##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the quarterly period ended September 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from______to_____
Commission file number 001-14879
 BAY VIEW CAPITAL CORPORATION
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    94-3078031
(I.R.S. Employer
Identification No.)
 
  þ o
 o þ
 þ o
  Common Stock, Par Value $.01
(Title of Class)
    
    Outstanding at October 31, 2005
6,596,431 shares
   1




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##### Table of Contents



FORM 10-Q
INDEX
 BAY VIEW CAPITAL CORPORATION
 Page(s)PART I.
    
    
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited):Condensed Consolidated Statements of Financial Condition
    
    
    4Condensed Consolidated Statements of Operations and Comprehensive Loss
    
    
    5-6Condensed Consolidated Statement of Stockholders Equity
    
    
    7Condensed Consolidated Statements of Cash Flows
    
    
    8-9Notes to Condensed Consolidated Financial Statements
    
    
    10-17Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18-33Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    34-35Item 4.
    
    Controls and Procedures
    
    
    36-37PART II.
    
    
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    38Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3.
    
    Defaults Upon Senior Securities
    
    
    38Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    38Item 5.
    
    Other Information
    
    
    38Item 6.
    
    Exhibits
    
    
    38Signatures
    
    
    39EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
 2




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##### Table of Contents



Forward-Looking Statements
   
    
    Our ability to consummate our previously announced merger
with Great Lakes Bancorp, Inc. (Great Lakes);
    
    Our ability to consummate the previously announced sale of
Bay View Acceptance Corporation (BVAC) to AmeriCredit
Financial Services, Inc.;
    
    Our ability to obtain and maintain financing to fund the ongoing operations of BVAC,
including securitizing and selling automobile installment contracts in order to repay
borrowings pending the sale of BVAC;
    
    Changes in general economic and business conditions;
    
    Interest rate fluctuations, including the results from our hedging activities;
    
    Our financial condition and liquidity, including our ability to generate future cash flows and earnings;
    
    Our degree of success in utilizing our net operating loss carryforwards;
    
    Competition;
    
    Our ability to control our operating expenses;
    
    The effect of new laws, regulations and court decisions affecting consumer finance
transactions and net operating loss carryforwards;
    
    The condition of the market for the sale of new and used automobiles, including pricing
options by automobile manufacturers;
    
    The level of charge-offs on the contracts that BVAC purchases; and
    
    The outcome of pending litigation against us.
  Cash Distributions
  3




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 Bay View Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Financial Condition
(Unaudited)
 September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)ASSETSCash
    
    $
    10,531
    
    
    $
    4,447Restricted cash
    
    
    38,287
    
    
    
    26,845Retained interests in securitizations available-for-sale
    
    
    20,564
    
    
    
    22,636Auto installment contracts and loans held-for-sale:Auto installment contracts
    
    
    234,824
    
    
    
    75,021Other loans
    
    
    
    
    
    
    902Auto installment contracts held-for-investment, net
    
    
    6,975
    
    
    
    252,863Securitized auto installment contracts held-for-investment, net
    
    
    349,417
    
    
    
    Investment in operating lease assets, net
    
    
    344
    
    
    
    10,041Real estate owned, net
    
    
    722
    
    
    
    3,379Premises and equipment, net
    
    
    638
    
    
    
    733Repossessed vehicles
    
    
    407
    
    
    
    439Deferred income taxes, net
    
    
    24,181
    
    
    
    21,168Goodwill
    
    
    1,846
    
    
    
    1,846Other assets
    
    
    8,863
    
    
    
    7,199Total assets
    
    $
    697,599
    
    
    $
    427,519LIABILITIES AND STOCKHOLDERS EQUITYBorrowings:Warehouse credit facility and other short-term borrowings
    
    $
    229,446
    
    
    $
    298,755Securitization notes payable
    
    
    345,723
    
    
    
    Other borrowings
    
    
    1
    
    
    
    1,895Current tax liabilities, net
    
    
    3,745
    
    
    
    4,191Other liabilities
    
    
    9,675
    
    
    
    9,629Liquidation reserve
    
    
    7,708
    
    
    
    8,856Total liabilities
    
    
    596,298
    
    
    
    323,326Stockholders equity:Common stock ($.01 par value); authorized, 80,000,000 shares;
issued, 2005  6,597,848 shares; 2004  6,597,303 shares;
outstanding, 2005   6,596,431 shares; 2004  6,593,860 shares
    
    
    66
    
    
    
