##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q þ
    
    QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT
OF 1934For the quarterly period ended March 31, 2005ORo
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the transition period fromto  BAY VIEW CAPITAL CORPORATION  Delaware
    
    94-3078031(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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 þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). Yes þ No o 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
    
    Outstanding at April 30, 2005(Title of Class)
    
    6,595,886 shares
   1




---



##### Table of Contents



FORM 10-Q
INDEX BAY VIEW CAPITAL CORPORATION Page(s)PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited):Condensed Consolidated Statements of Financial Condition
    
    
    4Condensed Consolidated Statements of Operations and Comprehensive Loss
    
    
    5Condensed Consolidated Statement of Stockholders Equity
    
    
    6Condensed Consolidated Statements of Cash Flows
    
    
    7-8Notes to Condensed Consolidated Financial Statements
    
    
    9-15Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16-30Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    32-33PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3. Defaults Upon Senior Securities
    
    
    34Item 4. Submission of Matters to a Vote of Security Holders
    
    
    34Item 5. Other Information
    
    
    34Item 6. Exhibits
    
    
    34Signatures
    
    
    35EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
 2




---



##### Table of Contents



Forward-Looking Statements This Form 10-Q Quarterly 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), our strategy to maximize stockholder value through use of our net operating
loss carryforwards and the continuing disposition of assets and satisfaction of liabilities we
assumed upon the dissolution of Bay View Bank, N.A. (the Bank) 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 Quarterly Report
and involve risks and uncertainties. Accordingly, our actual results from the ongoing operations
of BVAC and the continuing disposition of assets and satisfaction of liabilities we assumed from
the Bank may differ materially from those that we currently anticipate. A number of factors may affect our forward-looking statements regarding our ongoing operations
in the future including the following:  
    Our efforts to expand BVACs operations could be unsuccessful;
    Our ability to obtain and maintain financing to fund the ongoing operations of BVAC,
including securitizing and selling automobile installment contracts in order to repay
borrowings;
    Changes in general economic and business conditions;
    Interest rate fluctuations, including the results from our hedging activities;
    Our financial condition and liquidity, including our ability to generate future cash flows and earnings;
    Our degree of success in utilizing our net operating loss carryforwards;
    Competition;
    Our ability to control our operating expenses;
    The effect of new laws, regulations and court decisions affecting consumer finance
transactions and net operating loss carryforwards;
    The condition of the market for the sale of new and used automobiles, including pricing
options by automobile manufacturers;
    The level of chargeoffs on the contracts that BVAC purchases; and
    The outcome of pending litigation against us. Cash Distributions On March 10, 2005, we announced that we would not make a first quarter cash distribution to
stockholders. Our Board of Directors is evaluating whether an acquisition would better maximize
stockholder value. Pending the conclusion of that analysis, our Board of Directors has decided to
retain surplus cash for possible use in connection with a potential acquisition rather than
distributing such surplus to stockholders. If we determine we will not seek an acquisition or if
we are unable to locate a suitable acquisition over the next several months, our Board of Directors
would then consider future cash distributions depending on a number of factors, including our
financial condition and results of operations and other strategic alternatives. As a result of the foregoing factors, no stockholder should place undue reliance on any
forward-looking statements. We do not undertake, and specifically disclaim, any obligation to
update any forward-looking statements and all forward-looking statements speak only as of the date
made. 3




---



##### Table of Contents



PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements Bay View Capital
Corporation and Subsidiaries 
 Condensed Consolidated Statements of Financial Condition March 31, 2005
    
    
    December 31,(Unaudited)
    
    
    2004(Dollars in thousands)ASSETSCash
    
    $
    8,079
    
    
    $
    4,447Restricted cash
    
    
    33,112
    
    
    
    26,845Retained interests in securitizations
    
    
    21,880
    
    
    
    22,636Auto installment contracts and loans held-for-sale:Auto installment contracts
    
    
    109,617
    
    
    
    75,021Other loans
    
    
    375
    
    
    
    902Auto installment contracts held-for-investment, net
    
    
    293,470
    
    
    
    252,863Investment in operating lease assets, net
    
    
    5,941
    
    
    
    10,041Real estate owned, net
    
    
    2,654
    
    
    
    3,379Premises and equipment, net
    
    
    710
    
    
    
    733Repossessed vehicles
    
    
    250
    
    
    
    439Deferred and current income taxes, net
    
    
    17,098
    
    
    
    16,977Goodwill
    
    
    1,846
    
    
    
    1,846Other assets
    
    
    7,870
    
    
    
    7,199Total assets
    
    $
    502,902
    
    
    $
    423,328LIABILITIES AND STOCKHOLDERS EQUITYBorrowings:Warehouse credit facility
    
    $
    160,304
    
    
    $
    298,755Securitization notes payable
    
    
    220,475
    
    
    
    Other borrowings
    
    
    607
    
    
    
    1,895Other liabilities
    
    
    8,771
    
    
    
    9,629Liquidation reserve
    
    
    8,768
    
    
    
    8,856Total liabilities
    
    
    398,925
    
    
    
    319,135Stockholders equity:Common stock ($.01 par value); authorized, 80,000,000 shares;
issued, 2005  6,597,303 shares; 2004  6,597,303 shares;
outstanding, 2005  6,595,886 shares; 2004  6,593,860 shares
    
    
    66
    
    
    
    66Additional paid-in capital
    
    
    109,243
    
    
    
    109,578Accumulated deficit
    
    
    (4,919
    )
    
    
    (4,585
    )Treasury stock, at cost; 2005  1,417 shares; 2004  3,443 shares
    
    
    (252
    )
    
    
    (587
    )Accumulated other comprehensive loss
    
    
    (161
    )
    
    
    (279
    )Total stockholders equity
    
    
    103,977
    
    
    
    104,193Total liabilities and stockholders equity
    
    $
    502,902
    
    
    $
    423,328
 See notes to condensed consolidated financial statements. 4




---



##### Table of Contents



Bay View Capital
Corporation and Subsidiaries 
 Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
 For the Three Months EndedMarch 31, 2005
    
    
    March 31, 2004(As Restated,See Note 2)(In thousands, except per share amounts)Interest income:Interest on
auto installment contracts and loans
    
    $
    6,350
    
    
    $
    4,155Interest on mortgage-backed securities
    
    
    
    
    
    
    29Interest and dividends on investment securities
    
    
    721
    
    
    
    7287,071
    
    
    
    4,912Interest expense:Interest on borrowings
    
    
    3,678
    
    
    
    1,942Net interest income
    
    
    3,393
    
    
    
    2,970Provision for credit losses
    
    
    837
    
    
    
    Net interest income after provision for credit losses
    
    
    2,556
    
    
    
    2,970Noninterest income:Leasing income
    
    
    2,070
    
    
    
    5,228Loan servicing income
    
    
    552
    
    
    
    947Unrealized gain (loss) on derivative instruments
    
    
    1,480
    
    
    
    (308
    )Loan fees and charges
    
    
    183
    
    
    
    500Loss on sale of assets and liabilities, net
    
    
    (439
    )
    
    
    (300
    )Other, net
    
    
    232
    
    
    
    9794,078
    
    
    
    7,046Noninterest expense:General and administrative
    
    
    6,606
    
    
    
    6,541Leasing expenses
    
    
    515
    
    
    
    4,667Real estate owned, net
    
    
    4
    
    
    
    2917,125
    
    
    
    11,499Loss before income tax benefit
    
    
    (491
    )
    
    
    (1,483
    )Income tax benefit
    
    
    (157
    )
    
    
    (582
    )Net loss
    
    $
    (334
    )
    
    $
    (901
    )Basic loss per share
    
    $
    (0.05
    )
    
    $
    (0.14
    )Diluted loss per share
    
    $
    (0.05
    )
    
    $
    (0.14
    )Weighted-average basic shares outstanding
    
    
    6,594
    
    
    
    6,578Weighted-average diluted shares outstanding
    
    
    6,594
    
    
    
    6,578Net loss
    
    $
    (334
    )
    
    $
    (901
    )Other comprehensive income, net of tax:Change in unrealized loss on securities
available-for-sale, net of tax expense of $56 and
$389 for the three-month periods ended March 31,
2005 and March 31, 2004, respectively
    
    
    118
    
    
    
    608Comprehensive loss
    
    $
    (216
    )
    
    $
    (293
    )
 See notes to condensed consolidated financial statements. 5




---



##### Table of Contents



Bay View Capital
Corporation and Subsidiaries 
 Condensed Consolidated Statement of Stockholders Equity
(Unaudited)
 AccumulatedNumber
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Totalof Shares
    
