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UNITED STATESSECURITIES AND EXCHANGE COMMISSION  FORM 10-Q/A (AMENDMENT NO. 1) x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from______to_____
Commission file number 001-14879 BAY VIEW CAPITAL CORPORATION  Delaware
    
    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   [X]   No   [  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes   [X]   No   [  ] Indicate the number of shares outstanding of each of the registrants
classes of common stock, as of the latest
practicable date. Common Stock, Par Value $.01
    
    Outstanding at October 31, 2004(Title of Class)
    
    6,590,427 shares




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EXPLANATORY NOTE: This Amendment No. 1 on Form 10-Q/A amends and restates Part I, Items 1 and 2, and Part II,
Item 6 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, as filed with
the Securities and Exchange Commission on November 9, 2004 (the Original Filing). We are filing
this Amendment No. 1 to reflect the restatement of our condensed consolidated financial statements
as of and for the three- and nine- month periods ended September 30, 2004. As discussed in more detail in Note 2 to our condensed consolidated financial statements
contained in this Form 10-Q/A, the restatement resulted from a review of the Companys accounting
treatment of interest rate caps related to our auto finance subsidiarys revolving receivables
warehouse facility. The effect of the restatement is to decrease total assets as of September 30,
2004 by $311 thousand and to increase the Companys net loss for the three- and six-month periods
ended September 30, 2004 by $197 thousand and $311 thousand, respectively. Revised financial
information for the periods presented reflecting these restatements was previously disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2004 (the Form 10-K), which was filed
with the Securities and Exchange Commission on April 18, 2005. The restated financial and other
information included in this Amendment No. 1 should be read together with the Form 10-K. Except as set forth above, this Form 10-Q/A continues to speak as of November 9, 2004, the
date of the filing of the Original Filing, and we have not updated the disclosures contained herein
to reflect any events that have occurred thereafter. For a discussion of events and developments
thereafter, reference is made to the periodic reports we have filed with the Securities and
Exchange Commission since November 9, 2004.




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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 Statements of Changes in Net Assets in Liquidation (Liquidation Basis)
    
    
    6Condensed Consolidated Statement of Stockholders Equity
    
    
    7Condensed Consolidated Statements of Cash Flows
    
    
    8-9Notes to Condensed Consolidated Financial Statements
    
    
    10-14Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15-28Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    30PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 6. Exhibits
    
    
    31Signatures
    
    
    32Exhibit 10.aExhibit 31.1Exhibit 31.2Exhibit
32.1Exhibit
32.2EXHIBIT 10.AEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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Forward-Looking Statements This
Form 10-Q/A of Bay View Capital Corporation (the Company, we, us,
or our) contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 that describe our plans for our
automobile finance company, Bay View Acceptance Corporation (BVAC), and the
continuing disposition of assets and satisfaction of liabilities the Company
acquired when the dissolution of Bay View Bank, N.A. (the Bank) became
effective September 30, 2003. These forward-looking statements are identified
by use of terms and phrases such as anticipate, believe, could,
estimate, expect, intend, may, plan, predict, project, will,
and similar terms and phrases, including references to assumptions. These
forward-looking statements are necessarily based on assumptions as of the date
of this Form 10-Q and involve risks and uncertainties. Accordingly, the
Companys actual results from the ongoing operations of BVAC and the continuing
disposition of assets and satisfaction of liabilities of the Bank may differ
materially from those that the Company currently anticipates. There are a number of factors that may affect forward-looking statements
regarding the ongoing operations of BVAC including the following:  
    
    Our Board of Directors (the Board) could determine to make an
acquisition or expand BVAC's operations if it decides greater stockholder value would be realized by
doing so;
    
    Our ability to obtain financing to fund the ongoing operations of
BVAC, including securitizing and selling automobile installment
contracts in order to repay BVACs warehouse line of credit;
    
    Changes in general economic and business conditions;
    
    Interest rate fluctuations, including hedging activities;
    
    Our financial condition and liquidity, as well as future cash flows and results of operations;
    
    Competition;
    
    Our level of operating expenses;
    
    The effect of new laws, regulations and court decisions affecting consumer finance transactions;
    
    The condition of the market for the sale of new and used automobiles;
    
    The level of chargeoffs on the contracts that BVAC purchases; and
    
    Significant litigation. We anticipate making a series of cash distributions to our stockholders
from the proceeds of the disposition of assets from discontinued banking
activities. The factors that could reduce the amounts ultimately distributed
or that could cause a delay in making the distributions include the following:  
    
    Our Board could determine to make an acquisition or expand
BVAC's operations if it decides
greater stockholder value would be realized by doing so;
    
    Unforeseen delays in the disposition of the assets;
    
    The realization of our deferred tax assets could be less than we currently project;
    
    We may encounter difficulty in selling some of its assets, and
certain assets may not be able to be sold for the prices we currently
anticipates;
    
    We may not be able to discharge certain liabilities for the amounts we currently estimate;
    
    We may incur or discover presently unanticipated claims, liabilities or expenses;
    
    Our current estimates of the cash distribution amounts include
projections of future events and performance, including that of BVAC, and, accordingly, are
inherently subject to many uncertainties; and
    
    The expenses of the disposition of assets may exceed the amounts
currently estimated. 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




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PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements Bay View Capital
Corporation and Subsidiaries 
 Condensed Consolidated Statements of Financial Condition
 September 30,2004(Unaudited)(As Restated,
    
    December 31,See Note 2)
    
    2003(Dollars in thousands)ASSETSCash and cash equivalents
    
    $
    6,743
    
    
    $
    11,563Restricted cash
    
    
    32,749
    
    
    
    32,240Securities available-for-sale:Retained interests in securitizations
    
    
    24,680
    
    
    
    28,590Mortgage-backed and other securities
    
    
    
    
    
    
    6,139Installment contracts and loans held-for-sale:Installment contracts
    
    
    129,371
    
    
    
    165,874Other loans
    
    
    925
    
    
    
    12,074Installment contracts held-for-investment, net
of allowance for losses of $811 thousand at September 30, 2004
    
    
    147,703
    
    
    
    Investment in operating lease assets, net
    
    
    16,510
    
    
    
    66,657Real estate owned, net
    
    
    4,179
    
    
    
    4,955Premises and equipment, net
    
    
    580
    
    
    
    371Repossessed vehicles
    
    
    500
    
    
    
    438Income taxes, net
    
    
    17,040
    
    
    
    21,031Goodwill
    
    
    1,846
    
    
    
    1,846Other assets
    
    
    7,587
    
    
    
    12,340Total assets
    
    $
    390,413
    
    
    $
    364,118LIABILITIES AND STOCKHOLDERS EQUITYBorrowings:Warehouse credit facility
    
    $
    246,006
    
    
    $
    138,221Other borrowings
    
    
    3,608
    
    
    
    16,055Junior Subordinated Deferrable Interest Debentures
    
    
    
    
    
    
    24,784Other liabilities
    
    
    11,774
    
    
    
    17,500Liquidation reserve
    
    
    8,377
    
    
    
    11,626Total liabilities
    
    
    269,765
    
    
    
    208,186Stockholders equity:Common stock ($.01 par value); authorized, 80,000,000 shares;
issued, 2004  6,593,870 shares; 2003  6,579,333 shares;
outstanding, 2004  6,590,427 shares; 2003  6,575,890 shares
    
    
    66
    
    
    
    658Additional paid-in capital
    
    
    124,420
    
    
    
    156,588Accumulated deficit
    
    
    (3,369
    )
    
    
    (673
    )Treasury stock, at cost; 2004  3,443 shares; 2003  3,443 shares
    
    
    (587
    )
    
    
    (587
    )Accumulated
other comprehensive income (loss)
    
    
    118
    
    
    
    (54
    )Total stockholders equity
    
    
    120,648
    
    
    
    155,932Total liabilities and stockholders equity
    
    $
    390,413
    
    
    $
    364,118
 See notes to condensed consolidated financial statements. 4




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Bay View Capital
Corporation and Subsidiaries 
 Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
 For the Three
    
    For the NineMonths Ended
    
    Months EndedSeptember 30, 2004
    
    September 30, 2004(As Restated, See Note 2)Going Concern Basis(In thousands, except pershare amounts)Interest income:Interest on installment contracts and loans
    
    $
    5,217
    
    
    $
    13,880Interest and dividends on investment securities
    
    
    743
    
    
    
    2,173Interest on mortgage-backed securities
    
    
    
    
    
    
    315,960
    
    
    
    16,084Interest expense:Interest on borrowings
    
    
    2,147
    
    
    