    66Additional paid-in capital
    
    
    109,254
    
    
    
    109,578Accumulated deficit
    
    
    (7,829
    )
    
    
    (4,585
    )Treasury stock, at cost; 2005  1,417 shares; 2004  3,443 shares
    
    
    (252
    )
    
    
    (587
    )Accumulated other comprehensive gain (loss)
    
    
    62
    
    
    
    (279
    )Total stockholders equity
    
    
    101,301
    
    
    
    104,193Total liabilities and stockholders equity
    
    $
    697,599
    
    
    $
    427,519
  4




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##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
 For the Three Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004(Dollars in thousands, except per share amounts)Interest income:Interest on auto installment contracts and other loans
    
    $
    10,305
    
    
    $
    5,217Interest on short-term investments and retained interests in securitizations
    
    
    980
    
    
    
    74311,285
    
    
    
    5,960Interest expense:Interest on warehouse credit facility and other short-term borrowings
    
    
    2,553
    
    
    
    2,130Interest on securitization notes payable
    
    
    3,775
    
    
    
    Other interest expense
    
    
    
    
    
    
    176,328
    
    
    
    2,147Net interest income
    
    
    4,957
    
    
    
    3,813Provision for credit losses
    
    
    1,257
    
    
    
    331Net interest income after provision for credit losses
    
    
    3,700
    
    
    
    3,482Noninterest income:Leasing income
    
    
    631
    
    
    
    2,510Loan servicing income
    
    
    408
    
    
    
    720Loan fees
    
    
    254
    
    
    
    239Unrealized gain (loss) on derivative instruments
    
    
    738
    
    
    
    (1,757
    )Loss on auto installment contracts and other loans held-for-sale
and retained interests in securitizations, net
    
    
    (280
    )
    
    
    (616
    )Other, net
    
    
    56
    
    
    
    681,807
    
    
    
    1,164Noninterest expense:General and administrative
    
    
    7,067
    
    
    
    6,009Leasing expense
    
    
    60
    
    
    
    1,190Real estate owned, net
    
    
    545
    
    
    
    1097,672
    
    
    
    7,308Loss before income tax benefit
    
    
    (2,165
    )
    
    
    (2,662
    )Income tax benefit
    
    
    (801
    )
    
    
    (1,044
    )Net loss
    
    $
    (1,364
    )
    
    $
    (1,618
    )Basic loss per share
    
    $
    (0.21
    )
    
    $
    (0.25
    )Diluted loss per share
    
    $
    (0.21
    )
    
    $
    (0.25
    )Weighted-average basic shares outstanding
    
    
    6,596
    
    
    
    6,588Weighted-average diluted shares outstanding
    
    
    6,596
    
    
    
    6,588Net loss
    
    $
    (1,364
    )
    
    $
    (1,618
    )Other comprehensive income (loss), net of tax:Change in unrealized gain (loss) on securities available-for-sale, net of
tax expense (benefit) of $66 and ($254) for the three months ended
September 30, 2005 and September 30, 2004, respectively
    
    
    103
    
    
    
    (398
    )Comprehensive loss
    
    $
    (1,261
    )
    
    $
    (2,016
    )
  5




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Bay View Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
 For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004(Dollars in thousands, except per share amounts)Interest income:Interest on auto installment contracts and other loans
    
    $
    24,931
    
    
    $
    13,880Interest on short-term investments and retained interests in securitizations
    
    
    2,545
    
    
    
    2,20427,476
    
    
    
    16,084Interest expense:Interest on warehouse credit facility and other short-term borrowings
    
    
    7,624
    
    
    
    4,906Interest on securitization notes payable
    
    
    7,475
    
    
    
    Other interest expense
    
    
    13
    
    
    
    1,34615,112
    
    
    
    6,252Net interest income
    
    
    12,364
    
    
    
    9,832Provision for credit losses
    
    
    3,887
    
    
    
    852Net interest income after provision for credit losses
    
    
    8,477
    
    
    
    8,980Noninterest income:Leasing income
    
    
    4,544
    
    
    
    11,334Loan servicing income
    
    
    1,432
    
    
    
    2,519Loan fees
    
    
    630
    
    
    
    963Unrealized gain on derivative instruments
    
    
    1,112
    
    
    
    651Loss on auto installment contracts and other loans held-for-sale
and retained interests in securitizations, net
    
    
    (1,314
    )
    
    
    (2,261
    )Other, net
    
    
    577
    
    
    
    1,1686,981
    
    
    