    
    Common
    
    
    Paid-in
    
    
    Accumulated
    
    
    Treasury
    
    
    Comprehensive
    
    
    StockholdersIssued
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    Loss
    
    
    Equity(In thousands)Balance at December 31, 2004
    
    
    6,597
    
    
    $
    66
    
    
    $
    109,578
    
    
    $
    (4,585
    )
    
    $
    (587
    )
    
    $
    (279
    )
    
    $
    104,193Distribution of restricted shares
    
    
    
    
    
    
    
    
    
    
    (335
    )
    
    
    
    
    
    
    335
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (334
    )
    
    
    
    
    
    
    
    
    
    
    (334
    )Unrealized gain on securities available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118
    
    
    
    118Balance at March 31, 2005
    
    
    6,597
    
    
    $
    66
    
    
    $
    109,243
    
    
    $
    (4,919
    )
    
    $
    (252
    )
    
    $
    (161
    )
    
    $
    103,977
 See notes to condensed consolidated financial statements. 6




---



##### Table of Contents



Bay View Capital
Corporation and Subsidiaries 
 Condensed Consolidated Statements of Cash Flows
(Unaudited)
 For the Three Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004(As Restated,See Note 2)(Dollars in thousands)CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (334
    )
    
    $
    (901
    )Adjustments to reconcile net loss to net cash used in operating activities:Net increase in auto contracts held-for-sale resulting from purchases,
net of repayments
    
    
    (40,912
    )
    
    
    (48,094
    )Proceeds from sales of auto contracts and loans held-for-sale
    
    
    6,493
    
    
    
    10,093Provision for credit losses
    
    
    837
    
    
    
    Depreciation and amortization of investment in operating lease assets
    
    
    624
    
    
    
    4,256Depreciation and amortization of premises and equipment
    
    
    86
    
    
    
    125Amortization of premiums and accretion of discount
    
    
    826
    
    
    
    112Accretion of retained interests in securitizations
    
    
    (515
    )
    
    
    (630
    )Provision for deferred taxes
    
    
    (157
    )
    
    
    (582
    )Loss on sale of assets and liabilities, net
    
    
    439
    
    
    
    305Change in fair value of derivative instruments
    
    
    1,480
    
    
    
    109Increase in restricted cash
    
    
    (6,267
    )
    
    
    (8,699
    )(Increase) decrease in other assets
    
    
    (330
    )
    
    
    6,568Decrease in other liabilities
    
    
    (2,151
    )
    
    
    (5,248
    )Decrease in reserve for estimated costs during the period of liquidation
    
    
    (88
    )
    
    
    (1,076
    )Other, net
    
    
    (615
    )
    
    
    1,090Net cash used in operating activities
    
    
    (40,584
    )
    
    
    (42,572
    )CASH FLOWS FROM INVESTING ACTIVITIESNet increase in auto contracts and other loans held-for-investment resulting
from purchases, net of repayments
    
    
    (42,230
    )
    
    
    Decrease in investment in operating lease assets
    
    
    3,585
    
    
    
    16,858Principal payments on investment securities
    
    
    1,329
    
    
    
    1,140Principal payments on mortgage-backed securities
    
    
    
    
    
    
    268Proceeds from sale of mortgage-backed securities available-for-sale
    
    
    
    
    
    
    5,187Proceeds from sale of real estate owned
    
    
    725
    
    
    
    690Additions to premises and equipment
    
    
    (63
    )
    
    
    (124
    )Net cash (used in) provided by investing activities
    
    
    (36,654
    )
    
    
    24,019
 7




---



##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited) For the Three Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004(As Restated,See Note 2)(Dollars in thousands)CASH FLOWS FROM FINANCING ACTIVITIESIssuance of securitization notes payable
    
    $
    233,168
    
    
    $
    Repayment of securitization notes payable
    
    
    (12,559
    )
    
    
    Proceeds from warehouse credit facility borrowings
    
    
    105,405
    
    
    
    36,552Repayment of warehouse credit facility borrowings
    
    
    (243,856
    )
    
    
    (19,615
    )Net decrease in other borrowings
    
    
    (1,288
    )
    
    
    (5,844
    )Proceeds from issuance of common stock
    
    
    
    
    
    
    26Net cash provided by financing activities
    
    
    80,870
    
    
    
    11,119Net increase (decrease) in cash and cash equivalents
    
    
    3,632
    
    
    
    (7,434
    )Cash and cash equivalents at beginning of period
    
    
    4,447
    
    
    
    11,563Cash and cash equivalents at end of period
    
    $
    8,079
    
    
    $
    4,129Cash paid during the period for:Interest
    
    $
    4,360
    
    
    $
    2,127Income taxes
    
    $
    43
    
    
    $
    22
 See notes to condensed consolidated financial statements. 8




---



##### Table of Contents



Bay View Capital
Corporation and Subsidiaries 
 Notes to Condensed Consolidated Financial Statements
March 31, 2005
(Unaudited)
 Note 1. Summary of Significant Accounting Policies Basis of Presentation Bay View Capital Corporation (the Company, we, us, or our) is a financial services
company headquartered in San Mateo, California. The condensed 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; 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 and
Bay View Auxiliary Corporation, a California corporation. All intercompany accounts and
transactions have been eliminated. The interim period consolidated financial statements, including the notes thereto, are
condensed and do not include all disclosures required by generally accepted accounting principles
in the United States of America (GAAP). These interim period financial statements should be read
in conjunction with the Companys consolidated financial statements that are included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2004. 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, 2005 and December 31, 2004, the results of its operations for the three-month periods ended
March 31, 2005 and 2004, and its cash flows for the three-month periods ended March 31, 2005 and
2004. These adjustments are of a normal, recurring nature unless otherwise disclosed in this
Quarterly Report on Form 10-Q (Form 10-Q). These interim financial statements have been prepared
in accordance with the instructions to Form 10-Q. On June 30, 2004, the Company effected a 1-for-10 reverse stock split of the issued and
outstanding shares of the Companys common stock. Accordingly, all shares outstanding and per
share amounts are presented on a post-reverse stock split basis for all periods reported. The
Companys issued common stock totaled 6,597,303 shares at March 31, 2005 and December 31, 2004. Stock-based Employee Compensation 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 (APB) 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
was no compensation expense recorded under APB 25 for the three-month periods ended March 31, 2005
and 2004. Had compensation expense related to the Companys stock option awards to employees and
directors been determined under the fair value method prescribed under Statement of Financial
Accounting Standards No. 123, the Companys net loss and loss per share would have been the pro
forma amounts set forth in the table below for the periods indicated: 9




---



##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2005

(Unaudited) For the Three Months EndedMarch 31, 2005
    
    
    March 31, 2004(As Restated,See Note 2)(Dollars in thousands, except pershare amounts)Net loss as reported in Consolidated Statements
of Operations and Comprehensive Loss
    
    $
    (334
    )
    
    $
    (901
    )Stock-based employee compensation included in net
loss as reported
    
    
    
    
    
    
    Stock-based employee compensation expense
determined under fair value method, net of taxes
    
    
    (19
    )
    
    
    Pro forma net loss, after stock-based employee
compensation expense
    
    $
    (353
    )
    
    $
    (901
    )Net loss per
share - basic:As reported
    
    $
    (0.05
    )
    
    $
    (0.14
    )Pro forma
    
    $
    (0.05
    )
    
    $
    (0.14
    )Net loss per
share - diluted:As reported
    
    $
    (0.05
    )
    
    $
    (0.14
    )Pro forma
    
    $
    (0.05
    )
    
    $
    (0.14
    )
 The fair value of options determined above for the three
months ended March 31, 2005 and 2004 was estimated using an option-pricing model with the following
weighted average assumptions: For the Three Months EndedMarch 31, 2005
    
    
    March 31, 2004Risk-free interest rate
    
    
    3.96
    %
    
    
    1.94
    %Expected life
    
    3.6 years
    
    
    3.6 yearsExpected volatility
    
    
    84.6
    %
    
    
    41.4
    %Expected dividends
    
    
    0
    
    
    
    0
 Reclassifications Certain reclassifications have been made to prior year balances in order to conform to the
current year presentation.  Note 2.
    Restatement of the Condensed Consolidated Financial Statements as of and for the Three
Months Ended March 31, 2004 As previously disclosed in the Companys Annual Report on Form 10-K for the year ended
December 31, 2004 (Form 10-K) which was filed with the Securities and Exchange Commission on
April 18, 2005, the Company is restating its consolidated financial statements for the first,
second and third quarters of 2004 to correct its accounting for derivatives (interest rate cap
contracts) maintained by an affiliated special purpose owners trust entity in connection with
BVACs $350 million revolving receivables warehouse credit facility. The effect of the restatement is to increase the Companys net loss for the three months
ended March 31, 2004 by $58 thousand and decrease total assets as of March 31, 2004 by the same
amount. Revised financial information for the periods presented reflecting these restatements was
previously disclosed in the Companys Form 10-K for the year ended December 31, 2004. 10




