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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-Q





|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------




For the quarterly period ended June 30, 2000





OR





| ̈ | 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


(Exact name of registrant as specified in its charter)





|Delaware |  | 94-3078031
|-------- |  | ----------
|
|




1840 Gateway Drive, San Mateo, California 94404


(Address of principal executive offices) (Zip Code)





Registrants telephone number, including area code (650) 312-7200





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 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 July 31, 2000
|---------------------------- |  | ----------------------------
|(Title of Class)             |  | 32,571,167 shares           




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FORM 10-Q





INDEX





BAY VIEW CAPITAL CORPORATION





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PART I.    FINANCIAL INFORMATION





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PART II.    OTHER INFORMATION





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Forward-Looking Statements





This Form 10-Q contains forward-looking statements which describe our future plans, strategies and expectations.
All forward-looking statements are based on assumptions and involve risks and uncertainties, many of which are beyond our control and which may cause our actual results, performance or achievements to differ materially from the results, performance or
achievements that we anticipate. Factors that might affect forward-looking statements include, among other things:





| |  | the demand for our products;
| | - | ----------------------------




| |  | actions taken by our competitors;
| | - | ---------------------------------




| |  | tax rate changes, new tax laws and revised tax law interpretations;
| | - | -------------------------------------------------------------------




| |  | adverse changes occurring in the securities markets;
| | - | ----------------------------------------------------




| |  | inflation and changes in prevailing interest rates that reduce our margins or the fair value of the financial instruments we hold;
| | - | ----------------------------------------------------------------------------------------------------------------------------------




| |  | economic or business conditions, either nationally or in our market areas, that are worse than we expect;
| | - | ---------------------------------------------------------------------------------------------------------




| |  | legislative or regulatory changes that adversely affect our business;
| | - | ---------------------------------------------------------------------




| |  | our inability to securitize and/or sell assets;
| | - | -----------------------------------------------




| |  | the timing, impact and other uncertainties of our asset sales and/or acquisitions and our success or failure in the integration of
their operations;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------




| |  | our ability to enter new geographic and product markets successfully and capitalize on growth opportunities;
| | - | ------------------------------------------------------------------------------------------------------------




| |  | technological changes that are more difficult or expensive than we expect;
| | - | --------------------------------------------------------------------------




| |  | increases in delinquencies and defaults by our borrowers and other loan delinquencies;
| | - | --------------------------------------------------------------------------------------




| |  | increases in our provision for losses on loans and leases;
| | - | ----------------------------------------------------------




| |  | our inability to sustain or improve the performance of our subsidiaries;
| | - | ------------------------------------------------------------------------




| |  | our inability to achieve the financial goals in our strategic plans, including any financial goals related to both contemplated and
consummated asset sales and/or acquisitions;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | the outcome of lawsuits or regulatory disputes;
| | - | -----------------------------------------------




| |  | credit and other risks of lending, leasing and investment activities; and
| | - | -------------------------------------------------------------------------




| |  | our inability to use the net operating loss carryforwards we currently have.
| | - | ----------------------------------------------------------------------------




As a result of the above, we cannot assure you that our future results of operations or financial condition or any
other matters will be consistent with those presented in any forward-looking statements. Accordingly, we caution you not to rely on these forward-looking statements. We do not undertake, and specifically disclaim any obligation, to update these
forward-looking statements, which speak only as of the date made.





PART I. FINANCIAL INFORMATION





Item 1.    Financial Statements





BAY VIEW CAPITAL CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


(Unaudited)





|                                                                                                                                                                                 |  | June 30,