    6,252Net interest income
    
    
    3,813
    
    
    
    9,832Provision for credit losses
    
    
    331
    
    
    
    852Net interest income after provision for credit losses
    
    
    3,482
    
    
    
    8,980Noninterest income:Leasing income
    
    
    2,510
    
    
    
    11,334Loan servicing income
    
    
    720
    
    
    
    2,519Unrealized
(losses) gains on interest rate swap agreements
    
    
    (1,433
    )
    
    
    1,162Unrealized
losses on interest rate caps
    
    
    (324
    )
    
    
    (511
    )Unrealized losses on installment contracts and other loans
    
    
    (249
    )
    
    
    (1,354
    )Loan fees and charges
    
    
    239
    
    
    
    963Loss on sale of assets and liabilities, net
    
    
    (367
    )
    
    
    (907
    )Other, net
    
    
    68
    
    
    
    1,1681,164
    
    
    
    14,374Noninterest expense:General and administrative
    
    
    6,009
    
    
    
    18,696Leasing expenses
    
    
    1,190
    
    
    
    8,705Real estate owned operations, net
    
    
    109
    
    
    
    3897,308
    
    
    
    27,790Loss before income tax benefit
    
    
    (2,662
    )
    
    
    (4,436
    )Income tax benefit
    
    
    (1,044
    )
    
    
    (1,740
    )Net loss
    
    $
    (1,618
    )
    
    $
    (2,696
    )Basic loss per share
    
    $
    (0.25
    )
    
    $
    (0.41
    )Diluted loss per share
    
    $
    (0.25
    )
    
    $
    (0.41
    )Weighted-average basic shares outstanding
    
    
    6,588
    
    
    
    6,583Weighted-average diluted shares outstanding
    
    
    6,588
    
    
    
    6,583Net loss
    
    $
    (1,618
    )
    
    $
    (2,696
    )Other comprehensive income (loss), net of tax:Change in unrealized gain (loss) on securities
available-for-sale, net of tax expense (benefit) of
($254) and $110 for the three- and nine-month periods
ended September 30, 2004, respectively
    
    
    (398
    )
    
    
    172Other comprehensive income (loss)
    
    
    (398
    )
    
    
    172Comprehensive loss
    
    $
    (2,016
    )
    
    $
    (2,524
    )
 See notes to condensed consolidated financial statements. 5




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Bay View Capital
Corporation and Subsidiaries 
 Condensed Consolidated Statements of Changes in Net Assets in Liquidation (Liquidation Basis)
(Unaudited)
 For the Three
    
    For the NineMonths Ended
    
    Months EndedSeptember 30, 2003
    
    September 30, 2003(Dollars in thousands)Net assets in liquidation at beginning of period
    
    $
    409,864
    
    
    $
    410,064Pre-tax loss from operations
    
    
    (2,228
    )
    
    
    (4,595
    )Changes in estimated values of assets and liabilities
    
    
    (3,407
    )
    
    
    (5,995
    )Income tax benefit
    
    
    4,664
    
    
    
    6,252Net loss from operations
    
    
    (971
    )
    
    
    (4,338
    )Other changes in net assets in liquidation
    
    
    921
    
    
    
    4,088Net assets in liquidation at end of period
    
    $
    409,814
    
    
    $
    409,814
 See notes to condensed consolidated financial statements. 6




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Bay View Capital
Corporation and Subsidiaries 
 Condensed Consolidated Statement of Stockholders Equity
(Unaudited)
 Number
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    Accumulated
    
    Totalof Shares
    
    Common
    
    Paid-in
    
    Accumulated
    
    Treasury
    
    Other Comprehensive
    
    StockholdersIssued
    
    Stock
    
    Capital
    
    Deficit
    
    Stock
    
    Income (Loss)
    
    Equity(In thousands)Balance at
December 31, 2003
    
    
    6,579
    
    
    $
    658
    
    
    $
    156,588
    
    
    $
    (673
    )
    
    $
    (587
    )
    
    $
    (54
    )
    
    $
    155,932Exercise of stock warrants
    
    
    7
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Distribution of directors stock-in-lieu of cash plan shares
    
    
    8
    
    
    
    1
    
    
    
    181
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182Reclassification of common stock par value to additional
paid-in-capital due to reverse stock split
    
    
    
    
    
    
    (593
    )
    
    
    593
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Redemption of fractional shares
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Cash distribution
    
    
    
    
    
    
    
    
    
    
    (32,954
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,954
    )Net loss (As
Restated, See Note 2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,696
    )
    
    
    
    
    
    
    
    
    
    
    (2,696
    )Unrealized gain on securities available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    172
    
    
    
    172Balance at
September 30, 2004 (As Restated, See Note 2)
    
    
    6,594
    
    
    $
    66
    
    
    $
    124,420
    
    
    $
    (3,369
    )
    
    $
    (587
    )
    
    $
    118
    
    
    $
    120,648
 See notes to condensed consolidated financial statements. 7




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Bay View Capital
Corporation and Subsidiaries 
 Condensed Consolidated Statements of Cash Flows
(Unaudited)
 For the Nine Months EndedSeptember 30,2004(As Restated,
    
    September 30,See Note 2)
    
    2003Going ConcernBasis
    
    LiquidationBasis(Dollars in thousands)CASH FLOWS FROM OPERATING ACTIVITIESNet loss and certain changes in net assets in liquidation
    
    $
    (2,696
    )
    
    $
    (4,338
    )Adjustments
to reconcile net loss and certain changes in net assets in
liquidation to net cash provided by operating
activities:Net increase in loans and leases held-for-sale resulting from
originations, net of repayments
    
    
    (92,685
    )
    
    
    (162,189
    )Transfer of auto contracts from held-for-sale to held-for-investment
    
    
    103,023
    
    
    
    Proceeds from sales and /or securitizations of loans and leases held-for-sale
    
    
    33,823
    
    
    
    317,204Provision for credit losses
    
    
    852
    
    
    
    Depreciation and amortization of premises and equipment
    
    
    217
    
    
    
    409Depreciation and amortization of investment in operating lease assets
    
    
    8,194
    
    
    
    23,035Accretion of retained interests in securitizations
    
    
    (1,816
    )
    
    
    (2,299
    )Amortization of premiums and accretion of discount
    
    
    301
    
    
    
    (4,683
    )Provision for deferred taxes
    
    
    (1,740
    )
    
    
    (Gain) loss on sale of assets and liabilities, net
    
    
    907
    
    
    
    (787
    )Change in fair value of derivative instruments
    
    
    (651
    )
    
    
    1,448Unrealized loss on installment auto contracts and other loans
    
    
    1,354
    
    
    
    Increase in restricted cash
    
    
    (509
    )
    
    
    (Increase) decrease in other assets
    
    
    7,253
    
    
    
    (3,112
    )Decrease in other liabilities
    
    
    (4,564
    )
    
    
    (25,519
    )Decrease in reserve for estimated costs during the period of liquidation
    
    
    (3,249
    )
    
    
    (27,748
    )Adjustment for liquidation basis
    
    
    
    
    
    
    5,995Other, net
    
    
    1,729
    
    
    
    1,808Net cash provided by operating activities
    
    
    49,743
    
    
    
    119,224CASH FLOWS FROM INVESTING ACTIVITIESNet increase in loans held-for-investment resulting from originations, net of repayments
    
    
    (45,833
    )
    
    
    Transfer of auto contracts from held-for-sale to held-for-investment
    
    
    (103,023
    )
    
    
    Decrease in investment in operating lease assets
    
    
    41,441
    
    
    
    71,759Purchases of investment securities
    
    
    
    
    
    
    (9,485
    )Principal payments on mortgage-backed securities
    
    
    590
    
    
    
    11,641Principal payments on investment securities
    
    
    
    
    
    
    12,492Proceeds from sale of mortgage-backed securities available-for-sale
    
    
    5,632
    
    
    
    7,847Proceeds from sale of investment securities available-for-sale
    
    
    5,955
    
    
    
    2,735Proceeds from sale of real estate owned
    
    
    690
    
    
    
    2,009Additions to premises and equipment
    
    
    (423
    )
    
    
    (183
    )Decrease in investment in stock of the Federal Home Loan Bank
of San Francisco
    
    
    
    
    
    
    15,570Decrease in investment in stock of the Federal Reserve Bank
    
    
    
    
    
    
    13,659Net cash (used in) provided by investing activities
    
    
    (94,971
    )
    
    
    128,044
 8




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Bay View Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited) For the Nine Months EndedSeptember 30,2004(As Restated,
    
    September 30,See Note 2)
    