---



##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2005
(Unaudited) Except as set forth above, the Company has not updated the disclosures contained herein
to reflect any events that have occurred after the original filing. The following table sets forth
the impact of the restatement on net loss and basic and diluted loss per share for the three months
ended March 31, 2004: As of and For theThree Months EndedMarch 31, 2004(As Restated,See Note 2)(Amounts inthousands, except pershare amounts)Net loss:Net loss as previously reported
    
    $
    (843
    )Net loss as restated
    
    $
    (901
    )Weighted-average basic shares outstanding
    
    
    6,578Add:
Dilutive potential common shares
    
    
    Weighted-average diluted shares outstanding
    
    
    6,578Basic loss per share:Basic loss per share as previously reported
    
    $
    (0.13
    )Restatement adjustment
    
    
    (0.01
    )Basic loss per share as restated
    
    $
    (0.14
    )Diluted loss per share:Diluted loss per share as previously reported
    
    $
    (0.13
    )Restatement adjustment
    
    
    (0.01
    )Diluted loss per share as restated
    
    $
    (0.14
    )Noninterest income:Noninterest income as previously reported
    
    $
    7,141Noninterest income as restated
    
    $
    7,046Income taxes, net:Income taxes, net as previously reported
    
    $
    15,265Income taxes, net as restated
    
    $
    15,302Other assets:Other assets as previously reported
    
    $
    12,191Other assets as restated
    
    $
    12,096Total assets:Total assets as previously reported
    
    $
    368,787Total assets as restated
    
    $
    368,729
 Note 3. Loss per Share Basic loss per share is calculated by dividing net loss for the period by the weighted-average
common shares outstanding for the period; there is no adjustment to the number of outstanding shares
for potential dilutive instruments, such as stock options. Diluted loss 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-month periods ended March 31, 2005 and 2004, there were
potential common shares of 77,100 and 81,430, respectively, related to shares issuable upon the
exercise of options that could potentially dilute basic earnings per share in the future that were
not included in 11




---



##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2005
(Unaudited) the computation of diluted loss per share because to do so would have been anti-dilutive for the
respective periods. The following table illustrates the calculation of basic and diluted loss per share for the
periods indicated: For the Three Months EndedMarch 31, 2005
    
    
    
    March 31, 2004(As Restated, SeeNote 2)(Amounts in thousands,except per share amounts)Net loss
    
    $
    (334
    )
    
    $
    (901
    )Weighted-average basic shares outstanding
    
    
    6,594
    
    
    
    6,578Add: Dilutive potential common shares
    
    
    
    
    
    
    Weighted-average diluted shares outstanding
    
    
    6,594
    
    
    
    6,578Basic loss per share
    
    $
    (0.05
    )
    
    $
    (0.14
    )Diluted loss per share
    
    $
    (0.05
    )
    
    $
    (0.14
    )
 Note 4. Auto Installment Contracts Auto installment contracts consist of the following: As of
    
    
    As ofMarch 31,
    
    
    December 31,2005
    
    
    2004(In thousands)Auto contracts pledged under warehouse credit facility
    
    $
    162,748
    
    
    $
    314,749Auto contracts transferred to a special purpose trust
in connection with the securitization and issuance of
auto receivable backed notes accounted for as a
secured financing
    
    
    219,284
    
    
    
    Other unpledged auto contracts
    
    
    12,454
    
    
    
    5,932Premiums, discounts and deferred fees and costs, net
    
    
    10,535
    
    
    
    8,711Less: Allowance for credit losses
    
    
    (2,013
    )
    
    
    (1,508
    )Lower-of-cost-or-market allowance on auto
contracts held-for-sale
    
    
    79
    
    
    
    Total auto installment contracts, net
    
    $
    403,087
    
    
    $
    327,884
 Note 5. Investment in Operating Lease Assets The Company incurs expense in connection with its portfolio of auto leases. Because the
leases are accounted for as operating leases, the corresponding assets are capitalized and
depreciated to their estimated residual values over the terms of the leases. This depreciation
expense is included in leasing expense, along with the amortization of capitalized initial direct
lease costs and impairment charges. Leasing expense was $0.5 million for the first quarter of 2005
and $4.7 million for the first quarter of 2004. 12




---



##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2005
(Unaudited) 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. 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 vehicles at the end of their lease terms assuming that the vehicles are in average
condition. The Company then estimates the probability that (i) the vehicle will be purchased by
the lessee prior to the end of the lease term, (ii) the vehicle 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 vehicle will be returned 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 13




---



##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2005
(Unaudited) a probability-weighted gross future undiscounted cash flow for each vehicle 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 to be 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. For those leases where the estimated fair value is less than the net book
value, an impairment charge is recorded for the difference. During the three months ended March
31, 2004, the Company recorded impairment charges of $0.7 million. There were no impairment
charges recorded for the three months ended March 31, 2005. Note 6. Income Taxes The Company recorded a tax benefit of $0.2 million for the first quarter of 2005. The
effective tax rate used in computing the tax benefit for this period was 32.0%. This projected
2005 effective tax rate is lower than the federal statutory rate due to state tax payments on BVAC
tax returns that must be filed on a separate company basis. For the first quarter of 2004, the Company recorded a tax benefit of $0.6 million. The
effective tax rate for the first quarter of 2004 was 39.2%. At March 31, 2005, we had $17.1 million of deferred and current tax assets, net. Deferred tax
assets totaling $21.4 million consisted of net deferred tax assets of $42.9 million less a
valuation allowance of $21.5 million. This valuation allowance was established in consideration of
our projected future taxable income available to realize the deferred tax assets under the
Companys Amended Plan of Dissolution and Stockholder Liquidity (the Amended Plan) in years after
2004. Note 7. Commitments and Contingencies On August 29, 2003, Financial Security Assurance Inc. (FSA) filed a complaint against the
Company and the Bank in the United States District Court for the Southern District of New York.
The complaint, as amended, alleges breaches of representations and warranties or indemnity
obligations with regard to a number of loans that served as collateral for two securitizations
involving the Company and/or a former subsidiary, Bay View Franchise Mortgage Acceptance Company
that were effected in 1998 and 2000. FSA guaranteed certain payments in connection with these
securitizations. The Company vigorously denies any liability to FSA and has asserted numerous
defenses to each of FSAs claims. The Company has also filed counterclaims against FSA. The Company is a party to various other legal actions arising in the normal course of
business. After consultation with counsel, the Company does not currently expect that the resolution of
these legal actions will have a material adverse effect on the Companys consolidated financial
condition, results of operations or cash flows. 14




---



##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2005
(Unaudited) Note 8. Liquidation Reserve The liquidation reserve represents a liability for estimated severance costs, costs related to
facilities closures, estimated litigation settlements and related legal costs and other costs
associated with the completion of remaining liquidating activities arising from the Companys
adoption of the Amended Plan during the fourth quarter of 2003. The liquidation reserve is
accounted for in accordance with Statement of Financial Accounting Standards No. 146, Accounting
for Costs Associated with Exit or Disposal Activities. At March 31, 2005, the remaining balance of the liquidation reserve was $8.8 million including
accruals for severance, facilities and litigation and other costs of $1.3 million, $5.9 million and
$1.6 million, respectively. The following table sets forth balances and activity in the
liquidation reserve as of and for the periods indicated: Litigation /Severance
    
    
    Facilities
    
    

Other(1)
    
    
    Total(Dollars in thousands)Balance at December 31, 2004
    
    $
    1,314
    
    
    $
    6,003
    
    
    $
    1,539
    
    
    $
    8,856Accruals (reversals)
    
    
    
    
    
    
    (16
    )
    
    
    38
    
    
    
    22Payments
    
    
    
    
    
    
    (110
    )
    
    
    
    
    
    
    (110
    )Balance at March 31, 2005
    
    $
    1,314
    
    
    $
    5,877
    
    
    $
    1,577
    
    
    $
    8,768
   (1For the three months ended March 31, 2005, accruals represent increased
vacation costs. 15