2000 |   | December 31,

1999
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | - | ------------------
|
|ASSETS                                                                                                                                                                           |  |                |   |                   
|                                                                                                                                                                                 |  |                |   |                   
|                                                                                                                                                                                
|Cash and cash equivalents:                                                                                                                                                       |  |                |   |                   
|Cash and due from depository institutions                                                                                                                                        |  | $    187,806   |   |                   
|Short-term investments                                                                                                                                                           |  | 783            |   |                   
|                                                                                                                                                                                 |  |                |   |                   
|                                                                                                                                                                                 |  | 188,589        |   |                   
|Securities available-for-sale:                                                                                                                                                   |  |                |   |                   
|Investment securities                                                                                                                                                            |  | 62,302         |   |                   
|Mortgage-backed securities                                                                                                                                                       |  | 649            |   |                   
|Securities held-to-maturity:                                                                                                                                                     |  |                |   |                   
|Investment securities                                                                                                                                                            |  | 307,704        |   |                   
|Mortgage-backed securities                                                                                                                                                       |  | 925,320        |   |                   
|Loans and leases held-for-sale                                                                                                                                                   |  | 346,822        |   |                   
|Loans and leases held-for-investment, net                                                                                                                                        |  | 3,389,119      |   |                   
|Investment in operating lease assets, net                                                                                                                                        |  | 532,313        |   |                   
|Investment in stock of the Federal Home Loan Bank of San Francisco                                                                                                               |  | 49,025         |   |                   
|Investment in stock of the Federal Reserve Bank                                                                                                                                  |  | 19,590         |   |                   
|Real estate owned, net                                                                                                                                                           |  | 5,289          |   |                   
|Premises and equipment, net                                                                                                                                                      |  | 22,894         |   |                   
|Intangible assets                                                                                                                                                                |  | 327,653        |   |                   
|Other assets                                                                                                                                                                     |  | 165,574        |   |                   
|                                                                                                                                                                                 |  |                |   |                   
|Total assets                                                                                                                                                                     |  | $6,342,843     |   |                   
|                                                                                                                                                                                 |  |                |   |                   
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                             |  |                |   |                   
|                                                                                                                                                                                 |  |                |   |                   
|                                                                                                                                                                                
|Deposits:                                                                                                                                                                        |  |                |   |                   
|Transaction accounts                                                                                                                                                             |  | $1,713,381     |   |                   
|Retail certificates of deposit                                                                                                                                                   |  | 1,624,193      |   |                   
|Brokered certificates of deposit                                                                                                                                                 |  | 502,865        |   |                   
|                                                                                                                                                                                 |  |                |   |                   
|                                                                                                                                                                                 |  | 3,840,439      |   |                   
|Advances from the Federal Home Loan Bank of San Francisco                                                                                                                        |  | 964,300        |   |                   
|Short-term borrowings                                                                                                                                                            |  | 622,810        |   |                   
|Subordinated Notes, net                                                                                                                                                          |  | 149,534        |   |                   
|Other borrowings                                                                                                                                                                 |  | 1,668          |   |                   
|Other liabilities                                                                                                                                                                |  | 47,094         |   |                   
|                                                                                                                                                                                 |  |                |   |                   
|Total liabilities                                                                                                                                                                |  | 5,625,845      |   |                   
|                                                                                                                                                                                 |  |                |   |                   
|Guaranteed Preferred Beneficial Interest in our Junior Subordinated Debentures (Capital Securities)                                                                            |  | 90,000         |   |                   
|Stockholders equity:                                                                                                                                                            |  |                |   |                   
|Serial preferred stock; authorized, 7,000,000 shares; outstanding, none                                                                                                          |  |               |   |                   
|Common stock ($.01 par value); authorized, 60,000,000 shares; issued, 200032,636,219;

            199932,629,056 shares; outstanding, 200032,571,167; 199932,562,942 shares |  | 326            |   |                   
|Additional paid-in capital                                                                                                                                                       |  | 456,010        |   |                   
|Retained earnings (substantially restricted)                                                                                                                                     |  | 173,305        |   |                   
|Treasury stock, at cost, 200065,052 shares; 199966,114 shares                                                                                                                  |  | (1,081         | ) |                   
|Accumulated other comprehensive income:                                                                                                                                          |  |                |   |                   
|Unrealized gain (loss) on securities available-for-sale, net of tax                                                                                                              |  | 102            |   |                   
|Debt of Employee Stock Ownership Plan                                                                                                                                            |  | (1,664         | ) |                   
|                                                                                                                                                                                 |  |                |   |                   
|Total stockholders equity                                                                                                                                                       |  | 626,998        |   |                   
|                                                                                                                                                                                 |  |                |   |                   
|Total liabilities and stockholders equit
y                                                                                                                                      |  | $6,342,843     |   |                   
|                                                                                                                                                                                 |  |                |   |                   




The accompanying notes are an integral part of these consolidated financial statements.