    14,374Noninterest expense:General and administrative
    
    
    19,303
    
    
    
    18,696Leasing expense
    
    
    731
    
    
    
    8,705Real estate owned, net
    
    
    573
    
    
    
    38920,607
    
    
    
    27,790Loss before income tax benefit
    
    
    (5,149
    )
    
    
    (4,436
    )Income tax benefit
    
    
    (1,905
    )
    
    
    (1,740
    )Net loss
    
    $
    (3,244
    )
    
    $
    (2,696
    )Basic loss per share
    
    $
    (0.49
    )
    
    $
    (0.41
    )Diluted loss per share
    
    $
    (0.49
    )
    
    $
    (0.41
    )Weighted-average basic shares outstanding
    
    
    6,595
    
    
    
    6,583Weighted-average diluted shares outstanding
    
    
    6,595
    
    
    
    6,583Net loss
    
    $
    (3,244
    )
    
    $
    (2,696
    )Other comprehensive income, net of tax:Change in unrealized gain on securities available-for-sale, net of tax
expense of $220 and $110 for the nine months ended
September 30, 2005 and September 30, 2004, respectively
    
    
    341
    
    
    
    172Comprehensive loss
    
    $
    (2,903
    )
    
    $
    (2,524
    )
  6




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Bay View Capital Corporation and Subsidiaries
Condensed Consolidated Statement of Stockholders Equity
(Unaudited)
 AccumulatedNumber of
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalShares
    
    
    Common
    
    
    Paid-in
    
    
    Accumulated
    
    
    Treasury
    
    
    Comprehensive
    
    
    Stockholders'Issued
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    Gain/(Loss)
    
    
    Equity(In thousands)Balance at December 31, 2004
    
    
    6,597
    
    
    $
    66
    
    
    $
    109,578
    
    
    $
    (4,585
    )
    
    $
    (587
    )
    
    $
    (279
    )
    
    $
    104,193Distribution
of directors retirement plan
shares(1)
    
    
    
    
    
    
    
    
    
    
    (335
    )
    
    
    
    
    
    
    335
    
    
    
    
    
    
    
    Exercise of warrants
    
    
    1
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Stock-based compensation expense  options
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,244
    )
    
    
    
    
    
    
    
    
    
    
    (3,244
    )Unrealized gain on retained interests on securitizations
available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    341
    
    
    
    341Balance at September 30, 2005
    
    
    6,598
    
    
    $
    66
    
    
    $
    109,254
    
    
    $
    (7,829
    )
    
    $
    (252
    )
    
    $
    62
    
    
    $
    101,301
 (1)
    
    Reflects distribution of the Companys common stock to
retired participants in a retirement plan for non-employee
members of its Board of Directors which was frozen in 1996,
eliminating future obligations to the Company. Such shares were
repurchased in the market and are held in treasury by the plan
trustee.  7




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##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004(Dollars in thousands)CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (3,244
    )
    
    $
    (2,696
    )Adjustments to reconcile net loss to net cash used in operating activities:Net increase in auto installment contracts held-for-sale resulting from purchases,
net of repayments
    
    
    (263,199
    )
    
    
    (92,685
    )Proceeds from sales and/or securitizations of auto installment contracts and
other loans held-for-sale
    
    
    6,493
    
    
    
    33,823Provision for credit losses
    
    
    3,887
    
    
    
    852Depreciation and amortization of investment in operating lease assets
    
    
    809
    
    
    
    8,194Depreciation and amortization of premises and equipment
    
    
    272
    
    
    
    217Amortization of premium and accretion of discount
    
    
    2,870
    
    
    
    301Accretion of retained interests in securitizations
    
    
    (1,445
    )
    
    
    (1,816
    )Provision
for deferred taxes
    
    
    (1,905
    )
    
    
    (1,740
    )Loss on auto installment contracts and other loans held-for-sale, and
retained interests in securitizations, net
    
    
    1,314
    
    
    
    2,261Change in fair value of derivative instruments
    
    
    (1,112
    )
    
    
    (651
    )Increase in restricted cash
    
    
    (11,442
    )
    
    
    (509
    )(Increase) decrease in other assets
    
    
    (601
    )
    
    
    7,253Decrease in other liabilities
    
    
    (798
    )
    
    
    (4,564
    )Decrease in reserve for estimated costs during the period of liquidation
    
    
    (1,148
    )
    
    
    (3,249
    )Other, net
    
    
    (1,360
    )
    