    2003Going ConcernBasis
    
    LiquidationBasis(Dollars in thousands)CASH FLOWS FROM FINANCING ACTIVITIESNet decrease in deposits
    
    $
    
    
    
    $
    (224,189
    )Increase in warehouse line of credit outstanding
    
    
    193,429
    
    
    
    13,137Repayment of warehouse line of credit outstanding
    
    
    (85,644
    )
    
    
    (13,137
    )Redemption of Junior Subordinated Deferrable Interest Debentures
    
    
    (22,000
    )
    
    
    Net decrease in other borrowings
    
    
    (12,447
    )
    
    
    (36,918
    )Redemption of Capital Securities
    
    
    
    
    
    
    (4,458
    )Proceeds from issuance of common stock
    
    
    24
    
    
    
    3,325Cash
distributions paid to common stockholders
    
    
    (32,954
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    40,408
    
    
    
    (262,240
    )Net decrease in cash and cash equivalents
    
    
    (4,820
    )
    
    
    (14,972
    )Cash and cash equivalents at beginning of period
    
    
    11,563
    
    
    
    223,295Cash and cash equivalents at end of period
    
    $
    6,743
    
    
    $
    208,323Cash paid during the period for:Interest
    
    $
    6,547
    
    
    $
    10,024Income taxes
    
    $
    239
    
    
    $
    13,603Supplemental non-cash investing and financing activities:Loans transferred to real estate owned
    
    $
    
    
    
    $
    6,970Loans transferred from held-for-sale to held-for-investment
    
    $
    103,023
    
    
    $
    Redemption of Junior Subordinated Deferrable Interest Debentures
    
    $
    2,784
    
    
    $
    
 See notes to condensed consolidated financial statements. 9




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Bay View Capital
Corporation and Subsidiaries 
 Notes to Condensed Consolidated Financial Statements
September 30, 2004
(Unaudited)
 Note 1. Basis of Presentation Bay View Capital Corporation (the Company, we, us, or our) is a
financial services company headquartered in San Mateo, California. The 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; Bay
View Capital I, a Delaware business trust; FMAC Insurance Services, a Delaware
corporation; FMAC 2000-A Holding Company, a California corporation; FMAC
Franchise Receivables Corporation, a California corporation; Bay View
Commercial Finance Group, a California corporation; XBVBKRS, Inc., a California
corporation; MoneyCare, Inc., a California corporation; Bay View Auxiliary
Corporation, a California corporation; and Bay View Bank, N.A. (the Bank), a
national bank which was dissolved effective September 30, 2003. All
intercompany accounts and transactions have been eliminated. The condensed consolidated financial statements as of September 30, 2004
and December 31, 2003 and for the three- and nine-month periods ended September
30, 2004 have been prepared on a going concern basis. The condensed
consolidated financial statements for the three- and nine-month periods ended
September 30, 2003 have been prepared under the liquidation basis of
accounting. The information provided in these interim financial statements reflects
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the Companys financial condition as of September 30, 2004, the
results of its operations for the three- and nine-month periods ended September
30, 2004, the changes in net assets in liquidation for the three- and
nine-month periods ended September 30, 2003, and cash flows for the nine-month
periods ended September 30, 2004 and 2003. These adjustments are of a normal,
recurring nature unless otherwise disclosed in this Form 10-Q/A. These interim
financial statements have been prepared in accordance with the instructions to
Form 10-Q. 10




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##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2004
(Unaudited) 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, and as a
result, the number of issued shares was reduced from 65,910,689 shares prior to
the reverse stock split to 6,590,461 shares following the reverse stock split,
including an adjustment for fractional shares. The Companys issued common
stock totaled 6,593,870 shares at September 30, 2004. The reverse stock split
did not impact the par value of the common stock, which remains at $0.01 per
share. Accordingly, the aggregate value of the issued common stock on the
Companys balance sheet was reduced by reclassifying the cumulative par value
of the eliminated shares of common stock to additional paid-in capital. All
shares outstanding and per share amounts are presented on a post-reverse stock
split basis for all periods reported. 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 were no stock option awards, and no compensation expense was recorded
under APB 25 for the nine months ended September 30, 2004. Had compensation
cost related to stock option awards outstanding 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 on a
going-concern basis would have been the pro forma amounts illustrated in the
table below for the period indicated: For the Three
    
    For the NineMonths Ended
    
    Months EndedSeptember 30, 2004
    
    September 30, 2004(As Restated, See Note 2)(Dollars in thousands, except pershare amounts)As reported net loss in
Consolidated Statement of
Operations and
Comprehensive Loss
    
    $
    (1,618
    )
    
    $
    (2,696
    )Stock-based employee
compensation included in
net loss as reported
    
    
    
    
    
    
    Stock-based employee
compensation expense
determined under fair value
method, net of taxes
    
    
    
    
    
    
    Pro forma net loss, after
stock-based employee
compensation expense
    
    $
    (1,618
    )
    
    $
    (2,696
    )Net loss per share - basic:As reported
    
    $
    (0.25
    )
    
    $
    (0.41
    )Pro forma
    
    $
    (0.25
    )
    
    $
    (0.41
    )Net loss per
share - diluted:As reported
    
    $
    (0.25
    )
    
    $
    (0.41
    )Pro forma
    
    $
    (0.25
    )
    
    $
    (0.41
    )
 For the three- and nine-month periods ended September 30, 2003, the
Company reported its results using the liquidation basis of accounting under
which earnings (loss) per share information is not presented. 11




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##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2004
(Unaudited) Note 2. Restatement of the Condensed Consolidated Financial Statements as of and for the Three- and
Nine-Month Periods ended September 30, 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 decrease total assets as of September 30, 2004 by $311 thousand and to increase the Companys
net loss for the three- and nine-month periods ended September 30, 2004 by $197 thousand and $311
thousand, respectively. Revised financial information for the periods presented reflecting these
restatements was previously disclosed in our Form 10-K for the year ended December 31, 2004. The
restated financial and other information included in this Amendment No. 1 should be read together
with the Form 10-K. Except as set forth above, we have not updated the disclosures contained herein to reflect any
events that have occurred after the Original Filing. The following table sets forth the impact of
the restatement on net income and basic and diluted earnings per share for the three- and
nine-months ended September 30, 2004: As of and For the
    
    
    As of and For theThree Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2004
    
    
    September 30, 2004(Amounts in thousands, except per share amounts)Net loss:Net loss as previously reported
    
    $
    (1,421
    )
    
    $
    (2,385
    )Net loss as restated
    
    $
    (1,618
    )
    
    $
    (2,696
    )Weighted-average basic shares outstanding
    
    
    6,588
    
    
    
    6,583Add: Dilutive potential common shares
    
    
    
    
    
    
    Weighted-average diluted shares outstanding
    
    
    6,588
    
    
    
    6,583Basic loss per share:Basic loss per share as previously reported
    
    $
    (0.22
    )
    
    $
    (0.36
    )Restatement adjustment
    
    
    (0.03
    )
    
    
    (0.05
    )Basic loss per share as restated
    
    $
    (0.25
    )
    
    $
    (0.41
    )Diluted loss per share:Diluted loss per share as previously reported
    
    $
    (0.22
    )
    
    $
    (0.36
    )Restatement adjustment
    
    
    (0.03
    )
    
    
    (0.05
    )Diluted loss per share as restated
    
    $
    (0.25
    )
    
    $
    (0.41
    )Noninterest income:Noninterest income as previously reported
    
    $
    1,488
    
    
    $
    14,885Noninterest income as restated
    
    $
    1,164
    
    
    $
    14,374Income taxes, net:Income taxes, net as previously reported
    
    $
    16,840
    
    
    $
    16,840Income taxes, net as restated
    
    $
    17,040
    
    
    $
    17,040Other assets:Other assets as previously reported
    
    $
    8,098
    
    
    $
    8,098Other assets as restated
    
    $
    7,587
    
    
    $
    7,587Total assets:Total assets as previously reported
    
    $
    390,724
    
    
    $
    390,724Total assets as restated
    
    $
    390,413
    
    
    $
    390,413
 Note 3. Earnings (Loss) Per Share For the three- and nine-month periods ended September 30, 2003, the
Company reported its results using the liquidation basis of accounting, under
which loss per share information is not presented. Accordingly, loss
per share information has not been presented for these periods. 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- and nine-month periods ended September 30, 2004, common
shares issuable upon the exercise of options and warrants of 8,238 and 9,681,
respectively, were excluded from the calculation of diluted loss per share
because they were anti-dilutive. The following table illustrates the calculation of basic and diluted
loss per share for the periods indicated: For the Three
    
