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UNITED STATESSECURITIES AND EXCHANGE COMMISSION  FORM 10-Q x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from______to_____
Commission file number 001-14879 BAY VIEW CAPITAL CORPORATION  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    94-3078031
(I.R.S. Employer
Identification No.)
 1840 Gateway Drive, San Mateo, California 94404
(Address of principal executive offices) (Zip Code)
 Registrants telephone number, including area code (650) 312-7300 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
filing requirements for the past 90 days. Yes   [X]   No   [   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes   [X]   No   [   ] Indicate the number of shares outstanding of each of the registrants
classes of common stock, as of the latest
practicable date. Common Stock, Par Value $.01
(Title of Class)
    
    Outstanding at April 30, 2004
65,862,891 shares
 1




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FORM 10-Q
INDEX BAY VIEW CAPITAL CORPORATION Page(s)PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited):Consolidated Statements of Financial Condition
    
    
    4Consolidated Statement of Operations and Comprehensive Loss
    
    
    5Consolidated Statement of Changes in Net Assets in Liquidation (Liquidation Basis)
    
    
    6Consolidated
Statement of Stockholders Equity
    
    
    7Consolidated Statements of Cash Flows
    
    
    8-9Notes to Consolidated Financial Statements
    
    
    10-14Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15-24Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    26PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    27Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    27Signatures
    
    
    
    
    28EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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Forward-Looking Statements This Form 10-Q 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 this Form 10-Q 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 of Directors (the 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 a series of 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. 3




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PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements Bay View Capital
Corporation and Subsidiaries 
 Consolidated Statements of Financial Condition
(Unaudited)
 March 31, 2004
    
    December 31, 2003(Dollars in thousands)ASSETSCash and cash equivalents:Cash
    
    $
    1,052
    
    
    $
    11,434Short-term investments
    
    
    3,077
    
    
    
    1294,129
    
    
    
    11,563Restricted cash
    
    
    40,939
    
    
    
    32,240Securities available-for-sale:Retained interests in securitizations
    
    
    29,040
    
    
    
    28,590Mortgage-backed and other securities
    
    
    750
    
    
    
    6,139Loans held-for-sale:Automobile installment contracts
    
    
    206,929
    
    
    
    165,574Other loans
    
    
    6,817
    
    
    
    12,074Investment in operating lease assets, net
    
    
    45,133
    
    
    
    66,657Real estate owned, net
    
    
    4,254
    
    
    
    4,955Premises and equipment, net
    
    
    373
    
    
    
    371Repossessed vehicles
    
    
    420
    
    
    
    438Income taxes, net
    
    
    15,540
    
    
    
    21,149Goodwill
    
    
    1,846
    
    
    
    1,846Other assets
    
    
    12,191
    
    
    
    12,340Total assets
    
    $
    368,361
    
    
    $
    363,936LIABILITIES AND STOCKHOLDERS EQUITYBorrowings:Warehouse credit facility
    
    $
    155,158
    
    
    $
    138,221Other borrowings
    
    
    10,211
    
    
    
    16,055Junior Subordinated Deferrable Interest Debentures
    
    
    24,784
    
    
    
    24,784Other liabilities
    
    
    12,361
    
    
    
    17,500Liquidation reserve
    
    
    10,550
    
    
    
    11,626Total liabilities
    
    
    213,064
    
    
    
    208,186Stockholders equity:Common stock ($.01 par value); authorized, 80,000,000 shares;
issued, 2004  65,820,977 shares; 2003  65,793,330 shares;
outstanding, 2004  65,786,545 shares; 2003  65,758,898 shares
    
    
    658
    
    
    
    658Additional paid-in capital
    
    
    156,614
    
    
    
    156,588Accumulated deficit
    
    
    (1,942
    )
    
    
    (855
    )Treasury stock, at cost; 2004 and 2003  34,432 shares
    
    
    (587
    )
    
    
    (587
    )Accumulated other comprehensive gain (loss)
    
    
    554
    
    
    
    (54
    )Total stockholders equity
    
    
    155,297
    
    
    
    155,750Total liabilities and stockholders equity
    
    $
    368,361
    
    
    $
    363,936
 See notes to consolidated financial statements. 4




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Bay View Capital
Corporation and Subsidiaries 
 Consolidated Statement of Operations and Comprehensive Loss
(Unaudited)
 For the ThreeMonths EndedMarch 31, 2004Going Concern Basis(Amounts inthousands, except pershare amounts)Interest income:Interest on loans
    
    $
    3,754Interest on mortgage-backed securities
    
    
    29Interest and dividends on investment securities
    
    
    7284,511Interest expense:Interest on borrowings
    
    
    1,9421,942Net interest income
    
    
    2,569Noninterest income:Leasing income
    
    
    5,228Loan fees and charges
    
    
    500Loan servicing income
    
    
    947Gain on sale of assets and liabilities, net
    
    
    (305
    )Other, net
    
    
    7717,141Noninterest expense:General and administrative
    
    
    6,541Leasing expenses
    
    
    4,667Real estate owned operations, net
    
    
    29111,499Loss before income tax benefit
    
    
    (1,789
    )Income tax benefit
    
    
    (702
    )Net loss
    
    $
    (1,087
    )Basic loss per share
    
    $
    (0.02
    )Diluted loss per share
    
    $
    (0.02
    )Weighted-average basic shares outstanding
    
    
    65,778Weighted-average diluted shares outstanding
    
    
    65,778Net loss
    
    $
    (1,087
    )Other comprehensive income, net of tax:Change in unrealized gain on securities
available-for-sale, net of tax expense of $389
    