    
    1,729Net cash used in operating activities
    
    
    (270,609
    )
    
    
    (53,280
    )CASH FLOWS FROM INVESTING ACTIVITIESNet increase in auto installment contracts held-for-investment resulting from
purchases, net of repayments
    
    
    (13,236
    )
    
    
    (45,833
    )Decrease in investment in operating lease assets
    
    
    8,967
    
    
    
    41,441Proceeds
from principal payments on retained interests in securitizations
    
    
    3,942
    
    
    
    5,955Proceeds
from principal payments on mortgage-backed securities
    
    
    
    
    
    
    590Proceeds from sale of mortgage-backed securities
    
    
    
    
    
    
    5,632Proceeds from sale of real estate owned
    
    
    2,205
    
    
    
    690Additions to premises and equipment, net
    
    
    (177
    )
    
    
    (423
    )Net cash provided by investing activities
    
    
    1,701
    
    
    
    8,052
   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,
    
    
    September 30,(continued
from prior page)
    
    2005
    
    
    2004(Dollars in thousands)CASH FLOWS FROM FINANCING ACTIVITIESRedemption of Junior Subordinated Deferrable Interest Debentures
    
    $
    
    
    
    $
    (22,000
    )Issuance of securitization notes payable
    
    
    418,751
    
    
    
    Repayment of securitization notes payable
    
    
    (72,555
    )
    
    
    Proceeds from warehouse credit facility
    
    
    658,930
    
    
    
    193,429Repayment of warehouse credit facility
    
    
    (728,239
    )
    
    
    (85,644
    )Net decrease in other borrowings
    
    
    (1,894
    )
    
    
    (12,447
    )Issuance of common stock
    
    
    (1
    )
    
    
    24Dividends paid to common stockholders
    
    
    
    
    
    
    (32,954
    )Net cash provided by financing activities
    
    
    274,992
    
    
    
    40,408Net increase (decrease) in cash and cash equivalents
    
    
    6,084
    
    
    
    (4,820
    )Cash and cash equivalents at beginning of period
    
    
    4,447
    
    
    
    11,563Cash and cash equivalents at end of period
    
    $
    10,531
    
    
    $
    6,743Cash paid during the period for:Interest
    
    $
    15,796
    
    
    $
    6,547Income taxes
    
    $
    1,775
    
    
    $
    239Supplemental non-cash investing and financing activities:Auto installment contracts transferred from held-for-sale to held-for-investment
    
    $
    96,263
    
    
    $
    103,023Redemption of Junior Subordinated Deferrable Interest Debentures
    
    $
    
    
    
    $
    2,784
  9




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Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2005
(Unaudited)
 Note 1. Summary of Significant Accounting Policies
 Basis of Presentation
      10




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Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2005
(Unaudited)
 Stock-based Compensation
   For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands, except per share amounts)Net loss as reported in Consolidated
Statements of Operations and Comprehensive Loss
    
    $
    (1,364
    )
    
    $
    (1,618
    )
    
    $
    (3,244
    )
    
    $
    (2,696
    )Stock-based compensation included in net loss
as reported
    
    
    12
    
    
    
    
    
    
    
    12
    
    
    
    Stock-based compensation expense determined
under fair value method, net of taxes
    
    
    (25
    )
    
    
    
    
    
    
    (75
    )
    
    
    Pro forma net loss, after stock-based
compensation expense
    
    $
    (1,377
    )
    
    $
    (1,618
    )
    
    $
    (3,307
    )
    
    $
    (2,696
    )Net loss per share  basic:As reported
    
    $
    (0.21
    )
    
    $
    (0.25
    )
    
    $
    (0.49
    )
    
    $
    (0.41
    )Pro forma
    
    $
    (0.21
    )
    
    $
    (0.25
    )
    
    $
    (0.50
    )
    
    $
    (0.41
    )Net loss per share  diluted:As reported
    
    $
    (0.21
    )
    
    $
    (0.25
    )
    
    $
    (0.49
    )
    
    $
    (0.41
    )Pro forma
    
    $
    (0.21
    )
    
    $
    (0.25
    )
    
    $
    (0.50
    )
    
    $
    (0.41
    )
 11




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Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2005
(Unaudited)
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Risk-free interest rate
    
    
    4.18
    %
    
    
    2.89
    %
    
    
    4.18
    %
    
    
    2.89
    %Expected life
    
    3.6 years
    
    3.6 years
    
    3.6 years
    
    3.6 yearsExpected volatility
    
    
    83.4
    %
    
    
    85.7
    %
    
    
    83.4
    %
    
    
    85.7
    %Expected dividends
    
    
    