    For the Nine MonthsMonths Ended
    
    EndedSeptember 30, 2004
    
    September 30, 2004(As Restated, See Note 2)(Amounts in thousands,except per share amounts)Net loss
    
    $
    (1,618
    )
    
    $
    (2,696
    )Weighted-average basic shares outstanding
    
    
    6,588
    
    
    
    6,583Add: Dilutive potential common shares
    
    
    
    
    
    
    Weighted-average diluted shares outstanding
    
    
    6,588
    
    
    
    6,583Basic loss per share
    
    $
    (0.25
    )
    
    $
    (0.41
    )Diluted loss per share
    
    $
    (0.25
    )
    
    $
    (0.41
    )
 12




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##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2004
(Unaudited) Note 4. 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 expenses, along with the amortization of capitalized
initial direct lease costs and impairment charges. Leasing expenses were $1.2
million for the third quarter of 2004 and $8.7 million for the first nine
months of 2004. The Company performs a quarterly impairment analysis of its auto 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 vehicle, including initial
direct capitalized costs, less the sum of the cumulative amount of depreciation
recorded against the vehicle, the cumulative amount of amortization of the
initial direct capitalized costs recorded since the inception of the lease and
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 comprising the Companys
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. The Company then estimates the probability of one of three
lease payoff scenarios occurring: i.) the vehicles 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 to the
Company 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 its realization of projected ALG residual values (for example, for
vehicle classes where actual amounts realized were less than what ALG had
projected, the Company reduced the projected ALG residual values to equal the
Companys experience-to-date), and the probabilities of each of the three
previously discussed lease payoff scenarios occurring, the Company determines 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 its net book value, the lease is considered to be 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 that are similar to 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.
Annual depreciation expense associated with those leases that have
reduced residual values is recomputed over the remaining term of the
lease. During
the first nine months of 2004, the Company recorded $1.2 million of additional
depreciation. Note 5. Income Taxes The
Company recorded tax benefits of $1.0 million and $1.7 million for the
third quarter and the first nine months of 2004, respectively. The effective
tax rate used in computing the tax benefit for these periods was 39.2%. This
projected 2004 effective tax rate is higher than the federal statutory rate due
primarily to state income and franchise taxes. 13




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##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2004
(Unaudited) For the third quarter and the first nine months of 2003, the Company
recorded tax benefits of $4.7 million and $6.3 million, respectively. The tax
benefit for the first nine months of 2003, which was recorded at an effective
tax rate of 59.0%, included a $2.4 million tax benefit for reductions in the
prior years state tax liability. The 2003 effective tax rate is different
from the federal statutory rate due primarily to the effect of state income and
franchise taxes. At
September 30, 2004, the Company had deferred tax assets of $17.9
million, consisting of net deferred tax assets of $39.4 million less a
valuation allowance of $21.5 million. The valuation allowance was established
in consideration of the Companys projected future net 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 2003. Note 6. Commitments and Contingencies The Company is involved as plaintiff or defendant in various legal actions
and is occasionally exposed to unasserted claims arising in the normal course
of business. In the opinion of management, after consultation with counsel,
the resolution of these legal actions is not anticipated to have a material
adverse effect on the Companys financial statements. Note 7. Liquidation Reserve The liquidation reserve, recorded while the Company was using the
liquidation basis of accounting, includes accruals for severance payments,
costs related to facility closures and estimated litigation expense and
settlement costs. Upon the Companys re-adoption of the going
concern basis of accounting effective October 1, 2003, it
reversed $1.7 million of accruals related
to certain severance and occupancy costs which were recorded under the
liquidation basis of
accounting, and adopted Statement  No. 146 accounting for the
remaining reserves. At December 31, 2003, the remaining balance
of the liquidation reserve was $11.6 million, including accruals
for severance, facilities and litigation and other accrued
liabilities of $2.0 million, $6.4 million and
$3.2 million, respectively. The
only charges recorded during 2004 totaled $0.4 million and were
attributable to severance. At September 30, 2004, the remaining balance of the
liquidation reserve was $8.4 million, including accruals for severance,
facilities and litigation and other accrued liabilities of $1.3 million, $5.5
million and $1.6 million, respectively. 14




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##### 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 2003 Annual Report on Form 10-K, as
amended and restated on Form 10-K/A, 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/A. Furthermore, the interim financial results for
the three- and nine-month periods ended September 30, 2004 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), specializes in
indirect purchases of retail installment contracts originated by
manufacturer-franchised and independent dealers in connection with the sale of
new and used automobiles. BVAC generates revenue through its investment in
installment contracts, and the subsequent securitization or sale and servicing
of these installment contracts. 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 effect a complete
dissolution of the Company. As a result, we adopted the liquidation basis of
accounting effective September 30, 2002. During the fourth quarter of 2003, our Board of Directors amended the Plan
to become a plan of partial liquidation (the Amended Plan) under which we are
completing the liquidation of the assets and satisfaction of the liabilities of
the Bank remaining after the Banks September 30, 2003 dissolution,
distributing the proceeds to our stockholders through a series of cash
distributions, and continuing to operate BVAC on an ongoing basis. In
connection with the Amended Plan, we discontinued our use of the liquidation
basis of accounting and re-adopted the going concern basis of accounting
effective October 1, 2003. During the fourth quarter of 2003, in accordance with the Amended Plan, we
made an initial cash distribution of $263.2 million to our stockholders and
redeemed $63.5 million of the 9.76% Cumulative Capital Securities (Capital
Securities) issued by Bay View Capital I. On June 30, 2004, we redeemed the
remaining $22.0 million of the Capital Securities at par value. We also paid
cash distributions of $2.50 per share at June 30, 2004 and an additional $2.50 per share at September 30, 2004 for a total of
$33.0 million. At September 30, 2004,
remaining assets to be liquidated, including restricted cash, auto
leases, commercial loans and foreclosed real estate, totaled
approximately $65.8 million. Remaining liabilities to be
satisfied, including a $3.6 million financing secured by cash
flow from remaining auto leases, totaled $7.3 million at
September 30, 2004. Automobile Finance BVAC, the Companys indirect auto finance company, acquires auto
installment contracts from a network of approximately 7,000
manufacturer-franchised and independent auto dealers in 33 states and has
positioned itself in the market as a lender for well-qualified borrowers.
While it competes with other lenders in the general market for good credit
quality loans, BVAC also provides specialized products such as extended term
financing and larger advances for credit quality customers and uses these
products to establish relationships with automobile dealers. The Company believes this strategy has enabled BVAC to establish a loyal
dealership network and a unique niche by satisfying consumer demand within this
market segment that has not been well served by the large commercial banks and
auto finance companies. Of the contracts purchased in the third quarter of
2004, 15




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##### Table of Contents



approximately 93% were originated by manufacturer-franchised dealerships
and approximately 7% were originated by independent dealerships; 53% were
contracts on new vehicles and 47% were contracts on used vehicles. 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. FICO credit scores that averaged
742 in the third quarter of 2004, BVACs borrower base is largely comprised of
prime borrowers. BVAC offers loan terms to 96 months and typically finances an
amount in excess of a dealers wholesale value of a vehicle. During the third
quarter of 2004, the average loan amount BVAC financed was $29,400, the average
contract term was 83 months and the average loan-to-value ratio was 124% of
vehicle wholesale value. BVAC utilizes a proprietary credit scoring system in
connection with its underwriting and credit approvals. The credit scoring
system captures data from consumers credit bureau reports, consumers loan
applications and the terms of proposed loans. On September 7, 2004, Prodyodth K. PK Chatterjee joined the Company as
President and CEO of BVAC and Executive Vice President and Director of Retail
Operations for the Company. Critical Accounting Policies We have identified the most critical accounting policies upon which our
financial status depends. We determined the critical policies by considering
accounting principles that involve the most complex or subjective decisions or
assessments. We have identified our most critical accounting policies to be
those related to our investment in operating lease assets, retained interests
in securitizations and income taxes. Investment in Operating Lease Assets In accordance with the provisions of Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, we perform a quarterly impairment analysis of our long-lived assets
including our auto leases, which are accounted for as operating leases.
Statement No. 144 addresses the recognition and measurement of the impairment
of long-lived assets and defines impairment as the condition that exists when
the carrying amount of long-lived assets exceeds fair value. When identified,
Statement No. 144 requires the recognition of an impairment loss. Under
Statement No. 144, we consider an auto lease to be impaired if its gross future
undiscounted cash flows are less than the net book value of the lease. The net
book value of the lease is defined as the original capitalized cost of the
vehicle, including initial direct capitalized costs, less the sum of the
cumulative amount of depreciation recorded against the vehicle, the cumulative
amount of amortization of the initial direct capitalized costs recorded since
the inception of the lease and any impairment charges recorded-to-date on that
lease. In determining gross future undiscounted cash flows, we contract with
Automotive Lease Guide, commonly referred to as ALG, to provide estimates of
the residual value of the underlying vehicles comprising the Companys
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 that 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 to the
Company 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 its 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 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 16




