the
material weakness. 
 Part III 
 Item 10. Directors and Executive Officers of the Registrant Information concerning our executive officers, our directors and
compliance with the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934 (the Exchange Act) by our directors, executive officers
and beneficial owners of 10% or greater 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 29, 2004. 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. We have adopted a Code of Ethical Conduct that applies to our directors,
executive officers, employees and others acting on our behalf, including our
principal executive officer, principal financial and accounting officer, and
any other person performing similar functions. A copy of the Code of
Ethical Conduct
is filed in this Report as Exhibit 14. 
 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 29, 2004. 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 and Related Stockholder Matters Information concerning security ownership of certain beneficial owners and
management and the Equity Compensation Plans table are incorporated herein by
reference from our Definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on April 29, 2004. 96




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##### Table of Contents



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 29, 2004. 
 Item 14. Principal Accountant Fees and Services Information concerning principal accounting fees and services is
incorporated herein by reference from our Definitive Proxy Statement for the
Annual Meeting of Stockholders scheduled to be held on April 29, 2004. 97




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Part IV Item 15. 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
    
    
    
    Reference to priorS-K
    
    
    
    filing or exhibitExhibit
    
    
    
    number attachedNumber
    
    Document
    
    hereto2
    
    Plan of acquisition, reorganization, arrangement, liquidation or succession
    
    None3
    
    Articles of Incorporation
    
    3aBylaws
    
    3.14
    
    Instruments defining the rights of security holders, including indentures:Articles of Incorporation
    
    3aBylaws
    
    3bSpecimen of common stock certificate
    
    4a9
    
    Voting trust agreement
    
    None10
    
    Material contracts:Employment Contract with John Okubo
    
    10aEmployment Contract with Joe Catalano
    
    10aEmployment Contract with Sossy Soukiassian
    
    10aEmployment Contract with Weldon Culley
    
    10aEmployment Contract with James A. Badame
    
    10bEmployment Contract with Charles G. Cooper
    
    10cSupplemental Executive Retirement Plan
    
    10dSenior Management Incentive Plan
    
    10eSenior Management Long-Term Incentive Plan
    
    10fAmended and Restated 1986 Stock Option and Incentive Plan
    
    10gAmendment No. One to the 1986 Stock Option and Incentive Plan
    
    10hAmendment No. One to the Amended and Restated 1995 Stock Option
and Incentive Plan
    
    10hAmendment No. Two to the Amended and Restated 1995 Stock Option
and Incentive Plan
    
    10hAmended and Restated 1989 Non-Employee Director Stock Option Plan
    
    10iDeferred Compensation Plan
    
    10jAmended and Restated 1995 Stock Option and Incentive Plan
    
    10k1998 - 2000 Stock Performance Plan
    
    10l1998 Non-Employee Director Stock Option and Incentive Plan
    
    10lSupplemental Phantom Stock Unit Plan
    
    10mAgreement by and between Bay View Capital and the Federal Reserve Bank
    
    10nAgreement by and between Bay View Bank and the Office of the
Comptroller of the Currency
    
    10n2001 Equity Incentive Plan for Employees
    
    10o2001 Non-Employee Director Stock Option Plan
    
    10p
 98




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##### Table of Contents



Regulation
    
    
    
    Reference to priorS-K
    
    
    
    filing or exhibitExhibit
    
    
    
    number attachedNumber
    
    Document
    
    heretoPurchase and Assumption agreement by and between U.S. Bank National
    
    10qAssociation and Bay View BankMortgage Loan purchase agreement between Bay View Bank, National
    
    10qAssociation (seller) and Washington Mutual Bank FA (purchaser)Amendment No. One to the Stock in Lieu of Cash Compensation Plan for
Non-Employee Directors
    
    10rAmendment No. Three to the Amended Outside Directors Retirement Plan
    
    10r11
    
    Statement re computation of per share earnings
    
    1112
    
    Statements re computation of ratios
    
    1213
    
    Annual Report to security holders
    
    Not required14
    
    Code of Ethical
Conduct
    
    1416
    
    Letter re change in certifying accountant
    
    Not required18
    
    Letter re change in accounting principles
    
    None21
    
    Subsidiaries of the Registrant
    
    2122
    
    Published report regarding matters submitted to vote of security holders
    
    None23
    
    Consent of Deloitte & Touche LLP
    
    2324
    
    Power of attorney
    
    Not required31
    
    Certification of Chief Executive Officer pursuant to Rules 13a-14 and
15d-14,
    
    31.1as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 200231
    
    Certification of Chief Financial Officer pursuant to Rules 13a-14 and
15d-14,
    
    31.2as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. section
1350, as
    
    32.1adopted pursuant to section 906 of the Sarbanes-Oxley Act of 200232
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. section
1350, as
    