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations The information included in this 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
2004 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 and
Results of Operations. 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 months ended March 31, 2005 are not necessarily indicative of the results that may be
expected for the entire fiscal year or any other interim period. On June 30, 2004, the Company effected a 1-for-10 reverse stock split of the issued and
outstanding shares of its common stock. Accordingly, all shares outstanding and per share amounts
are presented herein on a post-reverse stock split basis for all periods reported. 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), is a consumer finance company engaged 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 auto contracts, and the subsequent securitization or sale and servicing of these auto
contracts. Restatement During the Companys 2004 year-end audit and Sarbanes-Oxley Section 404 review, the Company
determined that it should have recognized a total of $0.4 million of unrealized after-tax losses on
certain derivative instruments (interest rate cap contracts). As a result, the Company is
restating its consolidated financial statements for the first, second and third quarters of 2004 to
correct its accounting for derivatives maintained by an affiliated special purpose owners trust
entity in connection with BVACs $350 million revolving receivables warehouse credit facility. The
impact of the restatement to first quarter 2004 results is to increase net loss by $58 thousand and
decrease total assets by the same amount. See Note 2 to the Condensed Consolidated Financial
Statements, Restatement of the Condensed Consolidated Financial Statements as of and for the Three
Months ended March 31, 2004. Bay View Bank Liquidation 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. During the fourth quarter of 2003, our Board amended the Plan to become a plan of partial
liquidation, the Amended Plan, under which we are completing the liquidation of the assets and the
satisfaction of the liabilities of the Bank remaining after the Banks September 30, 2003
dissolution. We have distributed a major portion of the proceeds to our stockholders through a
series of cash distributions, and we continue to operate BVAC. With the Banks dissolution, its
remaining assets and liabilities were transferred to us, as the Banks sole stockholder, and we
ceased to be a bank holding company. In accordance with the Amended Plan, we redeemed the remaining $22.0 million of our 9.76%
Cumulative Capital Securities on June 30, 2004 and, between December 31, 2003 and December 31,
2004, distributed $311.0 million in cash to our stockholders, or $47.25 per share after the
adjustment to reflect the retroactive effect of the 1-for-10 reverse stock split of our common
stock effective June 30, 2004. We did not make a cash distribution to our 16




---



##### Table of Contents



stockholders during the first quarter of 2005. Refer to Forward-Looking Statements  Cash
Distributions for comments about future cash distributions. We continue to dispose of the assets and satisfy the liabilities we assumed from the Bank.
During the first quarter of 2005, $5.1 million of these assets, primarily auto leases and real
estate owned, were liquidated and $4.0 million of liabilities were discharged. Automobile Finance BVAC, the Companys indirect auto finance subsidiary, acquires retail auto installment
contracts from a network of approximately 7,000 manufacturer-franchised and independent auto
dealers in 30 states and has positioned itself in the market as a lender for well-qualified
borrowers. While BVAC competes with other lenders for good credit quality loans, BVAC also offers
specialized products such as extended term financing and larger advances for high credit quality
customers and uses these products to establish relationships with automobile dealers. This strategy has enabled BVAC to establish a loyal dealership network by satisfying a unique
niche within the indirect auto finance market that large commercial banks and captive finance
companies have not served well. Recently, BVAC has begun leveraging this established reputation
with its dealers to broaden its array of auto financing programs available to prime credit quality
borrowers. Of the contracts purchased in the first quarter of 2005, approximately 91% were
originated by manufacturer-franchised dealerships and approximately 9% were originated by
independent dealerships compared to 95% and 5%, respectively, for the first quarter of 2004; 40%
were contracts on new vehicles and 60% were contracts on used vehicles compared to 55% and 45% in
the first quarter of 2004. BVAC purchases installment contracts with limited recourse to the
dealer. BVAC places a strong emphasis on borrower stability, credit quality and debt serviceability.
With Fair, Isaac & Co., or FICO, credit scores that averaged 742 in the first quarter of 2005,
BVACs borrower base is largely comprised of prime credit quality 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. During the first quarter of 2005, the term to maturity on auto contracts
purchased by BVAC averaged 79 months and the loan-to-value ratio averaged 121%. The average loan
amount financed by BVAC was $24,600. During the first quarter of 2004, the term to maturity on
auto contracts purchased averaged 83 months and the loan-to-value ratio averaged 125%. The average
loan amount financed by BVAC was $30,200. BVAC operates as an independent finance company, purchasing auto contracts primarily for sale
or securitization, and servicing these auto contracts. BVAC has a $350.0 million revolving
warehouse credit facility to fund its purchases of contracts, and periodically sells or securitizes
a portion of its auto contracts in order to pay down the facility and maintain available borrowing
capacity. BVAC retains the servicing obligation on the contracts that it sells or securitizes
which provides us with a source of fee income over the life of the contracts. On February 17,
2005, BVAC issued $232.1 million of auto receivable backed notes and repaid $217.8 million of
borrowings on the credit facility. At March 31, 2005, BVAC had $160.3 million outstanding under
this credit facility. At March 31, 2005, BVAC was servicing 30,400 auto contracts with an aggregate outstanding
balance of $619 million compared to 28,300 auto contracts with an aggregate outstanding balance of
$571 million at December 31, 2004. BVAC also administers lease customer re-marketing and asset
disposition activities in its operations center for the auto lease portfolio that we assumed from
the Bank and are liquidating. 17




---



##### Table of Contents



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 loan sales and retained interests in
securitizations, allowance for credit losses, investment in operating lease assets, income taxes
and derivative instruments. Loan Sales and Retained Interests in Securitizations BVAC has periodically transferred a portion of its warehouse inventory of auto contracts
held-for-sale to trusts that, in turn, issue asset-backed securities to investors. These
transactions have historically been structured as sales in accordance with Statement of Financial
Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and we have recognized a gain on the sale of the auto contracts to
the trusts  which represents the difference between the sum of sale proceeds, net of transaction
costs, and cash deposited into a securitization trust account in order to enhance the credit rating
of the asset-backed securities and the sum of our net carrying value of the auto contracts and the
present value of future excess cash flow anticipated to be distributed to us by the trust over the
life of the asset-backed securities  and an asset that is referred to as a retained interest in
the securitization. The retained interest is comprised of the cash initially deposited into the securitization
trust account and the present value of the future excess cash flow anticipated to be distributed to
us by the trust over the life of the asset-backed securities. These estimated future cash flows -
which are comprised of interest income received on the auto contracts less interest paid to
investors in the asset-backed securities, credit losses and trust expenses  are initially retained
by the trust to build the trust cash account to pre-designated levels and provide further credit
enhancement. Once the pre-designated levels of cash are attained, the trust distributes the excess
cash flow to BVAC. In recording the gain on sale and the retained interest, we have made
assumptions in calculating the present value of the future excess cash flow anticipated to be
distributed to us by the trust over the life of the asset-backed securities and recording the
retained interest. We designate retained interests as available-for-sale and carry them at fair value.
Unrealized gains and losses which are deemed to be temporary are reported in other comprehensive
income. For retained interests which have experienced a decline in fair value below their
amortized cost basis and for which the decline in fair value has been deemed to be
other-than-temporary, the cost basis of the retained interest is written down to fair value as the
new cost basis and the write down is charged to earnings. Our retained interests are subordinate to investor interests in the related asset-backed
securities and their value is subject to credit and prepayment risks in the pool of underlying auto
contracts. We are not aware of an active secondary market for our retained interests and,
accordingly, estimate the fair value of our retained interests by calculating the present value of
the future excess cash flow anticipated to be received, using managements best estimates of key
valuation assumptions including credit losses, prepayment speeds and discount rates commensurate
with the underlying risks in the anticipated future cash flow. The following table sets forth the significant assumptions used in the valuation of our
retained interests as of March 31, 2005: Weighted-average discount rate
    
    
    10.0% - 12.0
    %Range of projected annual credit losses, net
    
    
    1.40% - 1.53
    %Range of projected cumulative credit losses
    
    
    2.04% - 2.37
    %Prepayment speed
    
    1.6 ABS
 Changes in the above assumptions due to differing actual experience or market conditions could
affect the value of our retained interests. During the first quarter of 2005, BVAC transferred $232.1 million of auto receivables to
a special purpose entity, Bay View 2005-LJ-1 Owner Trust, and issued a corresponding amount of auto
receivable backed notes. Under the terms of the notes, BVAC retained certain rights that results
in its maintaining control over the transferred receivables and, in accordance with provisions of
Statement No. 140, have accounted for this transaction as a secured financing. 18