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##### Table of Contents



three disposition scenarios. The present value is calculated using current
market rates, which are similar to the original contract lease rate. For those
impaired leases where the estimated fair value is less than the net book value,
an impairment charge is recorded for the difference. Annual depreciation
expense associated with those leases that have reduced residual values is
recomputed over the remaining term of the lease. Retained Interests in Securitizations BVAC periodically securitizes a portion of its warehouse inventory of auto
contracts by issuing asset-backed securities, and uses the proceeds to pay down
the balance of its warehouse credit facility. In order to enhance the credit
rating of these asset-backed securities, BVAC makes an initial deposit of cash
into restricted securitization trust accounts. Excess cash flow within the
securitization trusts  resulting from interest income received on the
installment contracts in excess of interest paid to investors in the
asset-backed securities, credit losses and trust expenses  is retained by the
trust to build the trust cash accounts to designated floor levels and provide
further credit enhancement. Once these designated floor levels in the trust
cash accounts are attained, excess cash flow is distributed to BVAC. With the option of structuring previous securitizations as either sales or
financings, BVAC has elected to structure the transactions as sales
and, accordingly, has recognized gains on the
sales. In recording these previous securitization transactions, the Company
has recorded an asset, which is referred to as a retained interest in the
securitization, that represents the present value of the initial cash deposit
and excess cash flow that is anticipated to be produced by the securitization
trust over the life of the asset-backed securities. We incorporate various assumptions in calculating the present value of the
cash deposit and excess cash flow. The following table illustrates the
significant assumptions utilized in the valuation of retained interests in
securitizations as of September 30, 2004: Weighted-average discount rate
    
    12.0%-12.5%Projected annual credit losses, net
    
    1.00%Range of projected cumulative credit losses
    
    1.71%-1.90%Prepayment speed
    
    1.6 ABS
 Changes in the above assumptions due to actual experiences or market
conditions could affect the value of our retained interests in securitizations. Income Taxes At
September 30, 2004, we had deferred tax assets of $17.9 million,
consisting of net deferred tax assets of $39.4 million less a valuation
allowance of $21.5 million. The valuation allowance was established in
consideration of our projected future net income available to realize the
deferred tax assets under the Amended Plan in years after 2003. Results of Operations As discussed above, we discontinued the use of the liquidation basis of
accounting and re-adopted the going concern basis of accounting effective
October 1, 2003. From September 30, 2002 until September 30, 2003, we reported
our results under the liquidation basis of accounting under which we reported
the value of, and the changes in, net assets available for distribution to
stockholders (net assets in liquidation) instead of results from continuing
operations. Accordingly, our financial statements as of September 30, 2004 and
December 31, 2003 and for the three- and nine-month periods ended September 30,
2004 have been prepared under the going concern basis of accounting while our
financial statements for the three- and nine-month periods ended September 30,
2003 have been prepared under the liquidation basis of accounting. For this
reason, the following discussion of our results of operations for the three-
and nine-months ended September 30, 2004 is presented independently from the
discussion of our results of operations for the three- and nine-months ended
September 30, 2003. 17




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##### Table of Contents



Going Concern Basis Results of Operations  Three- and Nine-Month Periods ended September 30, 2004 Our
consolidated net loss for the third quarter of 2004 was $1.6 million,
or $0.25 per diluted share and our consolidated net loss for the first nine
months of 2004 was $2.7 million, or $0.41 per diluted share. The consolidated
net loss for the third quarter of 2004 included a net loss of
$0.6 million
from BVACs ongoing auto finance business while our consolidated net loss for
the first nine months of 2004 included $1.5 million of net income from BVAC. Our third quarter 2004 net loss was primarily the result of $1.4 million
of unrealized losses in interest rate swap contracts which BVAC employs as part
of its hedging activity that is designed to protect the economic value of its
warehouse inventory of auto contracts from exposure to rising interest rates.
Net interest income increased quarter-over-quarter as the balance of our
warehouse inventory of auto contracts has continued to increase through the
year. Leasing income and expense have declined through the year as we decrease
the balance of our remaining auto lease portfolio. We also experienced reduced
leasing expenses in the third quarter of 2004 as we were able to reduce
provisions for losses from the remaining portfolio of auto lease residuals. Net Interest Income Net interest income was $3.8 million and $9.8 million for the quarter and
nine-month period ended September 30 2004, respectively. At the end of the second quarter of 2004, we
redeemed the balance of our 9.76% Junior Subordinated Deferrable Interest
Debentures eliminating $0.6 million of quarterly interest expense. Continued
production of auto contracts has increased the balance of our warehouse
inventory of auto contracts from quarter-to-quarter during 2004 thereby
increasing net interest income on a quarter-over-quarter basis. For the third quarter of 2004, interest income was $5.9 million and the
average yield on interest-earning assets was 7.23%, while interest expense on
our borrowings was $2.1 million and the average cost of borrowings was 3.49%.
Year-to-date 2004 interest income was $16.1 million and the average yield on
interest-earning assets was 7.22%, while interest expense on our borrowings was
$6.3 million and the average cost of borrowings was 3.89%. 18




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##### Table of Contents



The following tables illustrate 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 September 30, 2004Average
    
    
    
    
    
    AverageBalance
    
    Interest
    
    Yield/Rate(Dollars in thousands)AssetsInterest-earning assets:Installment
contracts and other loans receivable
    
    $
    267,603
    
    
    $
    5,217
    
    
    
    7.75
    %Short-term investments
    
    
    33,835
    
    
    
    123
    
    
    
    1.45Retained interests in securitizations
    
    
    26,071
    
    
    
    620
    
    
    
    9.50Mortgage-backed and other securities
    
    
    114
    
    
    
    
    
    
    
    0.00Total interest-earning assets
    
    
    327,623
    
    
    
    5,960
    
    
    
    7.23
    %Other assets
    
    
    61,677Total assets
    
    $
    389,300Liabilities and Stockholders EquityInterest-bearing liabilities:Warehouse line
    
    $
    236,936
    
    
    $
    2,130
    
    
    
    3.54
    %Other borrowings
    
    
    5,190
    
    
    
    17
    
    
    
    1.33Total interest-bearing liabilities
    
    
    242,126
    
    
    
    2,147
    
    
    
    3.49
    %Other liabilities
    
    
    17,063Total liabilities
    
    
    259,189Stockholders equity
    
    
    130,111Total liabilities and stockholders
equity
    
    $
    389,300Net interest income/net interest spread
    
    
    
    
    
    $
    3,813
    
    
    
    3.74
    %Net interest-earning assets
    
    $
    85,497Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.65
    %
 19




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##### Table of Contents



AVERAGE BALANCES, YIELDS AND RATESFor the Nine Months Ended September 30, 2004Average
    
    
    
    
    
    AverageBalance
    
    Interest
    
    Yield/Rate(Dollars in thousands)AssetsInterest-earning assets:Installment
contracts and other loans receivable
    
    $
    234,252
    
    
    $
    13,880
    
    
    
    7.91
    %Short-term investments
    
    
    34,708
    
    
    
    312
    
    
    
    1.20Retained interests in securitizations
    
    
    27,471
    
    
    
    1,861
    
    
    
    9.03Mortgage-backed and other securities
    
    
    990
    
    
    
    31
    
    
    
    4.44Total interest-earning assets
    
    
    297,421
    
    
    
    16,084
    
    
    
    7.22
    %Other assets
    
    
    80,000Total assets
    
    $
    377,421Liabilities and Stockholders EquityInterest-bearing liabilities:Warehouse line
    
    $
    186,986
    
    
    $
    4,907
    
    
    
    3.46
    %Other borrowings
    
    
    9,276
    
    
    
    142
    
    
    
    2.05Junior Subordinated Deferrable
Interest Debentures
    
    
    16,372
    
    
    
    1,203
    
    
    
    9.76Total interest-bearing liabilities
    
    
    212,634
    
    
    
    6,252
    
    
    
    3.89
    %Other liabilities
    
    
    26,341Total liabilities
    
    
    238,975Stockholders equity
    
    
    138,446Total liabilities and stockholders
equity
    
    $
    377,421Net interest income/net interest spread
    
    
    