BAY VIEW CAPITAL CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


(Unaudited)





|                                                                                                                                                                                                         |  | For the Three Months

Ended
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------
|
|
|Interest income:                                                                                                                                                                                         |  |                            
|Interest on loans and leases                                                                                                                                                                             |  | $ 87,518                   
|Interest on mortgage-backed securities                                                                                                                                                                   |  | 16,360                     
|Interest and dividends on investment securities                                                                                                                                                          |  | 10,803                     
|                                                                                                                                                                                                         |  |                            
|                                                                                                                                                                                                         |  | 114,681                    
|Interest expense:                                                                                                                                                                                        |  |                            
|Interest on deposits                                                                                                                                                                                     |  | 41,213                     
|Interest on borrowings                                                                                                                                                                                   |  | 26,580                     
|Interest on Subordinated Notes and Senior Debentures                                                                                                                                                     |  | 3,713                      
|                                                                                                                                                                                                         |  |                            
|                                                                                                                                                                                                         |  | 71,506                     
|Net interest income                                                                                                                                                                                      |  | 43,175                     
|Provision for losses on loans and leases                                                                                                                                                                 |  | 9,500                      
|                                                                                                                                                                                                         |  |                            
|Net interest income after provision for losses on loans and leases                                                                                                                                       |  | 33,675                     
|Noninterest income:                                                                                                                                                                                      |  |                            
|Leasing income                                                                                                                                                                                           |  | 24,667                     
|Loan fees and charges                                                                                                                                                                                    |  | 1,743                      
|Loan servicing income                                                                                                                                                                                    |  | 1,461                      
|Account fees                                                                                                                                                                                             |  | 2,045                      
|Sales commissions                                                                                                                                                                                        |  | 1,438                      
|Gain on sale of assets and liabilities, net                                                                                                                                                              |  | 1,168                      
|Other, net                                                                                                                                                                                               |  | 1,074                      
|                                                                                                                                                                                                         |  |                            
|                                                                                                                                                                                                         |  | 33,596                     
|Noninterest expense:                                                                                                                                                                                     |  |                            
|General and administrative                                                                                                                                                                               |  | 42,757                     
|Leasing expenses                                                                                                                                                                                         |  | 16,934                     
|Dividend expense on Capital Securities                                                                                                                                                                   |  | 2,234                      
|Real estate owned operations, net                                                                                                                                                                        |  | (30                        
|Amortization of intangible assets                                                                                                                                                                        |  | 6,502                      
|                                                                                                                                                                                                         |  |                            
|                                                                                                                                                                                                         |  | 68,397                     
|Income (loss) before income tax expense                                                                                                                                                                  |  | (1,126                     
|Income tax expense (benefit)                                                                                                                                                                             |  | (1,330                     
|                                                                                                                                                                                                         |  |                            
|Net income                                                                                                                                                                                               |  | $      204                 
|                                                                                                                                                                                                         |  |                            
|Basic earnings per share                                                                                                                                                                                 |  | $      0.01                
|                                                                                                                                                                                                         |  |                            
|Diluted earnings per share                                                                                                                                                                               |  | $      0.01                
|                                                                                                                                                                                                         |  |                            
|Weighted-average basic shares outstanding                                                                                                                                                                |  | 32,631                     
|                                                                                                                                                                                                         |  |                            
|Weighted-average diluted shares outstanding                                                                                                                                                              |  | 32,636                     
|                                                                                                                                                                                                         |  |                            
|Net income                                                                                                                                                                                               |  | $      204                 
|Other comprehensive income, net of tax:                                                                                                                                                                  |  |                            
|Change in unrealized gain (loss) on securities available-for-sale, net of tax expense
(benefit) of

             $150 and ($56) for the three months ended June 30, 2000 and June 30, 1999, respectively |  | 213                        
|                                                                                                                                                                                                         |  |                            
|Comprehensive income                                                                                                                                                                                     |  | $      417                 
|                                                                                                                                                                                                         |  |                            




The accompanying notes are an integral part of these consolidated financial statements.