---



##### Table of Contents



Allowance for Credit Losses The allowance for credit losses on auto contracts held-for-investment is established through a
provision charged to expense and maintained at a level that we believe is sufficient to cover
estimated probable losses in this loan portfolio. We consider BVACs portfolio of auto contracts
to be comprised of relatively small balance, homogeneous receivables and, accordingly, determine
its allowance for credit losses in accordance with Statement of Financial Accounting Standards No.
5, Accounting for Contingencies. The allowance for credit losses is evaluated and adjusted on a
quarterly basis. In determining the level of the allowance for credit losses, we evaluate BVACs auto contracts
held-for-investment using two methodologies. The primary methodology is based upon an analysis of
BVACs historical loss experience using a vintage analysis of its past purchases of auto
contracts from which BVAC predicts probable losses that are inherent in its portfolio of auto
contracts held-for-investment. Under this method, BVACs historical credit loss experience is
stratified by quarter and correlated with the related auto contracts that have been similarly
stratified by the number of quarters that have elapsed since date of purchase. This credit loss
data is derived from static pool information that has been internally collected on the historical
loss experience of BVACs portfolio of managed auto contracts. BVAC defines managed auto contracts
as the sum of its warehouse inventory of auto contracts receivable plus auto contracts that have
been securitized and/or sold with servicing retained by BVAC. We also use a secondary method for
evaluating the sufficiency of the allowance for credit losses. This secondary method, a roll
rate analysis, projects the migration of quarter-end auto contracts held-for-investment from
current payment status through 30-, 60- and 90-day delinquent status to charge-off and correlates
this projection with loss reserve factors. These methodologies incorporate quantitative as well as qualitative factors, including
historical loss experience, changes in underwriting practices, changes in the credit quality of
contracts and an assessment of economic conditions. Investment in Operating Lease Assets We purchased auto leases, which are accounted for as operating leases, from March 1998 through
June 2000. These purchases were recorded as fixed assets and are being depreciated on a
straight-line basis over the respective lease terms to the estimated residual values of the leases.
This depreciation and other related expenses, including the amortization of initial direct costs
that are deferred and amortized over the lease term, are classified as noninterest expense. Lease
payments received are recorded as noninterest income. 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 auto leases. 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 vehicle, including
initial direct capitalized costs, less the cumulative amount of depreciation recorded against the
vehicle 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 updated estimates of the residual value of the underlying
vehicles comprising our portfolio of auto leases at the end of their lease terms, assuming that the
vehicles are in average condition. This information is obtained from ALG on a quarterly basis. We
then estimate the probability of one of three lease payoff scenarios occurring: (i) the vehicle
will be purchased by the lessee prior to the end of the lease term, (ii) the vehicle 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 vehicle will be returned by the lessee 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 our
realization of 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 19




---



##### Table of Contents



occurring, enables us to determine a probability-weighted gross future undiscounted cash flow
for each vehicle 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 interest rates, which are similar to the original contract lease
rates. For those impaired leases where the estimated fair value is less than the net book value,
an impairment charge is recorded for the difference. 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 that would be payable (receivable) if
separate returns were filed. At March 31, 2005, we had $17.1 million of deferred and current income taxes, net. Deferred
tax assets totaling $21.4 million consisted of net deferred tax assets of $42.9 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 2004. The realization of deferred tax assets is dependent upon our ability to
generate future taxable income. Derivative Instruments We use derivative instruments to reduce our exposure to interest rate risk embedded in our
fixed-rate auto contracts which are funded by floating-rate financing. Rising interest rates
reduce the net interest spread produced by our auto contracts, a primary component of our
profitability, as well as the economic value of our inventory of auto contracts. Additionally,
under the terms of our warehouse credit facility, the indenture trustee maintains derivative
instruments to provide interest rate risk protection to our lenders. We account for these
derivative instruments in accordance with 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 derivative instruments (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. Risk management
instruments must qualify and be designated as hedges upon their inception and must be effective in
substantially reducing the risk arising from the asset or liability identified as exposing the
Company to risk 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. 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 and is designated 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. 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. The standard
requires that an entity formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. Our derivative instruments outstanding at March 31, 2005 were comprised of interest rate swap
contracts and interest rate caps. In accordance with Statement No. 133, these derivative
instruments are accounted for as assets or liabilities and recorded at fair value. Because these
derivatives were not formally designated as hedges, which is 20




---



##### Table of Contents



required to use hedge accounting, changes in fair values are charged or credited to earnings.
Refer to Item 3. Quantitative and Qualitative Disclosures about Market Risk  Asset/Liability
Management for further comments about our use of derivative instruments. Results of Operations Our net loss for the first quarter of 2005 was $334 thousand, or $0.05 per diluted share,
compared to $901 thousand, or $0.14 per diluted share, for the first quarter of 2004. Net Interest Income and Net Interest Margin Net interest income represents the difference between interest income earned on auto contracts
and other interest-earning assets and interest expense paid on borrowings and other funding
sources, and is our principal source of revenue. Net interest margin represents net interest
income expressed as a percentage of average interest-earning assets. Net interest income was $3.4 million for the first quarter of 2005 compared to $3.0 million
for the first quarter of 2004. Net interest margin was 3.37% for the first quarter of 2005
compared to 4.50% for the first quarter of 2004. The increase in net interest income for the first
quarter of 2005, compared to the first quarter of 2004, was attributable to an increase in average
interest-earning assets of $148 million and a $0.6 million
reduction in interest expense produced by redemption of the
remaining $22.0 million of our 9.76% Cumulative Capital
Securities in 2004. This was offset, in part, by decreased net
interest margin caused by runoff of higher-yielding auto contracts
receivable and increased funding costs produced by rising market
interest rates. For the first quarter of 2005, interest income was $7.1 million and the average yield on
interest-earning assets was 6.92%, while interest expense on our borrowings was $3.7 million and
the average cost of borrowings was 4.29%. Our average interest earning assets totaled $414.7 million for the same period. For the first quarter of 2004, interest income was $4.9 million and the average yield on
interest-earning assets was 7.40%, while interest expense on our borrowings was $1.9 million and
the average cost of borrowings was 4.08%. Our average interest earning assets for the first
quarter of 2004 totaled $266.8 million. 21




---



##### Table of Contents



The following tables set forth average outstanding balances of assets and liabilities,
interest income and expense, and average yields on our interest-earning assets and the average cost
of our borrowings for the periods indicated: AVERAGE BALANCES, YIELDS AND RATESFor the Three Months Ended March 31, 2005Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Yield/Rate(Dollars in thousands)AssetsInterest-earning assets:Auto contracts and other loans receivable
    
    $
    363,808
    
    
    $
    6,350
    
    
    
    7.09
    %Restricted cash
    
    
    28,631
    
    
    
    221
    
    
    
    3.08Retained interests in securitizations
    
    
    22,305
    
    
    
    500
    
    
    
    8.98Total interest-earning assets
    
    
    414,744
    
    
    
    7,071
    
    
    
    6.92
    %Other assets
    
    
    48,371Total assets
    
    $
    463,115Liabilities and Stockholders EquityInterest-bearing liabilities:Warehouse credit facility
    
    $
    231,508
    
    
    
    2,418
    
    
    
    3.80
    %Securitization notes payable
    
    
    109,337
    
    
    
    1,260
    
    
    
    4.61Other borrowings
    
    
    1,486
    
    
    
    
    
    
    
    Total interest-bearing liabilities
    
    
    342,331
    
    
    
    3,678
    
    
    
    4.29
    %Other liabilities
    
    
    16,699Total liabilities
    
    
    359,030Stockholders equity
    
    
    104,085Total liabilities and stockholders equity
    
    $
    463,115Net interest income/net interest spread
    
    
    
    
    
    $
    3,393
    
    
    
    2.63
    %Net interest-earning assets
    
    $
    72,413Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.37
    %
 22




---



##### Table of Contents



AVERAGE BALANCES, YIELDS AND RATESFor the Three Months Ended March 31, 2004(As
Restated, See Note 2)Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Yield/Rate(Dollars in thousands)AssetsInterest-earning assets:Auto contracts and other loans receivable
    
    $
    206,197
    
    
    $
    4,155
    
    
    
    8.10
    %Restricted cash
    
    
    29,727
    
    
    
    64
    
    
    
    0.86Retained interests in securitizations
    
    
    28,368
    
    
    
    664
    
    
    
    9.42Mortgage-backed and other securities
    
    
    2,500
    
    
    
    29
    
    
    
    4.80Total interest-earning assets
    
    
    266,792
    
    
    
    4,912
    
    
    
    7.40
    %Other assets
    
    
    99,632Total assets
    
    $
    366,424Liabilities and Stockholders EquityInterest-bearing liabilities:Warehouse credit facility
    
    $
    151,343
    
    
    
    1,246
    
    
    
    3.28
    %Other borrowings
    
    
    13,987
    
    
    
    97
    
    
    
    2.789.76% Junior 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
    
    
    155,799Total liabilities and stockholders equity
    
    $
    366,424Net interest income/net interest spread
    
    
    
    
    
    $
    2,970
    
    
    