    
    
    $
    9,832
    
    
    
    3.33
    %Net interest-earning assets
    
    $
    84,787Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.44
    %
 Provision for Losses on Installment Contracts At
September 30, 2004, BVAC had $147.7 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 $0.3 million and $0.9 million for the third quarter and the
nine-month period ended September 30, 2004, respectively. Refer to Balance
Sheet Analysis - Installment Contracts and Other Loans Receivable  Auto Installment Contracts
for related information on BVACs allowance for credit losses on auto contracts
held-for-investment. Noninterest Income For
the quarter ended September 30, 2004, noninterest income was $1.2
million and included leasing income of $2.5 million, loan servicing and other
loan fee income of $1.0 million, unrealized losses on interest rate swap
contracts of $1.4 million, unrealized losses on interest rate
caps of $0.3 million, unrealized losses on auto contracts and other loans
carried at the lower of cost or estimated fair value of $0.2 million, and other
losses, including write-offs of premium on auto contracts held-for-sale due to
borrower pay-offs and charge-offs of defaulted auto contracts, of $0.4 million.
Leasing income has declined through the year as we continue to reduce the
balance of our portfolio of auto leases. 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. As discussed in additional detail in Item 3., Quantitative and
Qualitative Disclosures About Market Risk  Asset/Liability Management, we
employ interest rate swap contracts 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 interest rate swaps as
prescribed by Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging 20




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Activities. Our interest rate swaps are
not treated as 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 significant quarter-to-quarter volatility in noninterest income.
The $1.4 million of unrealized losses on our interest rate swaps in the third
quarter of 2004 resulted from a decline in interest rates during the quarter.
Conversely, sharply rising interest rates resulted in $2.8 million of
unrealized gains on our interest rate swaps in the second quarter of 2004.
Future changes in interest rates could continue to produce
fluctuations in the fair value of our derivative instruments and,
therefore, the level of our noninterest income. Year-to-date,
noninterest income was $14.4 million and included leasing
income of $11.3 million, loan servicing and other fee income of $3.5 million,
unrealized gains on interest rate swaps of $1.2 million, unrealized losses in
auto contracts and other loans carried at the lower of cost or estimated fair
value of $1.4 million, unrealized losses on interest rate caps
of $0.5 million, and other income of $0.3 million. Noninterest Expense For the three-months ended September 30, 2004, our noninterest expense was
$7.3 million including $6.0 million of general and administrative expense, $1.2
million of leasing expense and $0.1 million from real estate owned operations.
For the nine-months ended September 30, 2004, noninterest expense was $27.8
million including $18.7 million of general and administrative expense, $8.7
million of leasing expense and $0.4 million from real estate owned operations.
The following table sets forth the components of general and administrative
expense: For the Three
    
    For the Nine MonthsMonths Ended
    
    EndedSeptember 30, 2004
    
    September 30, 2004(Dollars in thousands)General and Administrative ExpenseEmployee compensation
    
    $
    2,979
    
    
    $
    9,859Occupancy
    
    
    528
    
    
    
    1,234Professional and legal services
    
    
    1,560
    
    
    
    4,680Information technology
    
    
    329
    
    
    
    890Capitalized fees and costs
    
    
    (281
    )
    
    
    (883
    )Other
    
    
    894
    
    
    
    2,916Total general and administrative expense
    
    $
    6,009
    
    
    $
    18,696
 For the third quarter and the first nine months of 2004, leasing expenses
were $1.2 million and $8.7 million, respectively. Our leasing expenses
continue to decline in line with the reduction in the balance of the remaining
portfolio. 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 expenses, along with the amortization of capitalized
initial direct lease costs and impairment charges. At September 30, 2004, there were no vehicles in our auto lease portfolio
that were considered impaired under Statement No. 144, compared to
approximately 2% and 64% of the vehicles in our lease portfolio that were
considered impaired at December 31, 2003 and September 30, 2003, respectively.
We perform impairment testing on our auto lease portfolio on a quarterly basis.
Accordingly, the percentage of leases considered impaired is a measure of the
quarterly change (normally a decline) in residual values versus our
depreciation and writedown of the book value of our auto lease portfolio since
the prior quarterly valuation. This impairment is subject to a number of
significant assumptions that could change in the near term, and adversely
affect the valuation of the auto lease portfolio. These assumptions were
previously described under Critical Accounting Policies, Investment in
Operating Lease Assets. Two of these assumptions, including the residual
values of individual leases that are projected by ALG and the relative
probabilities of the three alternatives for disposing of vehicles, are
particularly susceptible to changes in market conditions. In previous quarters, a $250 decline in the market value of the individual
vehicles in our lease portfolio resulted in additional vehicles being deemed
impaired, and subject to an impairment charge. At September 30, 2004, 21




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##### Table of Contents



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 charges could increase if the percentage of vehicles returned to us
were greater than the percentage that was projected at the most recent
quarter-end, because the proceeds realized when the Company must dispose of the
vehicle at the end of the lease term are generally less than if the lessee
purchases the vehicle prior to the end of the lease term. Income Taxes The Company recorded tax benefits of $1.0 million and $1.7 million for the
third quarter and the first nine months of 2004, respectively. The effective
tax rate used in computing the tax benefit for the third quarter and the first
nine months of 2004 was 39.2%. This expected 2004 effective tax rate is
different from the federal statutory rate due primarily to the effect of state
income and franchise taxes. Liquidation Basis Changes in Net Assets in Liquidation  Three- and Nine-Month Periods Ended
September 30, 2003 Our net assets in liquidation at September 30, 2003 totaled $409.8
million, or $63.60 in net assets in liquidation per outstanding diluted share. The changes in net assets in liquidation during the quarter ended
September 30, 2003 included a pre-tax operating loss of $2.2 million and $3.4
million of charges for assets in liquidation partially offset by $4.7 million
of income tax benefit. The $3.4 million of charges was largely attributable to
$3.7 million of impairment in the auto lease portfolio as the residual value of
the portfolio declined due to weakness in used car values. The changes in net assets in liquidation for the first nine months of 2003
included a pre-tax operating loss of $4.6 million and $6.0 million of charges
for assets in liquidation partially offset by $6.3 million of income tax
benefit and $4.1 million of other changes in net assets in liquidation,
primarily proceeds from stock options and warrants exercised during the first
nine months of 2003. The net charges for changes in estimated values of assets and liabilities
during the first nine months of 2003 consisted primarily of $8.5 million of
additional mark-to-market writedowns on the auto lease portfolio. This was
partially offset by a $1.3 million gain associated with the financing secured
by our auto lease cash flows resulting from favorable experience with the
underlying cash flows, and a $1.0 million reduction of an accrual related to
the settlement of litigation that was negotiated during the first quarter of
2003. During the third quarter of 2003, we implemented Statement No. 150 which
resulted in the reclassification of our Capital Securities from their prior
classification as a mezzanine item to liabilities. Consequently, the
dividend expense on these Capital Securities during 2003, totaling $2.2 million
and $6.7 million during the three- and nine-month periods ended September 30,
2003, is now included in interest expense on borrowings. Leasing Expenses Leasing expenses were $7.0 million and $24.4 million for the third quarter
and the first nine months of 2003, respectively. At September 30, 2003,
approximately 4,275 of the 6,665 vehicles in our automobile lease portfolio, or
64%, were considered impaired under Statement No. 144. If the market values of
the individual vehicles declined by $250, an additional 7% of the leases would
have been deemed to be impaired and, therefore, potentially subject to an
impairment charge. 22




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##### Table of Contents



Income Taxes We recorded tax benefits of $4.7 million and $6.3 million for the third
quarter and the first nine months of 2003, respectively. The tax benefit for
the first nine months of 2003, which was recorded at an effective tax rate of
59.0%, included a $2.4 million tax benefit for reductions in the prior years
state tax liability. The 2003 effective tax rate is higher than the federal
statutory rate primarily due to the effect of state income and franchise taxes. Balance Sheet Analysis Our
total assets were $390.4 million at September 30, 2004 compared to
$364.1 million at December 31, 2003. The increase in total assets was
primarily due to $111.2 million of net growth in auto contracts offset, in
part, by $50.1 million of payoffs of auto leases. Cash and Cash Equivalents At September 30, 2004, we had cash and cash equivalents totaling $6.7
million compared to $11.6 million at December 31, 2003. Restricted Cash Our restricted cash balances were $32.7 million and $32.2 million at
September 30, 2004 and December 31, 2003, respectively. Restricted cash
attributable to BVACs auto finance business includes cash retained in reserve
accounts established by BVACs auto securitization trusts for purposes of
providing credit enhancement for asset-backed bond issuances, cash collateral
provided to counterparties to BVACs hedging contracts to meet margin
requirements and cash collateral provided to cure potential borrowing base
deficiencies on BVACs warehouse credit facility. The remaining assets from
the Bank liquidation also include restricted cash that has been pledged for
purposes of securing a letter of credit, the financing secured by the auto
lease portfolio contractual cash flow and other contractual obligations. 23