    
    608Other comprehensive income
    
    
    608Comprehensive loss
    
    $
    (479
    )
 See notes to consolidated financial statements. 5




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Bay View Capital
Corporation and Subsidiaries 
 Consolidated Statement of Changes in Net Assets in Liquidation (Liquidation Basis)
(Unaudited)
 For the ThreeMonths EndedMarch 31, 2003(Dollars in thousands)Net assets in liquidation, December 31, 2002
    
    $
    410,064Pre-tax income from operations
    
    
    1,415Changes in estimated values of assets and liabilities
    
    
    (1,664
    )Income tax benefit
    
    
    802Net income from operations
    
    
    553Dividends on Capital Securities
    
    
    (2,251
    )Other changes in net assets in liquidation
    
    
    2,598Net assets in liquidation, March 31, 2003
    
    $
    410,964
 See notes to consolidated financial statements. 6




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Bay View Capital
Corporation and Subsidiaries 
 Consolidated Statement of Stockholders Equity
(Unaudited)
 UnrealizedGain (Loss)
onSecuritiesNumber
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    Available-for-
    
    Totalof Shares
    
    Common
    
    Paid-in
    
    Accumulated
    
    Treasury
    
    Sale,
    
    StockholdersIssued
    
    Stock
    
    Capital
    
    Deficit
    
    Stock
    
    Net of Tax
    
    Equity(Dollars in thousands)Balance at January 1, 2004
    
    
    65,793
    
    
    $
    658
    
    
    $
    156,588
    
    
    $
    (855
    )
    
    $
    (587
    )
    
    $
    (54
    )
    
    $
    155,750Exercise of stock warrants
    
    
    22
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Distribution of directors stock-in-lieu of cash plan shares
    
    
    6
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,087
    )
    
    
    
    
    
    
    
    
    
    
    (1,087
    )Unrealized gain on securities available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    608
    
    
    
    608Balance at March 31, 2004
    
    
    65,821
    
    
    $
    658
    
    
    $
    156,614
    
    
    $
    (1,942
    )
    
    $
    (587
    )
    
    $
    554
    
    
    $
    155,297
 See notes to consolidated financial statements. 7




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Bay View Capital
Corporation and Subsidiaries 
 Consolidated Statements of Cash Flows
(Unaudited)
 For the Three Months EndedMarch 31,
    
    March 31,2004
    
    2003(Dollars in thousands)CASH FLOWS FROM OPERATING ACTIVITIESNet loss and certain changes in net assets in liquidation
    
    $
    (1,087
    )
    
    $
    (1,698
    )Adjustments to reconcile net loss and certain changes in net assets in liquidation to
net cash (used in) provided by operating activities:Net increase in loans and leases held-for-sale resulting from
purchases, net of repayments
    
    
    (48,094
    )
    
    
    (34,953
    )Proceeds from sales and /or securitizations of loans and leases held-for-sale
    
    
    10,093
    
    
    
    115,466Depreciation and amortization of premises and equipment
    
    
    125
    
    
    
    170Depreciation and amortization of investment in operating lease assets
    
    
    4,256
    
    
    
    8,055Accretion of retained interests in securitizations
    
    
    (630
    )
    
    
    (726
    )Amortization of premiums and accretion of discount
    
    
    513
    
    
    
    (1,540
    )Provision for deferred tax
    
    
    (702
    )
    
    
    (802
    )(Gain) loss on sale of assets and liabilities, net
    
    
    305
    
    
    
    (53
    )Change in fair value of derivative instruments
    
    
    109
    
    
    
    Increase in restricted cash
    
    
    (8,699
    )
    
    
    (Increase) decrease in other assets
    
    
    6,473
    
    
    
    (2,515
    )Decrease in other liabilities
    
    
    (5,248
    )
    
    
    (17,816
    )Decrease in reserve for estimated costs during the period of liquidation
    
    
    (1,076
    )
    
    
    (22,529
    )Adjustment for liquidation basis
    
    
    
    
    
    
    1,664Other, net
    
    
    1,090
    
    
    
    384Net cash (used in) provided by operating activities
    
    
    (42,572
    )
    
    
    43,107CASH FLOWS FROM INVESTING ACTIVITIESDecrease in investment in operating lease assets
    
    
    16,858
    
    
    
    24,891Principal payments on mortgage-backed securities
    
    
    268
    
    
    
    4,263Principal payments on investment securities
    
    
    1,140
    
    
    
    2,797Proceeds from sale of mortgage-backed securities available-for-sale
    
    
    5,187
    
    
    