    
    
    $
    2.50
    
    
    
    
    
    
    $
    2.50
 Recent Accounting Pronouncements
   12




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Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2005
(Unaudited)
  Reclassifications
  13




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##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2005
(Unaudited)
 Note 2. Loss per Share
   For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except per share amounts)Net loss
    
    $
    (1,364
    )
    
    $
    (1,618
    )
    
    $
    (3,244
    )
    
    $
    (2,696
    )Weighted-average basic shares outstanding
    
    
    6,596
    
    
    
    6,588
    
    
    
    6,595
    
    
    
    6,583Add: Dilutive potential common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average diluted shares
outstanding
    
    
    6,596
    
    
    
    6,588
    
    
    
    6,595
    
    
    
    6,583Basic loss per share
    
    $
    (0.21
    )
    
    $
    (0.25
    )
    
    $
    (0.49
    )
    
    $
    (0.41
    )Diluted loss per share
    
    $
    (0.21
    )
    
    $
    (0.25
    )
    
    $
    (0.49
    )
    
    $
    (0.41
    )
 Note 3. Auto Installment Contracts
  As
ofSeptember 30, 2005
    
    
    As
ofDecember 31, 2004(Dollars in thousands)Auto installment contracts held-for-sale
    
    $
    229,151
    
    
    $
    73,462Premiums, discounts and deferred fees and costs
    
    
    5,752
    
    
    
    1,559Lower-of-cost-or-market allowance on auto contracts
held-for-sale
    
    
    (79
    )
    
    
    Auto installment contracts held-for-sale
    
    
    234,824
    
    
    
    75,021Auto installment contracts held-for-investment
    
    
    6,829
    
    
    
    247,219Securitized auto installment contracts held-for-investment
    
    
    344,588
    
    
    
    Premiums, discounts and deferred fees and costs
    
    
    8,619
    
    
    
    7,152Allowance for credit losses
    
    
    (3,644
    )
    
    
    (1,508
    )Auto installment contracts held-for-investment, net
    
    
    356,392
    
    
    
    252,863Auto installment contracts receivable, net
    
    $
    591,216
    
    
    $
    327,884
  14




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##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2005
(Unaudited)
 Note 4. Income Taxes
    Note 5. Commitments and Contingencies
    Note 6. Securitization Notes Payable
   15




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##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2005
(Unaudited)
 Note 7. Liquidation Reserve
   Severance
    
    
    Facilities(1)
    
    
    Litigation / Other
    
    
    Total(Dollars in thousands)Balance at December 31, 2004
    
    $
    1,314
    
    
    $
    6,003
    
    
    $
    1,539
    
    
    $
    8,856Accruals (reversals)
    
    
    110
    
    
    
    (607
    )
    
    
    746
    
    
    
    249Payments
    
    
    (775
    )
    
    
    (556
    )
    
    
    (66
    )
    
    
    (1,397
    )Balance at September 30, 2005
    
    $
    649
    
    
    $
    4,840
    
    
    $
    2,219
    
    
    $
    7,708
 
 (1)
    
    The reversal of the facilities accrual during the nine month period ended
September 30, 2005 was attributable to postponement of a planned move of the Companys
headquarters during 2005. 16




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##### Table of Contents



Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2005
(Unaudited)
 Note
8. Subsequent Events
    17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Strategic Overview
  Auto Finance
    18




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##### Table of Contents



Bay View Bank Liquidation
     19




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##### Table of Contents



Critical Accounting Policies
  Loan Sales and Retained Interests in Securitizations
      Weighted-average discount rate
    
    10.0%  12.0%Range of projected annual credit losses, net
    
    1.40%  1.53%Range of projected cumulative credit losses
    
    2.04%  2.37%Prepayment speed
    
    1.6 ABS
  20




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##### Table of Contents



Allowance for Credit Losses
    Income Taxes
    21




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##### Table of Contents



Derivative Instruments
    Results of Operations
   22




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##### Table of Contents



Net Interest Income and Net Interest Margin
   23




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##### Table of Contents



Average Balances, Yields and RatesFor the Three Months Ended
    
    
    For the Three Months EndedSeptember 30, 2005
    
    
    September 30, 2004Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Yield/Rate
    