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##### Table of Contents



Retained Interests in Securitizations The following table provides information, by securitization transaction,
on the balance of our retained interests in outstanding securitizations of auto
installment contracts as of the dates indicated: September 30,
    
    December 31,2004
    
    2003(Dollars in thousands)Available-for-saleTransaction:Bay View 2002-LJ-1 Owner Trust
    
    $
    16,687
    
    
    $
    18,744Bay View 2003-LJ-1 Owner Trust
    
    
    7,993
    
    
    
    9,846Total retained interests in securitizations
    
    $
    24,680
    
    
    $
    28,590
 Our retained interests are subordinate to investor interests. Their value
is subject to credit, prepayment and interest rate risks on the transferred
auto installment contracts. At September 30, 2004, all retained interests in
securitizations were classified as available-for-sale and reported at fair
value. Unrealized gains of $118 thousand in these retained interests
available-for-sale were included in our stockholders equity (net of taxes) at
September 30, 2004. Mortgage-backed and Other Securities At September 30, 2004, our entire investment securities portfolio had
either matured or been sold. We sold $5.5 million of mortgage-backed
securities during the first nine months of 2004 and recognized losses of $11
thousand. There were no purchases of mortgage-backed or other securities
during the nine months ended September 30, 2004. 24




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##### Table of Contents



Auto Installment
Contracts and Other Loans Receivable The following table illustrates our portfolio of auto installment
contracts and loans as of the dates indicated: September 30, 2004
    
    December 31, 2003(Dollars in thousands)Installment contracts and loans receivable:Auto installment contracts(1)Installment contracts held-for-sale
    
    $
    125,638
    
    
    $
    161,578Installment contracts held-for-investment
    
    
    143,944
    
    
    
    Total auto installment contracts
    
    
    269,582
    
    
    
    161,578Other loans to be liquidated:Franchise loans
    
    
    593
    
    
    
    6,428Asset-based loans
    
    
    332
    
    
    
    844Business loans
    
    
    
    
    
    
    4,802Total other loans to be liquidated
    
    
    925
    
    
    
    12,074Installment contracts and loans before premiums,
discounts, deferred fees and costs, net
    
    
    270,507
    
    
    
    173,652Premiums, discounts, deferred fees and costs, net
    
    
    7,492
    
    
    
    4,296Installment contracts and loans receivable(2)
    
    $
    277,999
    
    
    $
    177,948
  (1) Amounts exclude auto-related operating lease assets reported separately
from loans and leases totaling $16.5 million at
September 30, 2004 and $66.7 million at December 31, 2003.(2) Includes allowances for mark-to-market valuation reserves and credit
losses of $2.0 million and $3.2 million at September 30,
2004 and December 31, 2003, respectively. The increase in loans receivable from December 31, 2003 to September 30,
2004 was attributable to the growth in BVACs inventory of auto contracts
partially offset by loan sales and repayments during the first nine months of
2004. During the first nine months of 2004, we sold $24.8 million of auto
contracts, $4.8 million of business loans and $3.8 million of franchise loans,
and received $81.8 million of loan repayments. Other than BVACs purchases of
installment contracts, we ceased all other loan production activities during
the fourth quarter of 2002. Auto Installment Contracts At September 30, 2004, $147.7 million of BVACs auto contracts were
designated as held-for-investment in anticipation of securitizing such
contracts in early 2005 in an asset-backed bond offering that is anticipated to
be structured as a financing transaction. The remaining $129.4 million of
BVACs warehouse inventory of auto contracts were designated as held-for-sale
at September 30, 2004 and carried at the lower of cost or fair value. Prior to
the second quarter of 2004, our entire warehouse inventory of auto contracts
had been designated as held-for-sale. During the third quarter of 2004, BVAC purchased $69.5 million of auto
contracts compared to $75.9 million for the second quarter of 2004. The
decline is attributed to lower auto sales and the aggressive marketing programs
launched by the manufacturers captive finance companies. New auto and light
truck sales declined during the quarter by 1.8% and anecdotal information
indicates that the new car promotions adversely affected used car sales as
well. Manufacturers captive finance company programs offering 0% APR
financing terms as long as 72 months and cash rebates in addition to, rather
than in lieu of, low APR financing affected BVACs loan volumes. In spite of the somewhat adverse market conditions mentioned above, BVAC
continued to make progress on a year-to-year basis. BVACs purchases of $69.5
million of auto contracts in the third quarter of 2004 were 4% higher than
purchases in the third quarter of 2003. For the third quarter of 2004,
purchased contract rates averaged 8.06% compared to second quarter of 2004
purchased contract rates which averaged 7.86%. Third quarter 2004 purchased contract FICO scores averaged 742; compared
to second quarter 2004 purchased FICO scores that averaged 734. At September
30, 2004, BVAC was servicing 28,146 auto contracts representing $556.8 million
of outstanding contract balances compared to 30,808 auto contracts representing
$562.8 million of outstanding balances at December 31, 2003. 25




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##### Table of Contents



BVAC sold approximately $9.3 million and $24.8 million of auto contracts
during the third quarter of 2004 and the first nine months of 2004,
respectively. Repayments of $29.4 million and $79.5 million were received
during the third quarter of 2004 and the first nine months of 2004,
respectively. Other Loans Receivable At September 30, 2004, the net carrying value of our remaining investment
in other loans receivable, which the Company is in the process of liquidating,
was $0.9 million compared to $12.1 million at December 31, 2003. These loans
are held-for-sale and carried at the lower of cost or fair value. During the
first nine months of 2004, we sold $8.6 million of business and franchise
loans, and received $2.3 million of asset-based and franchise loan repayments. Credit Quality We define nonperforming assets as nonaccrual loans, real estate owned and
repossessed vehicles. We define nonaccrual loans as loans 90 days or more
delinquent as to principal and interest payments (unless the principal and
interest are well secured and in the process of collection) and loans less than
90 days delinquent when we determine that the full collection of principal
and/or interest is doubtful. We do not record interest on nonaccrual loans. The following table sets forth our nonperforming assets as of the dates
indicated: September 30,
    
    December 31,2004
    
    2003(Dollars in thousands)Nonaccrual loansAuto installment contracts
    
    $
    48
    
    
    $
    84Franchise and asset-based loans
    
    
    925
    
    
    
    1,840Total nonaccrual loans
    
    
    973
    
    
    
    1,924Real estate owned
    
    
    4,179
    
    
    
    4,955Repossessed vehicles
    
    
    467
    
    
    
    254Nonperforming assets
    
    $
    5,619
    
    
    $
    7,133
 Our nonperforming assets included mark-to-market valuation reserves of
$1.2 million and $1.4 million at September 30, 2004 and December 31, 2003,
respectively. The following table illustrates nonperforming assets and nonperforming
assets as a percentage of consolidated total assets by their original loan
type: Nonperforming Assetsas a Percentage of Consolidated Total AssetsSeptember 30, 2004
    
    December 31, 2003(Dollars in thousands)Auto installment contracts
    
    $
    515
    
    
    
    0.13
    %
    
    $
    338
    
    
    
    0.09
    %Commercial real estate loans
    
    
    170
    
    
    
    0.04
    
    
    
    181
    
    
    
    0.05Franchise loans
    
    
    4,602
    
    
    
    1.18
    
    
    
    5,757
    
    
    
    1.58Asset-based loans
    
    
    332
    
    
    
    0.09
    
    
    
    857
    
    
    
    0.24Total
    
    $
    5,619
    
    
    
    1.44
    %
    
    $
    7,133
    
    
    
    1.96
    %
 Total loans delinquent 60 days or more were $1.2 million at September 30,
2004, compared to $748 thousand at December 31, 2003. Total loans delinquent
60 days or more as a percentage of loans receivable was 0.43% at September 30,
2004, compared to 0.42% at December 31, 2003. The increase in total loans
delinquent 60 days or 26