    130Proceeds from sale of investment securities available-for-sale
    
    
    
    
    
    
    2,735Proceeds from sale of real estate owned
    
    
    690
    
    
    
    Additions to premises and equipment
    
    
    (124
    )
    
    
    (25
    )Decrease in investment in stock of the Federal Home Loan Bank
of San Francisco
    
    
    
    
    
    
    15,736Net cash provided by investing activities
    
    
    24,019
    
    
    
    50,527
 8




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Bay View Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Unaudited) For the Three Months EndedMarch 31,
    
    March 31,2004
    
    2003(Dollars in thousands)CASH FLOWS FROM FINANCING ACTIVITIESNet decrease in deposits
    
    $
    
    
    
    $
    (224,189
    )Increase in warehouse line of credit outstanding
    
    
    36,552
    
    
    
    Repayment of warehouse line of credit outstanding
    
    
    (19,615
    )
    
    
    Net decrease in other borrowings
    
    
    (5,844
    )
    
    
    (14,408
    )Proceeds from issuance of common stock
    
    
    26
    
    
    
    2,598Net cash provided by (used in) financing activities
    
    
    11,119
    
    
    
    (235,999
    )Net decrease in cash and cash equivalents
    
    
    (7,434
    )
    
    
    (142,365
    )Cash and cash equivalents at beginning of period
    
    
    11,563
    
    
    
    223,295Cash and cash equivalents at end of period
    
    $
    4,129
    
    
    $
    80,930Cash paid during the period for:Interest
    
    $
    2,127
    
    
    $
    4,857Income taxes
    
    $
    22
    
    
    $
    13,087Supplemental non-cash investing and financing activities:Loans transferred to real estate owned
    
    $
    
    
    
    $
    1,086
 See notes to consolidated financial statements. 9




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Bay View Capital
Corporation and Subsidiaries 
 Notes to Consolidated Financial Statements
March 31, 2004
(Unaudited)
 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 its 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 the Companys 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 March 31, 2004 and December
31, 2003 and for the three months ended March 31, 2004 have been prepared on a
going concern basis. The consolidated financial statements for the three
months ended March 31, 2003 have been prepared under the liquidation basis of
accounting. The information provided in these interim financial statements reflects
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the Companys financial condition as of March 31, 2004, the results of its operations for the three months ended
March 31, 2004, the changes in net assets in liquidation for the three months
ended March 31, 2003, and cash flows for the three-month periods ended March
31, 2004 and 2003. These adjustments are of a normal, recurring nature unless
otherwise disclosed in this Form 10-Q. As necessary, reclassifications have
been made to prior period amounts to conform to the current period
presentation. These reclassifications had no effect on the Companys financial
position and results of operations. These interim financial statements have
been prepared in accordance with the instructions to Form 10-Q. The information included in Managements Discussion and Analysis of
Financial Condition and Results of Operations was written assuming that you
have read or have access to the Companys 2003 Annual Report on Form 10-K,
which contains the latest audited consolidated financial statements and notes,
along with Managements Discussion and Analysis of Financial Condition as of
December 31, 2003 and 2002 and Results of Operations for the years ended
December 31, 2003, 2002 and 2001. Accordingly, only certain changes in
financial condition and results of operations are discussed in this Form 10-Q.
Furthermore, the interim financial results for the three-month period ended
March 31, 2004 are not necessarily indicative of the results that may be
expected for the entire fiscal year or any other interim period. 10




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Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2004
(Unaudited) The Company accounts for its 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.
There were no stock option awards and therefore, no compensation expense
recorded under APB 25 for the three months ended March 31, 2004. Had
compensation cost related to stock option awards to employees and directors
been determined under the fair value method prescribed under Statement No. 123,
the Companys net loss and loss per share on a going-concern basis would have
been the pro forma amounts illustrated in the table below for the period
indicated: For the ThreeMonths EndedMarch 31, 2004(Dollars inthousands, exceptper shareamounts)As reported net loss in Consolidated Statement of
Operations and Comprehensive Loss
    
    $
    (1,087
    )Stock-based employee compensation included in net loss
as reported
    
    
    Stock-based employee compensation expense determined
under fair value method, net of taxes
    
    
    (4
    )Pro forma net loss, after stock-based employee
compensation expense
    
    $
    (1,091
    )Net loss per share  basic:As reported
    
    $
    (0.02
    )Pro forma
    
    $
    (0.02
    )Net loss per share  diluted:As reported
    
    $
    (0.02
    )Pro forma
    
    $
    (0.02
    )
 Prior to September 30, 2003, we reported our results using the liquidation
basis of accounting under which earnings per share information is not
presented. 11




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Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2004
(Unaudited) Note 2. Earnings Per Share From September 30, 2002 through September 30, 2003, the Company reported
its results using the liquidation basis of accounting, under which earnings per
share information is not presented. Accordingly, earnings per share
information are not presented for the reporting period ended March 31, 2003. 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 March 31, 2004, average dilutive potential common
shares of 26,998 related to shares issuable upon the exercise of options and
warrants were not included in the computation because they were anti-dilutive. The following table illustrates the calculation of basic and diluted
earnings per share for the period indicated: For the ThreeMonths EndedMarch 31, 2004(Amounts inthousands, exceptper share amounts)Net loss
    