    32.2adopted pursuant to section 906 of the Sarbanes-Oxley Act of 200299
    
    Additional Exhibits
    
    None
 (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
filed November 12, 1999 for the quarterly period ended September 30, 1999
(File No. 0-14879)4a
    
    Filed as exhibit 4.1 to the Registrants Annual Report on Form 10-K filed
March 24, 2000 for the year ended December 31, 1999 (File No. 0-14879)10a
    
    Filed as exhibits 10a.1 to 10a.4, respectively, to the Registrants
Annual Report on Form 10-K filed March 19, 2003 for the year ended
December 31, 2002 (File No. 0-14879)10b
    
    Filed as exhibit 10.1 to the Registrants Annual Report on Form 10-K
filed March 28, 2001 for the year ended December 31, 2000 (File No.
0-14879)10c
    
    Filed as exhibit 10.b.3 to the Registrants Quarterly Report on Form 10-Q
filed August 14, 2001 for the quarterly period ended June 30, 2001 (File
No. 0-14879)10d-f
    
    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)10g
    
    Filed as exhibit 4 to the Registrants Registration Statement on Form S-8
filed August 11, 1995 (File No. 33-95724)10h
    
    Filed as exhibits 10 to 10.2, respectively, to the Registrants Quarterly
Report on Form 10-Q filed November 12, 1999 for the quarterly period ended
September 30, 1999 (File No. 0-14879)10i
    
    Filed as exhibit 4.4 to the Registrants Registration Statement on Form
S-8 filed July 26, 1991 (File No. 33-41924)10j
    
    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)10k
    
    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)
 99




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##### Table of Contents



10l
    
    Filed as an appendix to the Registrants Definitive Proxy Statement on
Schedule 14-A filed April 20, 1998 (File No. 0-17901)10m
    
    Filed as exhibit 10.4 to the Registrants Annual Report on Form 10-K
filed on March 24, 2000 for the year ended December 31, 1999 (File No.
0-14879)10n
    
    Filed as exhibits 10.1 to 10.2, respectively, to the Registrants
Quarterly Report on Form 10-Q filed November 10, 2000 for the quarterly
period ended September 30, 2000 (File No. 0-14879)10o
    
    Filed as exhibit 10 to the Registrants Registration Statement on Form
S-8 filed September 27, 2001 (File No. 333-70372)10p
    
    Filed as exhibit 10 to the Registrants Registration Statement on Form
S-8 filed September 27, 2001 (File No. 333-70362)10q
    
    Filed as exhibits 99.2 and 99.3, respectively, to the Registrants
Current Report on Form 8-K filed July 24, 3003 (File No. 001-14879)10r
    
    Filed as exhibits 10.1 and 10.2, respectively, to the Registrants Annual
Report on Form 10-K filed March 19, 2003 for the year ended December 31,
2002 (File No. 0-14879)
 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 October
28, 2003 during the quarter ended December 31, 2003:On October 28, 2003, the Registrant furnished as Exhibit 99.1 a copy
of its earnings release that announces its adoption of a partial
liquidation strategy, the dissolution of Bay View Bank and the
Companys results for the quarter ended September 30, 2003.b(ii)
    
    The Registrant filed the following report on Form 8-K dated November
28, 2003 during the quarter ended December 31, 2003:On November 28, 2003, the Registrant announced that it will redeem
$63.5 million, or approximately 74%, of its 9.76% Junior
Subordinated Deferrable Interest Debentures due December 21, 2028.
The proceeds will be used by Bay View Capital I to redeem $63.5
million, or approximately 74%, of the outstanding 9.76% Cumulative
Capital Securities (NYSE: BVS) (the Capital Securities). The
Registrant also announced that the quarterly distribution, totaling
$0.61 per Capital Security, will be paid on the remaining Capital
Securities outstanding on December 31, 2003 to holders on record as
of December 30, 2003.
 100




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##### Table of Contents



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:August 13, 2004
    
    BAY VIEW CAPITAL CORPORATIONBy:

    /s/ John OkuboJohn OkuboExecutive Vice President andChief Financial Officer(Principal Financial and Accounting Officer)
 101




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##### Table of Contents



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/ Robert B. Goldstein
By:
    /s/ Charles G. CooperRobert B. Goldstein
    
    Charles G. Cooper, DirectorChairman of the Board
    
    President and Chief Executive Officer(Principal Executive Officer)Date: August 13, 2004Date: August 13, 2004By:
    /s/ Roger K. EasleyRoger K. Easley, Director
By:
    /s/ Thomas M. FosterDate: August 13, 2004
    
    Thomas M. Foster, DirectorDate: August 13, 2004By:
    /s/ Joel E. HymanJoel E. Hyman, Director
By:
    /s/ John W. RoseDate: August 13, 2004
    
    John W. Rose, DirectorDate: August 13, 2004
 102