BAY VIEW CAPITAL CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


(Unaudited)





|                                                                                                                                                                                                      |  | For the Six Months

Ended
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|
|
|Interest income:                                                                                                                                                                                      |  |                          
|Interest on loans and leases                                                                                                                                                                          |  | $184,711                 
|Interest on mortgage-backed securities                                                                                                                                                                |  | 28,567                   
|Interest and dividends on investment securities                                                                                                                                                       |  | 15,868                   
|                                                                                                                                                                                                      |  |                          
|                                                                                                                                                                                                      |  | 229,146                  
|Interest expense:                                                                                                                                                                                     |  |                          
|Interest on deposits                                                                                                                                                                                  |  | 81,121                   
|Interest on borrowings                                                                                                                                                                                |  | 54,231                   
|Interest on Subordinated Notes and Senior Debentures                                                                                                                                                  |  | 7,428                    
|                                                                                                                                                                                                      |  |                          
|                                                                                                                                                                                                      |  | 142,780                  
|Net interest income                                                                                                                                                                                   |  | 86,366                   
|Provision for losses on loans and leases                                                                                                                                                              |  | 17,500                   
|                                                                                                                                                                                                      |  |                          
|Net interest income after provision for losses on loans and leases                                                                                                                                    |  | 68,866                   
|Noninterest income:                                                                                                                                                                                   |  |                          
|Leasing income                                                                                                                                                                                        |  | 47,137                   
|Loan fees and charges                                                                                                                                                                                 |  | 4,313                    
|Loan servicing income                                                                                                                                                                                 |  | 2,946                    
|Account fees                                                                                                                                                                                          |  | 3,959                    
|Sales commissions                                                                                                                                                                                     |  | 2,808                    
|Gain on sale of assets and liabilities, net                                                                                                                                                           |  | 4,366                    
|Other, net                                                                                                                                                                                            |  | 2,539                    
|                                                                                                                                                                                                      |  |                          
|                                                                                                                                                                                                      |  | 68,068                   
|Noninterest expense:                                                                                                                                                                                  |  |                          
|General and administrative                                                                                                                                                                            |  | 84,113                   
|Leasing expenses                                                                                                                                                                                      |  | 32,315                   
|Dividend expense on Capital Securities                                                                                                                                                                |  | 4,467                    
|Real estate owned operations, net                                                                                                                                                                     |  | (17                      
|Amortization of intangible assets                                                                                                                                                                     |  | 12,809                   
|                                                                                                                                                                                                      |  |                          
|                                                                                                                                                                                                      |  | 133,687                  
|Income before income tax expense                                                                                                                                                                      |  | 3,247                    
|Income tax expense                                                                                                                                                                                    |  | 2,525                    
|                                                                                                                                                                                                      |  |                          
|Net income                                                                                                                                                                                            |  | $      722               
|                                                                                                                                                                                                      |  |                          
|Basic earnings per share                                                                                                                                                                              |  | $      0.02              
|                                                                                                                                                                                                      |  |                          
|Diluted earnings per share                                                                                                                                                                            |  | $      0.02              
|                                                                                                                                                                                                      |  |                          
|Weighted-average basic shares outstanding                                                                                                                                                             |  | 32,633                   
|                                                                                                                                                                                                      |  |                          
|Weighted-average diluted shares outstanding                                                                                                                                                           |  | 32,641                   
|                                                                                                                                                                                                      |  |                          
|Net income                                                                                                                                                                                            |  | $      722               
|Other comprehensive income, net of tax:                                                                                                                                                               |  |                          
|Change in unrealized gain (loss) on securities available-for-sale, net of tax expense
(benefit) of

             $278 and ($8) for the six months ended June 30, 2000 and June 30, 1999, respectively |  | 395                      
|                                                                                                                                                                                                      |  |                          
|Comprehensive income                                                                                                                                                                                  |  | $    1,117               
|                                                                                                                                                                                                      |  |                          




The accompanying notes are an integral part of these consolidated financial statements.