    $
    (1,087
    )Weighted-average basic shares outstanding
    
    
    65,778Add: Dilutive potential common shares
    
    
    Weighted-average diluted shares outstanding
    
    
    65,778Basic earnings per share
    
    $
    (0.02
    )Diluted earnings per share
    
    $
    (0.02
    )
 Note 3. Investment in Operating Lease Assets Leasing expense represents expenses related to the Companys auto leasing
activities. 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. Leasing expenses were $4.7 million for the
first quarter of 2004 compared to $9.5 million for the first quarter of 2003. 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. 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. 12




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Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2004
(Unaudited) 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 reduced 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 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. Since the
inception of the lease portfolio in June 1998, the Company has recorded
additional monthly depreciation charges, also included in leasing expense, to
provide for losses that may be incurred at the end of the lease terms. During
the first quarter of 2004, we recorded $0.7 million of additional depreciation. Note 4. Income Taxes The Company recorded a tax benefit of $0.7 million for the three months
ended March 31, 2004. The effective tax rate used in computing the tax benefit
for the first three months of 2004 was 39.2%. This expected 2004 effective tax
rate is higher than the federal statutory rate due primarily to state income
and franchise taxes. For the first quarter of 2003, the Company recorded a tax benefit of $0.8
million. The effective tax rate for the first quarter of 2003 was 32.1%. As of December 31, 2003, the Company had a valuation allowance of $21.5
million based on the realizability of its deferred tax asset. The amount of
the valuation allowance remained unchanged at March 31, 2004. Note 5. Commitments and Contingencies The Company is involved as plaintiff or defendant in various legal actions
and is 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 its financial statements. 13




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##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2004
(Unaudited) Note 6. Liquidation Reserve The liquidation reserve, recorded while the Company was using the
liquidation basis of accounting, includes accruals for severance payments and
costs related to facility closures, investment banking and other professional
fees and estimated litigation expense and settlements. At March 31, 2004, the
remaining balance of the liquidation reserve was $10.6 million, including
accruals for severance and facilities of $1.6 million and $6.0 million,
respectively. Note 7. Subsequent Event In April 2004, the Companys Board of Directors authorized the Company to
seek stockholder approval to authorize an amendment to the Companys
Certificate of Incorporation to effect a 1-for-10 reverse stock split of the
issued and outstanding shares of the Companys common stock in the second
quarter of 2004. A Special Meeting of the Stockholders of the Company will be held on June
24, 2004 for the purpose of voting on a proposal to amend the Companys
Certificate of Incorporation. Stockholders of record at the close of business
on May 20, 2004 will be entitled to vote at the Special Meeting. If approved
by the Companys stockholders, a reverse stock split would affect all shares of
common stock, including those shares underlying stock options and warrants,
outstanding immediately prior to the effective time of the reverse stock split.
The Company intends to file a preliminary proxy statement regarding the
reverse stock split proposal with the Securities and Exchange Commission and
mail a definitive proxy statement regarding this proposal to its stockholders
on or about May 25, 2004. 14




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations 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. Our Strategy 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 BVAC on an ongoing basis. In
accordance with the Amended Plan, we made an initial cash distribution of
$263.2 million, or $4.00 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 connection with the Amended Plan, we discontinued our
use of liquidation basis accounting and re-adopted going concern basis
accounting effective October 1, 2003. In connection with the liquidation of assets and satisfaction of the
liabilities of the Bank, remaining after the Banks September 30, 2003
dissolution, we anticipate making a cash distribution of $0.25 per share to
common stockholders at the end of the second quarter of 2004 as previously
indicated. Additionally, we anticipate redeeming the remaining outstanding
Capital Securities through a series of one or more additional partial
redemptions beginning in June 2004. Automobile Finance BVAC is a Southern California-based auto finance company engaged in the
indirect financing of automobile purchases by individuals. BVAC currently
acquires auto installment contracts from over 7,000 manufacturer-franchised and
independent auto dealers in 24 states and 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. This strategy has enabled BVAC to establish a loyal dealership
network by satisfying a unique niche within the indirect auto finance arena,
which is not dominated by large commercial banks and captive finance companies.
Of the contracts purchased during the first quarter of 2004, approximately 95%
were originated by manufacturer franchised dealerships and approximately 5%
were originated by independent dealerships; 55% were contracts on new vehicles
and 45% were contracts on used vehicles. BVAC purchases installment contracts
with limited recourse to the dealer. 15