    
    Balance
    
    
    Interest
    
    
    Yield/Rate(Dollars in thousands)AssetsInterest-earning assets:Restricted cash
    
    $
    41,563
    
    
    $
    521
    
    
    
    4.91
    %
    
    $
    33,835
    
    
    $
    123
    
    
    
    1.45
    %Retained interests in securitizations
    
    
    20,876
    
    
    
    459
    
    
    
    8.80
    
    
    
    26,071
    
    
    
    620
    
    
    
    9.50Mortgage-backed and other securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114
    
    
    
    
    
    
    
    Auto installment contracts and other loans receivable
    
    
    234,543
    
    
    
    4,951
    
    
    
    8.37
    
    
    
    267,603
    
    
    
    5,217
    
    
    
    7.75Securitized auto installment contracts
    
    
    315,610
    
    
    
    5,354
    
    
    
    6.72
    
    
    
    
    
    
    
    
    
    
    
    Total interest-earning assets
    
    
    612,592
    
    
    
    11,285
    
    
    
    7.30
    %
    
    
    327,623
    
    
    
    5,960
    
    
    
    7.23
    %Other assets
    
    
    36,939
    
    
    
    
    
    
    
    
    
    
    
    61,677Total assets
    
    $
    649,531
    
    
    
    
    
    
    
    
    
    
    $
    389,300Liabilities and Stockholders EquityInterest-bearing liabilities:Warehouse credit facility and other borrowings
    
    $
    226,148
    
    
    
    2,664
    
    
    
    4.61
    %
    
    $
    242,126
    
    
    
    1,563
    
    
    
    2.52
    %Interest
rate swap (income) expense    
    
    
    
    
    
    (111
    )
    
    
    
    
    
    
    
    
    
    
    584
    
    
    
    Warehouse credit facility, other borrowings and swaps
    
    
    226,148
    
    
    
    2,553
    
    
    
    4.42
    
    
    
    242,126
    
    
    
    2,147
    
    
    
    3.49Securitization notes payable
    
    
    316,683
    
    
    
    3,775
    
    
    
    4.76
    
    
    
    
    
    
    
    
    
    
    
    Total interest-bearing liabilities
    
    
    542,831
    
    
    
    6,328
    
    
    
    4.62
    %
    
    
    242,126
    
    
    
    2,147
    
    
    
    3.49
    %Other liabilities
    
    
    4,774
    
    
    
    
    
    
    
    
    
    
    
    17,063Total liabilities
    
    
    547,605
    
    
    
    
    
    
    
    
    
    
    
    259,189Stockholders equity
    
    
    101,926
    
    
    
    
    
    
    
    
    
    
    
    130,111Total liabilities and stockholders equity
    
    $
    649,531
    
    
    
    
    
    
    
    
    
    
    $
    389,300Net interest income/net interest rate spread
    
    
    
    
    
    $
    4,957
    
    
    
    2.68
    %
    
    
    
    
    
    $
    3,813
    
    
    
    3.74
    %Net interest-earning assets
    
    $
    69,761
    
    
    
    
    
    
    
    
    
    
    $
    85,497Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.21
    %
    
    
    
    
    
    
    
    
    
    
    4.65
    %
 24




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##### Table of Contents



Average Balances, Yields and RatesFor the Nine Months Ended
    
    
    For the Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2004Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Yield/Rate
    
    
    Balance
    
    
    Interest
    
    
    Yield/Rate(Dollars in Thousands)AssetsInterest-earning assets:Restricted cash
    
    $
    34,196
    
    
    $
    1,112
    
    
    
    4.29
    %
    
    $
    34,708
    
    
    $
    312
    
    
    
    1.20
    %Retained interests in securitizations
    
    
    21,568
    
    
    
    1,434
    
    
    
    8.86
    
    
    
    27,471
    
    
    
    1,861
    
    
    
    9.03Mortgage-backed and other securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    990
    
    
    
    31
    
    
    
    4.44Auto installment contracts and other loans
receivable
    
    
    228,591
    
    
    
    13,529
    
    
    
    7.92
    
    
    
    234,252
    
    
    
    13,880
    
    
    
    7.91Securitized auto installment contracts
    
    
    227,321
    
    
    
    11,401
    
    
    
    6.71
    
    
    
    
    
    
    
    
    
    
    
    Total interest-earning assets
    
    
    511,676
    
    
    
    27,476
    
    
    
    7.18
    %
    
    
    297,421
    
    
    
    16,084
    
    
    
    7.22
    %Other assets
    
    
    46,915
    
    
    