BAY VIEW CAPITAL CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


(Unaudited)





|                                                                                        |  | Number of

Shares

Issued |  | Common

Stock |  | Additional

Paid-in

Capital |   | Retained

Earnings (1) |          | Treasury

Stock |  | Unrealized

Gain

(Loss) on

Securities

Available-

for-Sale,

Net of Tax |   | Debt of

Employee

Stock

Ownership

Plan |       | Total

Stockholders

Equity
|--------------------------------------------------------------------------------------- |  | ------------------------- |  | ------------- |  | ---------------------------- | - | ---------------------- | -------- | --------------- |  | -------------------------------------------------------------------------- | - | ----------------------------------------- | ----- | ----------------------------
|
|Balance at December 31, 1998                                                            |  | 20,376                    |  | $204          |  | $251,010                     |   |                        | $155,715 |                 |  | $(25,157                                                                   | ) |                                           | $(202 | )                           
|Issuance of common stock (FMAC

    acquisition):                                       |  |                           |  |               |  |                              |   |                        |          |                 |  |                                                                            |   |                                           |       |                             
|From shares held in

            treasury                                               |  |                          |  |              |  |                             |   |                        |         |                 |  | 32,444                                                                     |   |                                           |      |                             
|From authorized but unissued

            shares                                        |  | 12,212                    |  | 122           |  | 204,456                      |   |                        |         |                 |  |                                                                           |   |                                           |      |                             
|Repurchase of common stock                                                              |  |                          |  |              |  |                             |   |                        |         |                 |  | (8,381                                                                     | ) |                                           |      |                             
|Exercise of stock options,

    including tax benefits                                  |  | 41                        |  |              |  | 498                          |   |                        |         |                 |  |                                                                           |   |                                           |      |                             
|Cash dividends declared ($0.30

    per share)                                          |  |                          |  |              |  |                             |   |                        | (5,579   | )               |  |                                                                           |   |                                           |      |                             
|Change in unrealized loss on

    securities available-for-sale, net

    of tax        |  |                          |  |              |  |                             |   |                        |         |                 |  |                                                                           |   |                                           | (91   | )                           
|Repayment of debt                                                                       |  |                          |  |              |  |                             |   |                        |         |                 |  |                                                                           |   |                                           |      |                             
|Net income                                                                              |  |                          |  |              |  |                             |   |                        | 28,964   |                 |  |                                                                           |   |                                           |      |                             
|                                                                                        |  |                           |  |               |  |                              |   |                        |          |                 |  |                                                                            |   |                                           |       |                             
|Balance at December 31, 1999                                                            |  | 32,629                    |  | 326           |  | 455,964                      |   |                        | 179,100  |                 |  | (1,094                                                                     | ) |                                           | (293  | )                           
|Exercise of stock options,

    including tax benefits                                  |  | 7                         |  |              |  | 59                           |   |                        |         |                 |  |                                                                           |   |                                           |      |                             
|Distribution of restricted shares                                                       |  |                          |  |              |  | (13                          | ) |                        |         |                 |  | 13                                                                         |   |                                           |      |                             
|Cash dividends declared ($0.20

    per share)                                          |  |                          |  |              |  |                             |   |                        | (6,517   | )               |  |                                                                           |   |                                           |      |                             
|Change in unrealized gain (loss)

    on securities available-for-sale,

    net of tax |  |                          |  |              |  |                             |   |                        |         |                 |  |                                                                           |   |                                           | 395   |                             
|Repayment of debt                                                                       |  |                          |  |              |  |                             |   |                        |         |                 |  |                                                                           |   |                                           |      |                             
|Net income                                                                              |  |                          |  |              |  |                             |   |                        | 722      |                 |  |                                                                           |   |                                           |      |                             
|                                                                                        |  |                           |  |               |  |                              |   |                        |          |                 |  |                                                                            |   |                                           |       |                             
|Balance at June 30, 2000                                                                |  | 32,636                    |  | $326          |  | $456,010                     |   |                        | $173,305 |                 |  | $  (1,081                                                                  | ) |                                           | $102  |                             
|                                                                                        |  |                           |  |               |  |                              |   |                        |          |                 |  |                                                                            |   |                                           |       |                             




|(1) | Substantially restricted.
|--- | -------------------------




The accompanying notes are an integral part of these consolidated financial statements.