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##### Table of Contents



BVAC places a strong emphasis on borrower stability, credit quality, and
debt serviceability. With Fair, Isaac & Co. FICO credit scores that averaged
734 in the first quarter of 2004, 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 the quarter, the
average loan amount BVAC financed was $30,200 and had an average term of 83
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. 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 investment in operating lease assets, retained interests
in securitizations, and income taxes. 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, we perform a quarterly impairment analysis of our long-lived assets
including our 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, we consider 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 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, we contract 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. We then estimate
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 our experience-to-date and industry experience. Using the projected ALG residual values combined with our
experience-to-date relative to the projected ALG residual values, we reduce the
projected ALG residual values to reflect our experience-to-date. This
experiential analysis, along with the probabilities of each of the three
disposition scenarios discussed above occurring, enables us 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, we then estimate 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. 16




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##### Table of Contents



Retained Interests in Securitizations 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 has typically recognized 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. We incorporate 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 March 31, 2004: 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. Income Taxes At March 31, 2004, we had deferred tax assets of $16.5 million, consisting
of net deferred tax assets of $38.0 million less a valuation allowance of $21.5
million. This valuation allowance was established in consideration of our
projected future net income available to realize the deferred tax assets under
the Amended Plan in years after 2003. 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 March 31, 2004 have
been prepared under the going concern basis of accounting while our financial
statements as of and for the quarter ended March 31, 2003 have been prepared
under the liquidation basis of accounting. Going Concern Basis Results of Operations  Three Months ended March 31, 2004 Our net loss for the quarter ended March 31, 2004 totaled $1.1 million, or
$0.02 per diluted share. Our net loss for the quarter consisted of income from
ongoing operations of BVAC totaling $0.4 million offset by a net loss of $1.5
million from our liquidating activities. For the quarter ended March 31, 2004, our net interest income totaled $2.6
million and was favorably impacted by lower interest expense resulting from the
redemption of $63.5 million, or approximately 74%, of the Bay View Capital I
Trust 9.76% Capital Securities in December 2003. Interest income for the
quarter was $4.5 million and 17




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##### Table of Contents



the average yield on interest-earning assets was 6.81% while interest expense
on our borrowings was $1.9 million and the average cost of borrowings was
4.08%. 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 March 31, 2004Average
    
    
    
    
    
    AverageBalance
    
    Interest
    
    Yield/Rate(Dollars in thousands)AssetsInterest-earning assets:Loans held-for-sale
    
    $
    205,933
    
    
    $
    3,754
    
    
    
    7.33
    %Short-term investments
    
    
    29,727
    
    
    
    64
    
    
    
    0.86Mortgage-backed and other securities
    
    
    2,500
    
    
    
    29
    
    
    
    4.80Retained interests in securitizations
    
    
    28,368
    
    
    
    664
    
    
    
    9.42Total interest-earning assets
    
    
    266,528
    
    
    
    4,511
    
    
    
    6.81
    %Other assets
    
    
    99,621Total assets
    
    $
    366,149Liabilities and Stockholders EquityInterest-bearing liabilities:Warehouse line
    
    $
    151,343
    
    
    $
    1,246
    
    
    
    3.28
    %Other borrowings
    
    
    13,987
    
    
    
    97
    
    
    
    2.78Junior Subordinated Deferrable
Interest Debentures
    
    
    24,784
    
    
    
    599
    
    
    
    9.76Total interest-bearing liabilities
    
    
    190,114
    
    
    
    1,942
    
    
    
    4.08
    %Other liabilities
    
    
    20,511Total liabilities
    
    
    210,625Stockholders equity
    
    
    155,524Total liabilities and stockholders
equity
    
    $
    366,149Net interest income/net interest spread
    
    
    
    
    
    $
    2,569
    
    
    
    2.73
    %Net interest-earning assets
    
    $
    76,414Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.90
    %
 For the quarter ended March 31, 2004, noninterest income was $7.1 million
and included leasing income of $5.2 million, loan servicing and other fee
income of $1.4 million and other income, net of losses on sales of auto
contracts and mortgage-backed securities, of $0.5 million. Noninterest expense
was $11.5 million and included leasing expenses of $4.7 million and operating
expenses of $6.8 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. Leasing expenses were $4.7 million for the first quarter
of 2004 compared to $9.5 million for the first quarter of 2003. The decrease
in leasing expenses was primarily due to lower depreciation expense associated
with the declining balance of our lease portfolio. We ceased purchasing auto
leases in June 2000. At March 31, 2004, no vehicles in our automobile lease portfolio were
considered impaired under Statement of Financial Accounting Standards No. 144.
Approximately 2% and 42% of the vehicles in our automobile lease portfolio were
considered impaired at December 31, 2003 and March 31, 2003, respectively. We
perform impairment testing on our auto lease portfolio on a quarterly basis.
Accordingly, the percentage of leases 18