    
    
    
    
    
    
    
    
    80,000Total assets
    
    $
    558,591
    
    
    
    
    
    
    
    
    
    
    $
    377,421Liabilities and Stockholders EquityInterest-bearing liabilities:Warehouse credit facility and other borrowings
    
    $
    226,368
    
    
    
    7,479
    
    
    
    4.36
    %
    
    $
    196,262
    
    
    
    3,497
    
    
    
    2.34
    %Interest rate swap expense
    
    
    
    
    
    
    158
    
    
    
    
    
    
    
    
    
    
    
    1,552
    
    
    
    Warehouse credit facility, other borrowings and
swaps
    
    
    226,368
    
    
    
    7,637
    
    
    
    4.45
    
    
    
    196,262
    
    
    
    5,049
    
    
    
    3.40Securitization notes payable
    
    
    213,985
    
    
    
    7,475
    
    
    
    4.65
    
    
    
    
    
    
    
    
    
    
    
    Junior Subordinated Deferrable Interest Debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,372
    
    
    
    1,203
    
    
    
    9.76Total interest-bearing liabilities
    
    
    440,353
    
    
    
    15,112
    
    
    
    4.55
    %
    
    
    212,634
    
    
    
    6,252
    
    
    
    3.89
    %Other liabilities
    
    
    15,491
    
    
    
    
    
    
    
    
    
    
    
    26,341Total liabilities
    
    
    455,844
    
    
    
    
    
    
    
    
    
    
    
    238,975Stockholders equity
    
    
    102,747
    
    
    
    
    
    
    
    
    
    
    
    138,446Total liabilities and stockholders equity
    
    $
    558,591
    
    
    
    
    
    
    
    
    
    
    $
    377,421Net interest income/net interest rate spread
    
    
    
    
    
    $
    12,364
    
    
    
    2.63
    %
    
    
    
    
    
    $
    9,832
    
    
    
    3.33
    %Net interest-earning assets
    
    $
    71,323
    
    
    
    
    
    
    
    
    
    
    $
    84,787Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.26
    %
    
    
    
    
    
    
    
    
    
    
    4.44
    %
 25




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Provision for Credit Losses
  Noninterest Income
    26




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##### Table of Contents



Noninterest Expense
  For the Three Months EndedSeptember 30, 2005
    
    
    September 30, 2004(Dollars in thousands)General and administrative expense:Employee compensation and benefits
    
    $
    3,130
    
    
    $
    2,979Professional and legal services
    
    
    3,301
    
    
    
    1,560Occupancy and equipment
    
    
    53
    
    
    
    528Postage, telephone and travel
    
    
    378
    
    
    
    482Information technology
    
    
    304
    
    
    
    329Capitalized fees and costs
    
    
    (444
    )
    
    
    (281
    )Other
    
    
    345
    
    
    
    412Total general and administrative expense
    
    $
    7,067
    
    
    $
    6,009
  27




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##### Table of Contents



For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004(Dollars in thousands)General and administrative expense:Employee compensation and benefits
    
    $
    9,439
    
    
    $
    9,859Professional and legal services
    
    
    7,778
    
    
    
    4,680Occupancy and equipment
    
    
    774
    
    
    
    1,234Postage, telephone and travel
    
    
    1,211
    
    
    
    1,450Information technology
    
    
    795
    
    
    
    890Capitalized fees and costs
    
    
    (1,742
    )
    
    
    (883
    )Other
    
    
    1,048
    
    
    
    1,466Total general and administrative expense
    
    $
    19,303
    
    
    $
    18,696
  Income Taxes
   28




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##### Table of Contents



Balance Sheet Analysis
  Restricted Cash
   Retained Interests in Securitizations
  September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Transaction:Bay View 2002-LJ-1 Owner Trust
    
    $
    14,352
    
    
    $
    15,622Bay View 2003-LJ-1 Owner Trust
    
    
    6,212
    
    
    
    7,014Total retained interests in securitizations
    
    $
    20,564
    
    
    $
    22,636
  29




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##### Table of Contents



Auto Installment Contracts and Other Loans Receivable
  September 30, 2005
    
    
    December 31, 2004(Dollars in thousands)Auto
installment contracts and other loans held-for-sale:
    
    $
    229,151
    
    
    $
    73,462Premiums, discounts and deferred fees and costs
    
    
    5,752
    
    
    
    1,559Lower-of-cost-or-market allowance on auto contracts held-for-sale
    
    
    (79
    )
    