BAY VIEW CAPITAL CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





|                                                                                                                                                 |  | For the Six Months

Ended
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------
|
|
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                                                             |  |                          
|Net income                                                                                                                                       |  | $        722             
|Adjustments to reconcile net income to net cash provided by operating activities:                                                                |  |                          
|Amortization of intangible assets                                                                                                                |  | 12,809                   
|Increase in loans and leases held-for-sale                                                                                                       |  | (477,427                 
|Proceeds from securitizations and/or sales of loans and leases held-for-sale                                                                     |  | 874,274                  
|Provision for losses on loans and leases and real estate owned                                                                                   |  | 17,500                   
|Depreciation and amortization of premises and equipment                                                                                          |  | 4,896                    
|Depreciation and amortization of investment in operating lease assets                                                                            |  | 29,390                   
|Amortization of premiums, net of discount accretion                                                                                              |  | 7,079                    
|Gain on sale of assets and liabilities, net                                                                                                      |  | (4,366                   
|(Increase) decrease in other assets                                                                                                              |  | (33,340                  
|(Decrease) increase in other liabilities                                                                                                         |  | (64,066                  
|Other, net                                                                                                                                       |  | 1,427                    
|                                                                                                                                                 |  |                          
|Net cash provided by
operating activities                                                                                                        |  | 368,898                  
|                                                                                                                                                 |  |                          
|                                                                                                                                                
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                                                             |  |                          
|Acquisitions of assets, net of cash and cash equivalents received                                                                                |  | (26,491                  
|Proceeds from the sale of substantially all of the assets and certain liabilities of

     Bankers Mutual, net of cash and cash equivalents sold |  | 30,879                   
|Net (increase) decrease in loans and leases held-for-investment resulting from

     originations, net of repayments                             |  | (149,443                 
|Purchases of loans and leases, net                                                                                                               |  | (5,464                   
|Purchases of mortgage-backed securities                                                                                                          |  | (327,840                 
|Purchases of investment securities                                                                                                               |  | (48,531                  
|Principal payments on mortgage-backed securities                                                                                                 |  | 47,055                   
|Principal payments on investment securities                                                                                                      |  | 1,508                    
|Proceeds from sales of mortgage-backed securities available-for-sale                                                                             |  | 8,898                    
|Proceeds from sale of real estate owned                                                                                                          |  | 2,244                    
|Additions to premises and equipment                                                                                                              |  | (2,022                   
|Decrease (increase) in investment in stock of the Federal Home Loan Bank of San

     Francisco                                                  |  | 28,810                   
|Increase in investment in stock of the Federal Reserve Bank                                                                                      |  | (6,114                   
|                                                                                                                                                 |  |                          
|Net cash used in
investing activities                                                                                                            |  | (446,511                 
|                                                                                                                                                 |  |                          




BAY VIEW CAPITAL CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)


(Unaudited)