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##### Table of Contents



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. 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, approximately 1,149 of the 4,242 vehicles in our
automobile lease portfolio, or 27%, 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 $0.7 million for the three months ended March
31, 2004. The effective tax rate used in computing the tax benefit for the
first three months of 2004 was 39.2%. This expected 2004 effective tax rate is
higher than the federal statutory rate due primarily to state income and
franchise taxes. For the first quarter of 2003, we recorded a tax benefit of $0.8 million.
The effective tax rate for the first quarter of 2003 was 32.1%. Liquidation Basis Changes in Net Assets in Liquidation  March 31, 2003 Our net assets in liquidation at March 31, 2003 totaled $411.0 million, or
$6.41 in net assets in liquidation per outstanding shares compared to $410.1
million, or $6.43 in net assets in liquidation per outstanding share at
December 31, 2002. The first quarter increase in net assets in liquidation was primarily due
to net income from operations of $0.6 million and $2.6 million of proceeds from
stock options and warrants exercised during the quarter partially offset by
$2.3 million of dividend payments on our Capital Securities. The decrease in
net assets in liquidation per outstanding share was primarily due to an
increase of 374,000 diluted common shares outstanding resulting from exercises
of stock options and warrants during the quarter. The net income from operations consisted of $1.4 million of pre-tax income
from operations and a tax benefit of $0.8 million partially offset by $1.6
million of net charges for additional liquidation valuation adjustments. The additional liquidation valuation adjustments consisted primarily of
$4.1 million of additional mark-to-market writedowns on the auto lease
portfolio as the residual values on these autos declined on continued weakness
in used car values. This 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 quarter. Leasing Expenses Leasing expenses were $9.5 million for the first quarter of 2003. At March
31, 2003, approximately 4,401 of the 10,374 vehicles in our automobile lease
portfolio, or 42%, were considered impaired under Statement No. 144. If the
market values of the individual vehicles declined by $250, an additional 14% of
the leases would be deemed to be impaired and, therefore, potentially subject
to an impairment charge. 19




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##### Table of Contents



Income Taxes We recorded a tax benefit of $0.8 million for the three months ended March
31, 2003, which was recorded at an effective tax rate of 32.1%. This expected
2003 effective tax rate is lower than the federal statutory rate primarily due
to state income and franchise taxes. Balance Sheet Analysis Our total assets were $368.4 million at March 31, 2004 compared to $363.9
million at December 31, 2003. Cash and Cash Equivalents At March 31, 2004, our cash and cash equivalents totaled $4.1 million and
consisted of $1.0 million of cash deposited at depository institutions and $3.1
million of money market funds. 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. Restricted Cash We held $40.9 million and $32.2 million of restricted cash at March 31,
2004 and December 31, 2003, 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, cash collateral retained to cure potential borrowing
base deficiencies on BVACs warehouse line of credit, and cash collateral
pledged to secure other contractual obligations. 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: March 31,
    
    December 31,2004
    
    2003(Dollars in thousands)Available-for-saleTransaction:2002-LJ-1
    
    $
    18,984
    
    
    $
    18,7442003-LJ-1
    
    
    10,056
    
    
    
    9,846Total retained interests in securitizations
    
    $
    29,040
    
    
    $
    28,590
 Our retained interests are subordinate to investor interests. Their value
is subject to credit, prepayment, and interest rate risks on the transferred
auto installment contracts. At March 31, 2004, all retained interests in
securitizations were classified as available-for-sale and reported at fair
value. Unrealized gains of $0.6 million on retained interests
available-for-sale were included in our stockholders equity (net of taxes) at March 31,
2004. 20




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##### Table of Contents



Mortgage-backed and Other Securities The following table provides information on the balance of mortgage-backed
and other securities as of the dates indicated: March 31,
    
    December 31,2004
    
    2003(Dollars in thousands)Available-for-saleMortgage-backed securities:GNMA, Fannie Mae and Freddie Mac
    
    $
    
    
    
    $
    5,335Collateralized mortgage obligations
    
    
    539
    
    
    
    558Total mortgage-backed securities
    
    
    539
    
    
    
    5,893Asset-backed securities
    
    
    211
    
    
    
    246Total mortgage-backed and other
securities available-for-sale
    
    $
    750
    
    
    $
    6,139
 At March 31, 2004, all our securities were classified as
available-for-sale. Net unrealized gains and losses on our 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. We sold $5.1 million of mortgage-backed securities during the first
quarter of 2004 and recognized a loss of $10 thousand on the sale. We did not
purchase any mortgage-backed securities or other securities during the same
period. We do not maintain a trading portfolio. Unrealized losses of $8 thousand
on mortgage-backed securities available-for-sale were included in our
stockholders equity (net of taxes) at March 31, 2004. Loans The following table illustrates our loan portfolio as of the dates
indicated: March 31, 2004
    
    December 31, 2003(Dollars in thousands)Loans receivable:Auto installment contracts (1)
    
    $
    201,816
    
    
    $
    161,578Other loans:Franchise loans
    
    
    6,314
    
    
    
    6,428Asset-based loans
    
    
    503
    
    
    
    844Business loans
    
    
    
    
    
    
    4,802Total other loans
    
    
    6,817
    
    
    
    12,074Loans before premiums, discounts, deferred fees and costs, net
    
    
    208,633
    
    
    
    173,652Premiums, discounts, deferred fees and costs, net
    
    
    5,113
    
    
    
    3,996Loans receivable (2) (3)
    