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##### Table of Contents



more at September 30, 2004, compared to December 31, 2003, was primarily due to
an increase in delinquent franchise loans. Allowance for Losses on Auto Installment Contracts 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. Accordingly, we collectively evaluate this
inventory of auto contracts for impairment based on a combination of factors
including historical loss experience, delinquency levels, the current
seasoning or relative age of the contracts and the pattern of loss associated
with the aging of auto contracts, the direction and trend of the economic
cycle, as well as various other factors. At September 30, 2004, the allowance
for credit losses was $0.8 million. At December 31, 2003, the Company had no
auto contracts designated as held-for-investment. Borrowings Our borrowings totaled $249.6 million at September 30, 2004 compared to
$179.1 million at December 31, 2003 as set forth in the following table: September 30, 2004
    
    December 31, 2003(Dollars in thousands)BVAC warehouse credit facility
    
    $
    246,006
    
    
    $
    138,221Financing secured by the auto lease contractual cash flow
    
    
    3,608
    
    
    
    16,0559.76% Junior Subordinated Deferrable Interest Debentures
    
    
    
    
    
    
    24,784Total
    
    $
    249,614
    
    
    $
    179,060
 The increase in borrowings was due to BVACs increased use of its
warehouse credit facility to fund purchases of auto contracts, partially offset
by redemption of the 9.76% Junior Subordinated Deferrable Interest Debentures
at the end of the second quarter of 2004 and repayments of the financing
secured by the auto lease contractual cash flow. Capital Securities During 2003, we adopted FASB Financial Interpretation No. 46,
Consolidation of Variable Interest Entities, and, accordingly, deconsolidated
Bay View Capital I. As a result, the 9.76% Cumulative Capital Securities (the
Capital Securities) of Bay View Capital I are no longer reflected on our
Consolidated Statement of Financial Condition, while the underlying 9.76%
Junior Subordinated Deferrable Interest Debentures, which were held by Bay View
Capital I, are reflected as borrowings. On June 30, 2004, we redeemed the remaining Capital Securities and the
underlying 9.76% Junior Subordinated Deferrable Interest Debentures. Stockholders Equity On June 24, 2004, our stockholders approved a 1-for-10 reverse stock split
of the issued and outstanding shares of our common stock. The reverse stock
split was effected on June 30, 2004 and, as a result, our issued common stock
as of June 30, 2004 was reduced from 65,910,689 shares prior to the reverse
stock split to 6,590,461 shares following the reverse stock split, including an
adjustment for fractional shares. At September 30, 2004, our issued common
stock totaled 6,593,870 shares. The reverse stock split did not impact the par value of our common stock,
which remains at $0.01 per share. Accordingly, all shares outstanding and per
share amounts are presented on a post-split basis for all periods reported. 27




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##### Table of Contents



Liquidity and Capital Resources The objective of our liquidity management is currently threefold  to
ensure that funds are available to finance BVACs purchases, warehousing and
securitization or sale of installment contracts; to fund other working capital
needs; and to complete the liquidation of the Banks remaining assets and
liabilities and distribute the proceeds from the remainder of the liquidation
to stockholders. At September 30, 2004, we had $6.7 million of cash and cash
equivalents, and $104.0 million of available borrowing capacity on our
warehouse credit facility of which $11.5 million was immediately available
based upon BVAC-owned auto contracts eligible for pledging. With our adoption of the Amended Plan, BVAC is our sole remaining
operating subsidiary. With the exception of BVACs assets and liabilities and
our operating auto lease assets, we are proceeding with the liquidation of the
assets we assumed from the Bank upon its liquidation and anticipate that this
process will be substantially completed during 2005. The liquidation of the
auto leases, which will result from sales of the leased vehicles as the lease
contracts are repaid or expire, is anticipated to be completed by the end of
the third quarter of 2005, consistent with the maturities of these leases. During the first half of 2004, we paid the quarterly interest due on the
9.76% Junior Subordinated Deferrable Interest Debentures and redeemed the
remaining $24.8 million balance of these securities. We also paid cash
distributions of $33.0 million, or $5.00 per share to our stockholders  $2.50
per share on June 30, 2004 and another $2.50 per share on September 30, 2004. As
previously announced, as part of the Amended Plan, we currently
anticipate that we will make cash distributions to our stockholders
at the end of the fourth quarter of 2004, and at the end of the first
three quarters of 2005.  We currently anticipate that the
distribution for the fourth quarter of 2004 will be $2.50 per share,
which will require approximately $16.5 million in free cash.  We
anticipate that our Board of Directors will make a final
determination of the amount of the distribution for the fourth
quarter of 2004 in late November. BVAC funds its purchases of auto contracts with its warehouse credit
facility and periodically securitizes or sells these contracts in order to
provide it with liquidity to continue its purchases. During the second quarter
of 2004, BVAC secured a $350.0 million warehouse credit facility to replace a
$250.0 million facility. The $100.0 million increase in borrowing capacity has
provided BVAC with additional liquidity, greater flexibility to manage its
warehouse inventory and allowed BVAC to maintain additional auto contracts in
its warehouse inventory for the purpose of increasing net interest
income.  We anticipate completing a securitization of auto contracts in
the first quarter of 2005 and anticipate sizing the securitization
pool at approximately $140 million to $150 million. Stockholders
equity totaled $120.6 million at September 30, 2004 compared
to $155.9 million at December 31, 2003. 28




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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 we fund the purchase of fixed-rate
auto contracts with our warehouse credit facility which is a floating-rate
facility. The rate on the warehouse facility, a revolving purchase facility,
is tied to the one-month Libor rate as well as commercial paper rates and
subject to frequent adjustments. Fixed-rate Auto Installment Contracts We
purchase these fixed-rate auto contracts with the intention of periodically
selling the contracts through asset-backed securitization transactions or sales
of pools of whole loans. Investors in these securitization or whole loan sale
transactions require a yield that is commensurate with prevailing market
interest rates. The prices offered by investors in these transactions reflect
prevailing market interest rates at the time of these transactions, which
creates interest rate risk for the Company during the period it 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 our fixed-rate auto contracts. Net Interest Income We fund purchases of fixed-rate auto contracts with our 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 our warehouse credit facility. Changes
in prevailing market interest rates produce corresponding changes in the cost
of our floating-rate warehouse credit facility thereby creating interest rate
risk. Rising market interest rates generally increase the interest expense we
incur on our warehouse credit facility, thereby reducing the net interest
income we earn. To protect the Company from interest rate risk, we may use various
derivative financial instruments, including interest rate swap contracts, to
protect the market value of our warehouse inventory of installment contracts
and the net interest income produced by our warehouse inventory. The market
value of these derivative instruments is designed to respond inversely to the
market value of our warehouse inventory resulting from changes in prevailing
market interest rates. These agreements are entered into as we purchase auto
contracts; the agreements are closed out at the time underlying auto contracts
are securitized or sold. At September 30, 2004, we had outstanding swap contracts with a total
notional amount of $145.0 million under which we pay a fixed interest rate of
3.05% and receive a floating interest rate of 1.81%. These contracts mature
from December 2004 to May 2008. At September 30, 2004, we had an unrealized
loss of $0.6 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 $2.6 million and $5.2 million; respectively;
while a decrease in interest rates of 100 basis points would have resulted in
an approximate unrealized loss of $2.8 million. We account for changes in the market value of our derivative instruments
as prescribed by Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities. Our swap
agreements are not treated as hedge instruments under Statement No. 133 and
are, accordingly, carried at fair value, with changes in such fair value
charged or credited to earnings. Prior to our re-adoption of the going concern basis of accounting, we accounted
for changes in the market value of derivative instruments using the liquidation
basis of accounting. Changes in the market value of these derivative
instruments were reflected in our consolidated statements of net assets in
liquidation under pre-tax loss from operations, while offsetting changes in the
market value of underlying installment contracts were included in changes in
estimated values of assets and liabilities. 29




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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 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/A reflects the restatement of our condensed consolidated financial statements as of and
for the three- and nine-month periods ended September30, 2004 to reflect these corrections. 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. 30




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PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings We are involved as plaintiff or defendant in various legal actions and
are occasionally exposed to unasserted claims arising in the normal
course of business. In the opinion of management, after consultation
with counsel, the resolution of these legal actions will not have a
material adverse effect on our statements of financial condition,
results of operations or cash flows. 
 Item 2. Changes in Securities None. 
 Item 3. Defaults Upon Senior Securities None. 
 Item 4. Submission of Matters to a Vote of Security Holders None. 
 Item 5. Other Information None. 
 Item 6. Exhibits a(i)
    
    Exhibit 10.a
    
    Employment Contract with P.K.
ChatterjeeExhibit 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
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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. BAY VIEW CAPITAL CORPORATIONDATE:
May 10, 2005
    
    BY:
    
    /s/ John OkuboJohn OkuboExecutive Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)
 32