|                                                                        |  | For the Six Months Ended
|----------------------------------------------------------------------- |  | ------------------------
|
|
|CASH FLOWS FROM FINANCING ACTIVITIES                                    |  |                         
|Net increase in deposits                                                |  | $    110,659            
|Proceeds from advances from the Federal Home Loan Bank of San Francisco |  | 800,500                 
|Repayment of advances from the Federal Home Loan Bank of San Francisco  |  | (1,203,500              
|Proceeds from reverse repurchase agreements                             |  | 997,199                 
|Repayment of reverse repurchase agreements                              |  | (567,118                
|Net decrease in warehouse lines outstanding                             |  | (207,359                
|Maturity of Senior Debentures                                           |  |                        
|Net decrease in other borrowings                                        |  | (1,626                  
|Repurchase of common stock                                              |  |                        
|Proceeds from issuance of common stock                                  |  | 59                      
|Dividends paid to stockholders                                          |  | (6,517                  
|                                                                        |  |                         
|Net cash (used in)
provided by financing activities                     |  | (77,703                 
|                                                                        |  |                         
|Net decrease in cash and cash equivalents                               |  | (155,316                
|Cash and cash equivalents at beginning of period                        |  | 343,905                 
|                                                                        |  |                         
|Cash and cash equivalents at end of period                              |  | $    188,589            
|                                                                        |  |                         
|                                                                       
|Cash paid during the year for:                                          |  |                         
|Interest                                                                |  | $    136,518            
|Income taxes                                                            |  | $          359          
|                                                                       
|Supplemental non-cash investing and financing activities:               |  |                         
|Loans transferred to real estate owned                                  |  | $        5,103          
|Loans transferred from held-for-investment to held-for-sale             |  | $    691,584            
|Loans securitized and transferred to securities held-to-maturity        |  | $    268,172            
|                                                                       
|The acquisitions of assets involved the following:                      |  |                         
|                                                                       
|Fair value of assets acquired, other than cash and cash equivalents     |  | $    (17,491            
|Goodwill                                                                |  | (9,000                  
|                                                                        |  |                         
|Net cash and cash
equivalents paid                                      |  | $    (26,491            
|                                                                        |  |                         




The accompanying notes are an integral part of these consolidated financial statements.





BAY VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000


(Unaudited)





Note 1.    Basis of Presentation





The accompanying unaudited consolidated financial statements include the accounts of Bay View Capital Corporation,
a bank holding company incorporated under the laws of the state of Delaware, and our wholly owned subsidiaries: Bay View Bank, N.A., a national bank; Bay View Securitization Corporation, a Delaware corporation; Bay View Capital I, a Delaware business
trust; FMAC Insurance Services, a Delaware corporation, and FMAC 2000A Holding Company, a California corporation. Bay View Bank includes its wholly owned subsidiaries: Bay View Acceptance Corporation, a Nevada corporation; Bay View Commercial Finance
Group, a California corporation; Bay View Franchise Mortgage Acceptance Company, a California corporation; XBVBKRS, Inc., formerly Bankers Mutual, a California corporation; MoneyCare, Inc., a California corporation; and Bay View Auxiliary Corporation, a
California corporation. Bay View Acceptance Corporation includes its wholly owned subsidiary, LFS-BV, Inc., a Nevada corporation. Effective March 1, 1999, Bay View Capital Corporation contributed the capital stock of Bay View Commercial Finance Group to
Bay View Bank in conjunction with the March 1, 1999 conversion of Bay View Bank from a federally chartered capital stock savings bank to a national bank. Bay View Commercial Finance Group was previously a wholly owned subsidiary of Bay View Capital
Corporation. Effective June 14, 1999, Bay View Credit and Ultra Funding, Inc., previously wholly owned subsidiaries of Bay View Acceptance Corporation, were merged into Bay View Acceptance Corporation. All significant intercompany accounts and
transactions have been eliminated.





On November 1, 1999, we acquired Franchise Mortgage Acceptance Company, sometimes referred to as FMAC, which
included the operations of Bay View Franchise Mortgage Acceptance Company, Bankers Mutual and FMAC Insurance Services. On June 30, 2000, substantially all of the assets and certain liabilities of Bankers Mutual were sold to Berkshire Mortgage Finance
Limited Partnership. The remaining assets and liabilities of Bankers Mutual are included in our consolidated financial statements at June 30, 2000. The assets, liabilities and operations of FMAC are not included in our results for the three- and six-month
periods ended June 30, 1999. See Note 5 for a pro forma presentation of the combined operations of Bay View Capital Corporation and FMAC for the three- and six- month periods ended June 30, 1999.





The information provided in these interim financial statements reflects all adjustments which are, in the opinion
of management, necessary for a fair presentation of our financial condition as of June 30, 2000 and December 31, 1999, the results of our operations for the three- and six-month periods ended June 30, 2000 and 1999, and our cash flows for the three- and
six-month periods ended June 30, 2000 and 1999. These adjustments are of a normal, recurring nature unless otherwise disclosed in this Form 10-Q. As necessary, reclassifications have been made to prior period amounts to conform to the current period
presentation. These reclassifications had no effect on our financial condition, results of operations or stockholders equity. These interim financial statements have been prepared in accordance with the instructions to Form 10-Q, and therefore do
not include all of the necessary information and footnotes for a presentation in conformity with generally accepted accounting principles.