    $
    213,746
    
    
    $
    177,648
  (1) Amounts exclude auto-related operating lease assets reported separately
from loans and leases totaling $45.1 million at
March 31, 2004 and $66.7 million at December 31, 2003.  (2) All loans and leases are classified as held-for-sale.  (3) Includes mark-to-market valuation reserves of $915 thousand and $3.2
million at March 31, 2004 and December 31,
2003, respectively. 21




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##### Table of Contents



The increase in loans receivable from December 31, 2003 to March 31, 2004
was attributable to BVACs purchases of auto installment contracts partially
offset by loan sales and repayments during the quarter. During the quarter, we
completed the sale of $10.1 million of loans and received an additional $23.4
million in loan repayments. Other than BVACs purchases, we ceased all other
loan production activities during the fourth quarter of 2002. Auto Installment Contracts During the first quarter of 2004, BVAC purchased $69.3 million of auto
installment contracts on new and used vehicles. The quarter-to-date volume
consisted of 2,289 contracts with weighted-average contract rates of 7.90% and
weighted-average FICO scores of 734. At March 31, 2004, BVAC was servicing
29,824 contracts representing $560.4 million of managed loans. BVAC sold approximately $5.3 million of auto installment contracts during
the quarter. Repayments of installment contracts totaled $22.8 million during
the quarter. Other Loans During the quarter, we sold $4.8 million of business loans and received
$0.6 million of loan repayments on asset-based and franchise loans. At March
31, 2004, the net carrying value of our remaining investment in loans to be
liquidated was $6.8 million compared to $12.1 million at December 31, 2003. Credit Quality We define nonperforming assets as nonaccrual loans, real estate owned,
defaulted mortgage-backed securities and other repossessed assets. We define
nonaccrual loans 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) and loans 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. The following table illustrates our nonperforming assets as of the dates
indicated: March 31,
    
    December 31,2004
    
    2003(Dollars in thousands)Nonaccrual loans
    
    $
    1,273
    
    
    $
    1,924Real estate owned
    
    
    4,254
    
    
    
    4,955Other repossessed assets
    
    
    301
    
    
    
    254Nonperforming assets
    
    $
    5,828
    
    
    $
    7,133
 The decrease in total nonperforming assets at March 31, 2004, compared to
December 31, 2003, was primarily due to a decrease in nonaccruing asset-based
loans and the sale of real estate owned. Our nonperforming assets included
mark-to-market valuation reserves of $0.8 million and $1.4 million at March 31,
2004 and December 31, 2003, respectively. Nonperforming assets excluding
franchise-related assets were $0.8 million March 31,2004 compared to $1.4
million at December 31, 2003, while non-franchise nonaccrual loans were $0.3
million at March 31, 2004 compared to $0.9 million at December 31, 2003. 22




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##### Table of Contents



The following table illustrates nonperforming assets and nonperforming
assets as a percentage of consolidated total assets by their original loan and
lease type: Nonperforming Assetsas a Percentage of Consolidated Total AssetsMarch 31, 2004
    
    December 31, 2003(Dollars in thousands)Auto installment contracts
    
    $
    110
    
    
    
    0.03
    %
    
    $
    338
    
    
    
    0.09
    %Commercial real estate loans
    
    
    170
    
    
    
    0.05
    
    
    
    181
    
    
    
    0.05Franchise loans
    
    
    5,045
    
    
    
    1.37
    
    
    
    5,757
    
    
    
    1.58Asset-based loans
    
    
    503
    
    
    
    0.13
    
    
    
    857
    
    
    
    0.24Total
    
    $
    5,828
    
    
    
    1.58
    %
    
    $
    7,133
    
    
    
    1.96
    %
 Total loans delinquent 60 days or more were $652 thousand at March 31,
2004 compared to $748 thousand at December 31, 2003. Total loans delinquent 60
days or more as a percentage of loans receivable was 0.31% at March 31, 2004
compared to 0.42% at December 31, 2003. Borrowings Our borrowings totaled $190.2 million at March 31, 2004 compared to $179.1
million at December 31, 2003. Our borrowings increased as BVAC utilized its
warehouse credit facility to fund purchases of auto contracts partially offset
by a decline in other borrowings. The following table illustrates outstanding borrowings as of the dates
indicated: March 31, 2004
    
    December 31, 2003(Dollars in thousands)Warehouse credit facility
    
    $
    155,158
    
    
    $
    138,221Other borrowings
    
    
    10,211
    
    
    
    16,055Junior Subordinated Deferrable Interest Debentures
    
    
    24,784
    
    
    
    24,784Total
    
    $
    190,153
    
    
    $
    179,060
 Capital Securities During 2003, we adopted FASB Financial Interpretation No. 46,
Consolidation of Variable Interest Entities, and accordingly, deconsolidated
Bay View Capital I Trust. As a result, the 9.76% Cumulative Capital Securities
(the 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. During the quarter, we paid the quarterly dividend due on the remaining Bay
View Capital I Trust Capital Securities outstanding as of March 30, 2004. We
anticipate redeeming the remaining outstanding Capital Securities through a
series of one or more additional partial redemptions beginning in June 2004. 23