    3.32
    %Net interest-earning assets
    
    $
    76,678Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.50
    %
 Net interest margin, calculated in accordance with accounting principles generally
accepted in the United States of America (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. Provision for Credit
Losses At March 31, 2005, BVAC had $293.5 million of auto contracts designated as
held-for-investment. An allowance for credit losses on these contracts was established through the
provision for credit losses. Our provision for credit losses totaled $0.8 million for the quarter
ended March 31, 2005. During the first quarter of 2004, there were no auto contracts designated as
held-for-investment and, accordingly, no provision for credit losses for the quarter ended March
31, 2004. Refer to Balance Sheet Analysis - Auto Contracts and Other Loans  Auto Installment
Contracts and Other Loans for related information on BVACs allowance for credit losses on auto
contracts held-for-investment. Noninterest Income Noninterest income was $4.1 million for the first quarter of 2005 compared to $7.0 million for
the first quarter of 2004. The decrease in noninterest income for the first quarter of 2005,
compared to the first quarter of 2004, was largely a result of decreased leasing income and loan
servicing income offset, in part, by unrealized gains on our derivative instruments. Leasing income decreased by $3.2 million quarter-over-quarter as a result of continued runoff
of our liquidating auto lease portfolio, offset, in part, by favorable experience on the
disposition of vehicles coming off 23




---



##### Table of Contents



lease during the quarter. We ceased purchasing auto leases in June 2000 and, since then, the
balance of our lease portfolio has continued to decline as leases have reached their end-of-term. Loan servicing income for the first quarter of 2005 declined from the corresponding quarter in
the prior year on a decline in the balance of our investor-owned servicing portfolio to $224
million at March 31, 2005 from $357 million at March 31, 2004. As discussed in additional detail in Item 3. Quantitative and Qualitative Disclosures About
Market Risk  Asset/Liability Management, we employ derivative instruments primarily to protect
the value of BVACs fixed-rate auto contracts from rising interest rates. Our strategy is to
protect the economic value of these auto contracts rather than the accounting values. We account
for changes in the market value of our derivative instruments as prescribed by Statement No. 133.
Our derivative instruments are not treated as designated hedge instruments under Statement No. 133
and are, accordingly, carried at fair value, with changes in such fair value charged or credited to
earnings. Our use of fair value accounting for our derivative instruments has resulted in certain
fluctuations in noninterest income. The $1.4 million of unrealized gains on our derivative
instruments in the first quarter of 2005 resulted from rising market interest rates during the
quarter. Conversely, declining interest rates resulted in $0.3 million of unrealized losses on our
derivative instruments in the first quarter of 2004. Future changes in interest rates will likely
continue to produce fluctuations in the fair value of our derivatives and, therefore, the level of
our noninterest income. Noninterest income for the first quarter of 2005 and 2004 included $0.4 million and $0.3
million, respectively, of write-offs of premium on auto contracts held-for-sale due to prepayments
and chargeoffs of defaulted auto contracts, and net losses on sales of assets. Noninterest
Expense Noninterest expense was $7.1 million for the first quarter of 2005 compared to $11.5 million
for the first quarter of 2004. For the first quarter of 2005, our noninterest expense included
$6.6 million of general and administrative expense and $0.5 million of leasing expense. For the
first quarter of 2004, noninterest expense included $6.5 million of general and administrative
expense, $4.7 million of leasing expense and $0.3 million of real estate owned expenses. The
following table sets forth the components of general and administrative expense: For the Three Months EndedMarch 31, 2005
    
    
    March 31, 2004(Dollars in thousands)General and Administrative ExpenseEmployee compensation
    
    $
    3,116
    
    
    $
    3,711Occupancy
    
    
    470
    
    
    
    247Professional and legal services
    
    
    2,588
    
    
    
    1,566Information technology
    
    
    203
    
    
    
    304Capitalized fees and costs
    
    
    (566
    )
    
    
    (288
    )Other
    
    
    795
    
    
    
    1,001Total general and administrative expense
    
    $
    6,606
    
    
    $
    6,541
 The decrease in noninterest expense for the first quarter of 2005, compared to the first
quarter of 2004, was primarily the result of a $4.2 million decline in leasing expense on our
liquidating auto lease portfolio. In addition, professional and legal services expense increased
in the first quarter of 2005 on increased audit costs and costs
attributable to implementing compliance
with the Sarbanes-Oxley Act of 2002. During the quarter, we also recognized expense associated
with a settlement of litigation involving a claim against the Bank related to its past servicing of
a pool of commercial equipment leases. We believe there is no basis for this claim but agreed
to settle the case in order to avoid further potential costs of litigation. 24




---



##### Table of Contents



Because our auto leases are accounted for as operating leases, the corresponding leased
vehicles are capitalized and depreciated to their estimated residual values over their lease terms.
This depreciation expense is included in leasing expense, along with the amortization of
capitalized initial direct lease costs and lease impairment charges. We test the residual value of
our auto lease portfolio for impairment on a quarterly basis. The percentage of leases considered
impaired is a measure of the quarterly rate of decline in the residual value of our auto lease
portfolio versus our depreciation and writedown of the residual value of our auto lease portfolio
since the prior quarterly valuation. At March 31, 2005 and 2004, there were no vehicles in our
auto lease portfolio that were considered impaired under Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Higher
percentages of impaired leases are indicative of more rapidly declining resale values for used
vehicles. Current rates of impairment are not necessarily indicative of future rates of
impairment. Impairment of lease residual values is a function of a number of significant factors
that could change in the near term, and adversely affect the valuation of the auto lease portfolio.
These factors were previously described under Critical Accounting Policies  Investment in
Operating Lease Assets. Two of these factors, including ALGs projections of lease residual
values and the relative probabilities of the three alternatives for disposing of vehicles, are
particularly susceptible to changes in market conditions. In previous quarters, a $250 decline in the market value of individual vehicles in our lease
portfolio would have resulted in additional vehicles being deemed impaired, and subject to an
impairment charge. At March 31, 2005 and 2004, however, there were no additional vehicles that
would have been determined to have been impaired if their market values had declined by such an
amount. Impairment could increase if the percentage of vehicles returned to us were greater than
the percentage that was projected at March 31, 2005, because the proceeds realized when we must
dispose of vehicles at the end of lease terms are generally less than if lessees purchase vehicles
prior to the end of lease terms. Income Taxes The Company recorded a tax benefit of $0.2 million for the first quarter of 2005. The
effective tax rate used in computing the tax benefit for this period was 32.0%. This projected
2005 effective tax rate is lower than the federal statutory rate due to state tax payments on BVAC
tax returns that must be filed on a separate company basis. For the first quarter of 2004, the Company recorded a tax benefit of $0.6 million. The effective tax
rate for the first quarter of 2004 was 39.2%. 25




---



##### Table of Contents



Balance Sheet Analysis Our total assets were $502.9 million at March 31, 2005 compared to $423.3 million at December
31, 2004. The increase in total assets was primarily attributable to BVACs purchases of auto
contracts which produced $75.2 million of growth in our warehouse inventory of auto contracts, net
of repayments and sales. Cash At March 31, 2005, we had cash totaling $8.1 million compared to $4.4 million at December 31,
2004. We did not make a cash distribution to our stockholders during the first quarter of 2005.
Refer to Forward-Looking Statements  Cash Distributions for comments about future cash
distributions. Restricted Cash Our restricted cash balances were $33.1 million and $26.8 million at March 31, 2005 and
December 31, 2004, respectively. Restricted cash attributable to BVACs auto finance business
includes cash collateral provided to counterparties to BVACs hedging contracts to meet margin
requirements, cash collateral provided to cure potential borrowing base deficiencies on BVACs
warehouse credit facility, cash on deposit in connection with credit enhancement of securitization
notes payable and cash payments received from our customers that are in-transit to trust accounts
for BVACs auto securitization trusts. The remaining assets from the Bank liquidation also include
restricted cash that has been pledged to secure a letter of credit, cash collateral pledged in
connection with financing secured by our auto lease portfolio contractual cash flow as well as cash
collateral pledged in connection with the Companys servicing of a multi-family loan pool and other
contractual obligations. Retained Interests in Securitizations The following table provides information, by securitization transaction, on the balance of our
retained interests in outstanding securitizations of auto contracts as of the dates
indicated: March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Available-for-saleTransaction:Bay View 2002-LJ-1 Owner Trust
    
    $
    15,201
    
    
    $
    15,622Bay View 2003-LJ-1 Owner Trust
    
    
    6,679
    
    
    
    7,014Total retained interests in securitizations
    
    $
    21,880
    
    
    $
    22,636
 Our retained interests are subordinate to investor interests. At March 31, 2005, all
retained interests in securitizations were classified as available-for-sale and reported at fair
value. Unrealized losses of $161 thousand and $279 thousand in these retained interests were
included in our stockholders equity, net of taxes, at March 31, 2005 and December 31, 2004,
respectively. For the first quarter of 2005, the retained interest in the Bay View 2003-LJ-1 Owner
Trust was deemed to be other-than-temporarily impaired by $124 thousand and, accordingly, this
amount was charged against noninterest income. 26




---



##### Table of Contents



Auto Installment Contracts and Other Loans The following table illustrates our portfolio of auto contracts and other loans as of the
dates indicated: March 31, 2005
    