    
    Auto installment contracts held-for-sale
    
    
    234,824
    
    
    
    75,021Other loans held-for-sale
    
    
    
    
    
    
    902Auto installment contracts and other loans held-for-sale
    
    
    234,824
    
    
    
    75,923Auto
installment contracts held-for-investment:
    
    
    6,829
    
    
    
    247,219Securitized auto installment contracts held-for-investment
    
    
    344,588
    
    
    
    Premiums, discounts and deferred fees and costs
    
    
    8,619
    
    
    
    7,152Allowance for credit losses
    
    
    (3,644
    )
    
    
    (1,508
    )Auto installment contracts held-for-investment, net
    
    
    356,392
    
    
    
    252,863Auto installment contracts and other loans receivable, net
    
    $
    591,216
    
    
    $
    328,786
   Credit Quality
    30




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##### Table of Contents



Allowance for Credit Losses
  As of and For the
    
    
    As of and For theThree Months
    
    
    Nine Months
    
    
    As of and For theEnded
    
    
    Ended
    
    
    Year EndedSeptember 30, 2005
    
    
    September 30, 2005
    
    
    December 31, 2004(Dollars in thousands)Balance at beginning of period
    
    $
    3,272
    
    
    $
    1,508
    
    
    $
    Provision for credit losses
    
    
    1,257
    
    
    
    3,887
    
    
    
    1,612Net charge-offs
    
    
    (885
    )
    
    
    (1,751
    )
    
    
    (104
    )Balance at end of period
    
    $
    3,644
    
    
    $
    3,644
    
    
    $
    1,508
  Other Loans and Real Estate Owned
  Borrowings
    31




---



##### Table of Contents



32




---



##### Table of Contents



Liquidity and Capital Resources
      33




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Asset/Liability Management
  Fixed-rate Auto Contracts
  Net Interest Income
   .
 Warehouse Credit Facility
  34




---



##### Table of Contents



35




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##### Table of Contents



Item 4. Controls and Procedures
     
    
    Derivative Accounting- 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 $350.0 million warehouse credit facility
provided to BVAC were not operating effectively. We
determined that we should have accounted for the derivatives in
accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. Under SFAS No. 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 our results of
operations.
    
    Insufficient Qualified Accounting Personnel- The above weakness indicated that a
continuing weakness existed at December 31, 2004, 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.
    
    Third-Party Service Organizations- We were 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 have resulted 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.
 36




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##### Table of Contents



Remediation Efforts Related to the Material Weaknesses in Internal Controls
  
    
    Derivative Accounting- The material weakness with respect to our
derivative accounting has been resolved through our
adoption of SFAS No. 133 and
restatement of certain financial statements hereafter described. 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. Our Form 10-Q Quarterly Report
filed on May 10, 2005 for the quarter ended March 31, 2005 included a restatement of our
financial statements for the quarter ended March 31, 2004, and our Form 10-Q/A Amended
Quarterly reports filed on May 10, 2005 for the quarters ended June 30, 2004 and September
30, 2004 included a restatement of our financial statements for those quarters.
    
    Insufficient Qualified Accounting Personnel- We have retained a qualified independent
advisory firm to provide guidance relating to the application of complex accounting
principles. Management, including our Chief Executive Officer and
our Chief Financial Officer, is in the process of assessing whether the actions taken to
date are sufficient to resolve the material weakness in accounting personnel.
    
    Third-Party Service Organizations- We received one SAS 70 Type II report from one of
BVACs third party service organizations during the second quarter of 2005 and expect to
receive the other report during the fourth quarter of 2005. The SAS 70 Type II reports
allow us to assess the effectiveness of the internal controls of these organizations. We
believe that this material weakness will be resolved when we receive the second SAS 70 Type
II report and if the report is satisfactory to us.
 Limitations on the Effectiveness of Controls
    37




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PART II. OTHER INFORMATION
 
 Legal Proceedings
    
 Unregistered Sales of Equity Securities and Use of Proceeds
  
 Defaults Upon Senior Securities
  
 Submission of Matters to a Vote of Security Holders
  
 Other Information
  
 Exhibits
 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 200231.2
    
    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 200232.1
    
    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 200232.2
    
    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
 38




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##### Table of Contents



SIGNATURES
  BAY VIEW CAPITAL CORPORATIONDATE: November 9, 2005
    BY:
    /s/ John OkuboJohn OkuboExecutive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) 39