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Liquidity and Capital Resources The objective of our liquidity management is currently threefold  to ensure
that funds are available to finance BVACs purchases, warehousing and
securitization/sale of installment contracts, to fund other working capital
needs, and to complete the liquidation of the Bank and distribute the proceeds
from the remainder of the liquidation to stockholders. At March 31, 2004, we
had $4.1 million of cash and cash equivalents and $94.8 million of available
borrowing capacity on our warehouse credit facility of which $28.9 million was
immediately available based upon the availability of BVAC-owned auto
installment contracts eligible for pledging. With our adoption of a plan of partial liquidation, BVAC is our primary
remaining subsidiary. 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 result from sales
of the leased vehicles as the lease contracts are repaid or expire, is
anticipated to be completed by the end of the third quarter of 2005, consistent
with the maturities of these leases. On December 30, 2003, we distributed $263.2 million, or $4.00 per share in
cash, to common stockholders and, on December 31, 2003, redeemed $63.5 million,
or approximately 74%, of the outstanding Capital Securities. During the first quarter of 2004, we paid the quarterly dividend due on
the remaining Bay View Capital I Trust Capital Securities outstanding as of
March 30, 2004. We anticipate redeeming the remaining outstanding Capital
Securities through a series of one or more additional partial redemptions
beginning in June 2004. We also anticipate making a cash distribution of $0.25
per share to common stockholders at the end of the second quarter of 2004. 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 from discontinued banking activities. BVAC
funds 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 $155.3 million at March 31, 2004 compared to $155.8 million at
December 31, 2003. 24




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##### Table of Contents



Item 3. 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 pools of
whole loans. 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 underlying installment contracts are
securitized or sold. Our policy is to maintain a substantially hedged position
on our warehouse inventory. There were no material changes in market risks in
the current quarter. At
March 31, 2004, we had entered into swap contracts with a total
notional amount of $173.0 million under which we pay a fixed interest rate of
2.23% and receive a floating interest rate of 1.11%. These contracts mature
from September 2004 to March 2007. At March 31, 2004, we had an unrealized
loss of $1.7 million in our swap contracts. At this date, we estimate that an
increase of 100 and 200 basis points would have resulted in an approximate
unrealized gain of $0.8 million and $3.4 million; respectively; while a
decrease of 100 basis points would have resulted in an approximate unrealized
loss of $4.4 million. 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. 25




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Item 4. Controls and Procedures  (a)
    
    Evaluation of disclosure controls and procedures. The Companys
principal executive officer and its principal financial officer, after
evaluating the effectiveness of the Companys disclosure controls and
procedures (as defined in Exchange Act Rules 12(a)  and 15(d)- 14(c))
as of a date within 90 days of the filing of this quarterly report, have
concluded that, as of such date, the Companys disclosure controls and
procedures were adequate and effective to ensure that material
information relating to the Company and its consolidated subsidiaries
would be made known to them by others within those entities.(b)
    
    Changes in internal controls. There have been no changes in the
Companys internal controls or in the other factors that could
significantly affect the Companys disclosure controls and procedures
subsequent to the date of their evaluation, nor were there any
significant deficiencies or material weaknesses in the Companys
internal controls. As a result, no corrective actions were required or
undertaken. 26




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PART II. OTHER INFORMATION 
  Item 1. 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 net assets in liquidation.  Item 2. Changes in Securities None  Item 3. Defaults Upon Senior Securities None  Item 4. Submission of Matters to a Vote of Security Holders None  Item 5. Other Information None 
  Item 6. Exhibits and Reports on Form 8-K a(i)
    
    Exhibit 31.1
    
    Certification of Chief Executive Officer pursuant to Rules 13a-14 and
15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2
    
    Certification of Chief Financial Officer pursuant to Rules 13a-14 and
15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002Exhibit 32.1
    
    Certification of Chief Executive Officer pursuant to 18
U.S.C. section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002Exhibit 32.2
    
    Certification of Chief Financial Officer pursuant to 18
U.S.C. section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
 b(i)
    
    The Registrant filed the following report on Form 8-K dated
January 30, 2004 during the three months ended March 31, 2004:
 The Registrant furnished as Exhibit 99.1 a copy of its earnings
release for the quarter ended December 31, 2003. b(ii)
    
    The Registrant filed the following report on Form 8-K dated
February 13, 2004 during the three months ended March 31, 2004:
 The Board of Directors established April 29, 2004 as the date of the
Annual Meeting of Stockholders. b(ii)
    
    The Registrant filed the following report on Form 8-K dated
March 19, 2004 during the three months ended March 31, 2004:
 In a press release dated March 12, 2004, the Registrant announced the
resignation of James A. Badame, President of Bay View Acceptance
Corporation (BVAC), the Companys automobile finance subsidiary
effective March 19, 2004. Charles G. Cooper, the Registrants
President and Chief Executive Officer, will serve as interim President
of BVAC until Mr. Badames replacement is found. 27




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SIGNATURES Pursuant to the requirements 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. BAY VIEW CAPITAL CORPORATION
RegistrantDATE: May 10, 2004
    
    BY:
    
    /s/ John OkuboJohn OkuboExecutive Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)
 28