    
    December 31, 2004(Dollars in thousands)Auto installment contracts and other loans receivable:Auto installment contracts held-for-sale
    
    $
    106,970
    
    
    $
    73,462Premiums, discounts, and deferred fees and costs, net
    
    
    2,647
    
    
    
    1,559Auto installment contracts held-for-sale, net
    
    
    109,617
    
    
    
    75,021Other loans held-for-sale:Franchise loans
    
    
    375
    
    
    
    583Asset-based loans
    
    
    
    
    
    
    319Total other loans held-for-sale
    
    
    375
    
    
    
    902Auto installment contracts held-for-investment
    
    
    287,595
    
    
    
    247,219Premiums, discounts, and deferred fees and costs, net
    
    
    7,888
    
    
    
    7,152Allowance for credit losses
    
    
    (2,013
    )
    
    
    (1,508
    )Auto installment contracts held-for-investment, net
    
    
    293,470
    
    
    
    252,863Auto installment contracts and loans receivable, net
    
    $
    403,462
    
    
    $
    328,786
 Auto Contracts During the first quarter of 2005, BVAC purchased $115.5 million of auto contracts, an increase
of 43% compared to purchases of $80.7 million in the fourth quarter of 2004 and an increase of 67%
from first quarter 2004 purchases of $69.3 million. We attribute this increase to the initial
success of our efforts to broaden BVACs market for good credit quality customers and expand its
origination of high quality loans. BVAC has consistently improved its monthly loan purchase
volumes since September 2004, and its March 2005 loan purchase volume was the highest achieved in
the Companys history. Repayments totaled $36.3 million and $23.4 million for the first quarter of
2005 and 2004, respectively. For the first quarter of 2005, BVACs purchased contract rates averaged 8.30% compared to
first quarter 2004 rates of 7.90%. Credit quality indicators also improved during the quarter.
FICO scores for the quarter averaged 742 compared to an average of 734 for first quarter 2004
production. Of the contracts purchased in the first quarter of 2005, 91% were originated by
manufacturer-franchised dealerships and 9% were originated by independent dealerships compared to
95% and 5%, respectively, for the first quarter of 2004; 40% were contracts on new vehicles and 60%
were contracts on used vehicles compared to 55% and 45% for the first quarter of 2004. Net
chargeoffs improved to 1.11% of managed contracts in the first quarter of 2005 from 1.23% in the
first quarter of 2004. At March 31, 2005, BVAC was servicing 30,400 auto contracts with an aggregate outstanding
balance of $619 million compared to 29,800 auto contracts with an aggregate outstanding balance of
$560 million at March 31, 2004. Other Loans Receivable At March 31, 2005, the net carrying value of other loans receivable, which we are in the
process of liquidating, was $0.4 million compared to $0.9 million at December 31, 2004. These
loans are designated as held-for-sale and carried at the lower of cost or fair value. During first
quarter of 2005, we collected repayments of $0.3 million and charged-off $0.2 million. 27




---



##### Table of Contents



Credit Quality We define nonperforming assets as nonaccrual loans, real estate owned and other repossessed
assets. We define nonaccrual loans as those 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) and loans less than 90 days delinquent are 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. We charge-off auto contracts and reverse related accrued interest
receivable when the contracts become 120 days delinquent. The following table sets forth our nonperforming assets as of the dates indicated: March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Nonaccrual loansAuto installment contracts
    
    $
    111
    
    
    $
    61Franchise and asset-based loans
    
    
    375
    
    
    
    902Total nonaccrual loans
    
    
    486
    
    
    
    963Real estate owned
    
    
    2,654
    
    
    
    3,379Repossessed vehicles
    
    
    220
    
    
    
    400Nonperforming assets
    
    $
    3,360
    
    
    $
    4,742
 The decrease in total nonperforming assets at March 31, 2005, compared to December 31,
2004, was primarily due to the repayments and chargeoff of other loans receivable, discussed above,
combined with a sale of $0.7 million of real estate owned. Our nonperforming assets included mark-to-market valuation reserves of $1.2 million at March
31, 2005 and December 31, 2004. The following table sets forth loans delinquent 60 days or more as a percentage of gross
loans: Loans Delinquent 60 Days or More as a Percentageof Gross LoansMarch
31, 2005
    
    
    December 31, 2004(Dollars in thousands)Auto installment contracts
    
    $
    267
    
    
    
    0.07
    %
    
    $
    406
    
    
    
    0.12
    %Franchise loans
    
    
    375
    
    
    
    0.09
    
    
    
    583
    
    
    
    0.18Asset-based loans
    
    
    
    
    
    
    
    
    
    
    319
    
    
    
    0.10Total
    
    $
    642
    
    
    
    0.16
    %
    
    $
    1,308
    
    
    
    0.40
    %
 28




---



##### Table of Contents



Allowance for Credit Losses The Company maintains an allowance for credit losses on auto contracts held-for-investment
that represents managements estimate of inherent credit losses that have occurred as of the date
of the financial statements. The process of determining the necessary level of the allowance is
subjective and requires considerable judgment. Our auto contracts held-for-investment represent an
inventory of small-balance loans with relatively homogeneous credit quality characteristics. Refer
to Critical Accounting Policies  Allowance for Credit Losses for further details. The following
table sets forth the activity in the allowance for credit losses on loans held-for-investment as of
and for the periods indicated: As of and Forthe Three
    
    
    As of and ForMonths Ended
    
    
    the Year EndedMarch 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Balance at beginning of period
    
    $
    1,508
    
    
    $
    Net charge-offs
    
    
    (332
    )
    
    
    (104
    )Provision
for Credit Losses
    
    
    837
    
    
    
    1,612Balance at end of period
    
    $
    2,013
    
    
    $
    1,508
 Borrowings Our borrowings totaled $381.4 million at March 31, 2005 compared to $300.7 million at December
31, 2004 as set forth in the following table: March 31, 2005
    
    
    December 31, 2004(Dollars in thousands)BVAC warehouse credit facility
    
    $
    160,304
    
    
    $
    298,7552005-LJ-1 securitization notes payable
    
    
    220,475
    
    
    
    Financing secured by contractual auto lease cash flow
    
    
    607
    
    
    
    1,895Total
    
    $
    381,386
    
    
    $
    300,650
 As discussed below, BVAC issued $232.1 million of auto receivable backed notes during the
first quarter of 2005 and repaid $217.8 million of borrowings on its warehouse credit facility.
Additional borrowings on the warehouse credit facility provided the funding for purchases of auto
contracts during the first quarter of 2005. 29




---



##### Table of Contents



Liquidity and Capital Resources BVACs $350.0 million revolving warehouse credit facility allows us to purchase and warehouse
auto contracts while our ability to securitize or sell auto contracts on a whole loan basis allows
us to periodically pay down the warehouse facility in order to maintain available borrowing
capacity to fund future purchases of auto contracts. Repayments from warehoused auto contracts
also provide liquidity. During the first quarter of 2005, liquidation of the assets of the Bank
remaining from its September 30, 2003 dissolution, primarily the auto lease portfolio, also
provided liquidity;however, the liquidation of these assets was largely completed in 2004 and they
are a decreased source of liquidity in 2005 and beyond. At March 31, 2005, we had $8.1 million of cash, and $189.7 million of available borrowing
capacity on our revolving warehouse credit facility of which $11.7 million was immediately
available based upon BVAC-owned auto contracts eligible for pledging. On February 17, 2005, we issued $232.1 million of auto receivable backed notes payable through
Bay View 2005-LJ-1 Owner Trust. Proceeds from the issuance of the notes were used to repay $217.8
million of borrowings on our warehouse credit facility. The notes have final maturities ranging
between February 27, 2006 and May 25, 2012 and contain a call provision that grants the Company the
option of calling the notes at any time after the aggregate balance of the receivables has been
reduced to 15% of the original pool of receivables. We anticipate that prepayments will reduce the
effective life of the notes. On June 30, 2004, we redeemed the remaining $22.0 million of our 9.76% Cumulative Capital
Securities (the Capital Securities). Between December 31, 2003 and December 31, 2004, we
distributed $311.0 million in cash to our stockholders, or $47.25 per share after the adjustment to
reflect the retroactive effect of the 1-for-10 reverse stock split of our common stock effective
June 30, 2004. We did not make a cash distribution to our stockholders during the first quarter of
2005. Refer to Forward-Looking Statements  Cash Distributions for comments about future cash
distributions. Under the Amended Plan, we are completing the liquidation of the assets and the satisfaction
of the liabilities of the Bank remaining after its September 30, 2003 dissolution and anticipate
that this process will be substantially completed during 2005. Stockholders equity totaled $104.0 million and $104.2 million at March 31, 2005 and December
31, 2004, respectively. 30




---



##### 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 contracts. It also impacts the net interest income component of our earnings
because BVAC funds the purchase of fixed-rate auto contracts with its warehouse credit facility,
which is a floating-rate facility. The rate on the warehouse facility, a revolving purchase
facility, is indexed to the one-month Libor rate as well as commercial paper rates and is subject
to frequent adjustments. Fixed-rate Auto Contracts BVAC purchases fixed-rate auto contracts primarily for sale or for on- or off-balance sheet
securitization. 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 interest rate risk for us during the period BVAC warehouses, or owns, these
fixed-rate auto contracts. Accordingly, our earnings are affected by changes in prevailing market
interest rates. Rising market interest rates generally reduce the value of BVACs fixed-rate auto
contracts. Net Interest Income BVAC funds purchases of fixed-rate auto contracts with its floating-rate warehouse credit
facility. While we own these contracts, we earn net interest income, which is defined as the amount
by which interest income earned on the contracts exceeds the interest paid on BVACs warehouse
credit facility. Changes in prevailing market interest rates produce corresponding changes in the
cost of BVACs floating-rate warehouse credit facility thereby creating interest rate risk. Rising
market interest rates increase the interest expense we incur on BVACs warehouse credit facility,
thereby reducing the net interest income we earn. To protect us from interest rate risk, we may use various derivative financial instruments,
including interest rate swap contracts, to protect the market value of BVACs warehouse inventory
of auto contracts and the related net interest income. We anticipate the market value of our
derivative instruments to be generally inversely correlated to the market value of BVACs warehouse
inventory. Changes in prevailing market interest rates will generally produce offsetting changes
in market values. We may enter into these derivative agreements as BVAC purchases auto contracts
and the agreements may be closed out at the time the underlying auto contracts are securitized or
sold. At March 31, 2005, we had outstanding swap contracts with a total notional amount of $145.0
million under which we pay a fixed interest rate of 3.16% and receive a floating interest rate of
2.56%. These contracts mature from May 2005 to May 2008. At March 31, 2005, we had an unrealized
gain of $1.8 million in our swap contracts and estimate that an increase in market interest rates
of 100 and 200 basis points would have resulted in an approximate unrealized gain of $2.0 million
and $4.0 million; respectively; while a decrease in interest rates of 100 basis points would have
resulted in an approximate unrealized loss of $2.1 million. Warehouse Credit Facility As discussed above, auto contracts pledged to secure borrowings under BVACs warehouse credit
facility bear fixed interest rates while amounts borrowed under BVACs warehouse credit facility
bear a floating interest rate. To provide protection to the note purchasers from interest rate
risk embedded in the fixed-rate auto contracts that have been transferred to the trust, the trust
enters into out-of-the-money, interest rate cap contracts, containing the terms and conditions
required by the note purchasers. Derivative financial instruments involve, to varying degrees, elements of credit risk. Credit
risk is defined as the possibility of sustaining a loss because a counterparty to a financial
instrument failed to perform in accordance with the terms of the contract. Refer to Critical
Accounting Policies, Derivatives for comments about the accounting for our derivative instruments. 31




---



##### Table of Contents



Item 4. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and our Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of March 31, 2005. Our disclosure controls and procedures are designed to
ensure that information we are required to disclose in the reports we file under the Exchange Act
is recorded, processed, summarized and reported on a timely basis in accordance with generally
accepted accounting principles in the United States (GAAP) and without material misstatement. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have
concluded that, as of March 31, 2005, because of the material weaknesses in our internal control
over financial reporting described in this Item 4, our disclosure controls and procedures were not
effective in recording, processing, summarizing and reporting, on a timely
basis, information required to be disclosed by us in the reports we file under the Exchange Act. A
material weakness is a control deficiency, or a combination of control deficiencies, that results
in a more than remote likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. As of December 31, 2004, we had three material weaknesses in our internal control over
financial reporting. A description of the three material weaknesses is as follows:  
    Our internal controls intended to ensure the proper accounting for derivatives
(interest rate cap contracts) maintained by a special purpose trust in connection with
a $350 million warehouse credit facility provided to the Companys wholly owned
subsidiary, Bay View Acceptance Corporation (BVAC), were not operating effectively.
We determined that we should account for the derivatives in accordance with Statement
of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative
Instruments and Hedging Activities. Under SFAS 133, we are now recognizing the value
of the derivatives as an asset and record them at fair value, with any changes in fair
value recognized in earnings. We previously accounted for the derivatives as a debt
issuance cost of BVACs warehouse credit facility, which was amortized into the
results of operations.  
    The above weakness reflects that a continuing weakness exists, as reported in a Form 8-K
Current Report dated July 26, 2004, relating to insufficient qualified accounting personnel
to identify and resolve complex accounting issues on a timely basis and lack of appropriate
resources resulting in insufficient supervision and review of our financial reporting
process.
    The Company was unable to assess the effectiveness of the internal controls of two of
BVACs third-party service organizations. The service organizations processes are an
integral part of BVACs auto installment loan process, which is part of our internal
control over financial reporting, specifically as to the existence and valuation of auto
installment contracts, interest and fee income. The control deficiency did not result in a
misstatement in our historical consolidated financial statements; however, it could result
in a misstatement of auto installment contracts, interest and fee income that would result
in a material misstatement to our annual or interim financial statements that might not be
prevented or detected in a timely manner. Limitations on the Effectiveness of Controls Our management, including our Chief Executive Officer and our Chief Financial Officer, does
not expect that our disclosure controls and internal controls will prevent all errors and all
fraud. A control system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making can be faulty, and
that 32




---



##### Table of Contents



breakdowns can occur because of simple errors or mistakes. In addition, controls can be
circumvented by the individual acts of some persons, by the collusion of two or more persons or by
management override of the controls. Remediation Efforts Related to the Material Weaknesses in Internal Controls At December 31, 2004, we had a material weakness relating to our accounting for interest rate
caps. After further analysis we determined that the appropriate accounting application should have
been in accordance with SFAS 133. During the first quarter of 2005, we announced the restatement of
our financial statements for the first three quarters of 2004 and publicly released the effect of
these corrections on our financial statements for each of the first three quarters of 2004. This
Form 10-Q includes a restatement of our financial statements for the
quarter ended March 31, 2004,
and we have simultaneously filed amendments to our Form 10-Q Quarterly Reports for the quarters
ended June 30, 2004 and September 30, 2004 that include a
restatement of our financial statements
for those quarters. At the direction and under the supervision of our Audit Committee, we are undertaking the
following actions to remediate the two remaining material weaknesses:  
    We are continuing to work with two of BVACs third party service organizations to
obtain SAS 70 Type II reports that will allow us to assess the effectiveness of the
internal controls of these organizations. We anticipate receipt of one of the reports
by second quarter of 2005 and the other report by the third quarter of 2005.
    We have retained an interim controller to assist in day-to-day accounting management
and financial reporting. We are continuing our interview process to identify qualified
and experienced candidates to supplement our accounting staff.
    We are continuing ongoing reviews of all loan arrangements that involve derivative
instruments.
    We are in the process of retaining a qualified independent advisory firm to provide
guidance as it relates to the application of complex accounting principles. Our Audit Committee has also directed KPMG LLP, our internal auditors, to assist the Audit
Committee in its oversight of the corrective actions. (b) Changes in Internal Controls As discussed above, as of March 31, 2005, we remediated the material weakness attributable to
our accounting for derivatives (interest rate cap contracts) maintained by a special purpose trust
in connection with a $350 million warehouse credit facility. We are now accounting for the
derivatives in accordance with SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. Henceforth, any transaction that involves a derivative will be analyzed for
appropriate accounting treatment prior to the execution of the transaction. For the remaining two
material weaknesses noted above, we are undertaking the actions described above during 2005. 33




---



##### Table of Contents



PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings On August 29, 2003, Financial Security Assurance Inc. (FSA) filed a complaint against
us and the Bank in the United States District Court for the Southern District of New York.
The complaint, as amended, alleges breaches of representations and warranties or indemnity
obligations with regard to a number of loans that served as collateral for two
securitizations involving us and/or a former subsidiary, Bay View Franchise Mortgage
Acceptance Company, that were effected in 1998 and 2000. FSA guaranteed certain payments in
connection with these securitizations. We vigorously deny any liability to FSA and have
asserted numerous defenses to each of FSAs claims. We have also filed counterclaims
against FSA. We are also a party to various other legal actions arising in the normal course of our
business. After consultation with counsel, we do not currently expect that the resolution of
these legal actions will have a material adverse effect on our consolidated financial
condition, results of operations or cash flows. 
 Item 2.Unregistered Sales of Equity Securities and Use of Proceeds 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 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
 34




---



##### Table of Contents



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 CORPORATIONDATE:
May 10, 2005
    
    BY:
    
    /s/ John OkuboJohn OkuboExecutive Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)
 35