The information included in Managements Discussion and Analysis of Financial Condition and Results of
Operations was written assuming that you have read or have access to our 1999 Annual Report on Form 10-K, which contains the latest audited consolidated financial statements and notes, along with Managements Discussion and Analysis of
Financial Condition as of December 31, 1999 and 1998 and Results of Operations for the years ended December 31, 1999, 1998 and 1997. Accordingly, only certain changes in financial condition and results of operations are discussed in this Form 10-Q.
Furthermore, the interim financial results for the three- and six-month periods ended June 30, 2000 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.


BAY VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)








Note 2.    Earnings Per Share





Basic earnings per share are calculated by dividing net earnings for the period by the weighted-average common
shares outstanding for that period. There is no adjustment to the number of outstanding shares for potential dilutive instruments, such as stock options. Diluted earnings per share takes into account the potential dilutive impact of such instruments and
uses the average share price for the period in determining the number of incremental shares to add to the weighted-average number of shares outstanding.





The following table illustrates the calculation of basic and diluted earnings per share for the periods indicated:





|                                              |  | For the Three

Months Ended, |  | For the Six

Months Ended,
|--------------------------------------------- |  | ---------------------------- |  | --------------------------
|
|
|Net earnings available to common stockholders |  | $    204                     |  | $  7,536                  
|Weighted-average basic shares outstanding     |  | 32,631                       |  | 18,746                    
|Add: Dilutive potential common shares         |  | 5                            |  | 128                       
|                                              |  |                              |  |                           
|Weighted-average diluted shares outstanding   |  | 32,636                       |  | 18,874                    
|                                              |  |                              |  |                           
|Basic earnings per share                      |  | $    0.01                    |  | $    0.40                 
|                                              |  |                              |  |                           
|Diluted earnings per share                    |  | $    0.01                    |  | $    0.40                 
|                                              |  |                              |  |                           




Note 3.    Stock Options





As of June 30, 2000, we had six stock option plans: the Amended and Restated 1986 Stock Option and Incentive
Plan, the Amended and Restated 1995 Stock Option and Incentive Plan, the Amended and Restated 1989 Non-Employee Director Stock Option and Incentive Plan, the 1998-2000 Performance Stock Plan, the 1998
Non-Employee Director Stock Option and Incentive Plan, and the 1999 FMAC Stock Option, Deferred Stock and Restricted Stock Plan, which authorize the issuance of up to 1,759,430, 2,500,000, 550,000, 400,000, 200,000, and 270,576 shares of
common stock, respectively.





The following table illustrates the stock options available for grant as of June 30, 2000:





|                             |  | 1986 Stock

Option and

Incentive

Plan |   | 1995 Stock

Option and

Incentive

Plan |            | 1989 Non-

Employee

Director

Stock

Option and

Incentive

Plan |  | 1998-2000

Performance

Stock Plan |   | 1998 Non-

Employee

Director

Stock

Option and

Incentive

Plan |         | 1999 FMAC

Stock Option,

Deferred

Stock and

Restricted

Stock Plan |  | Total  
|---------------------------- |  | --------------------------------------- | - | --------------------------------------- | ---------- | ----------------------------------------------------------------- |  | ---------------------------------- | - | ----------------------------------------------------------------- | ------- | --------------------------------------------------------------------- |  | -------
|Shares reserved for issuance |  | 1,759,430                               |   |                                         | 2,500,000  |                                                                   |  | 550,000                            |   |                                                                   | 400,000 |                                                                       |  | 200,000
|Granted                      |  | (2,048,816                              | ) |                                         | (3,220,500 | )                                                                 |  | (570,000                           | ) |                                                                   | (93,000 | )                                                                     |  | (82,000
|Forfeited                    |  | 304,574                                 |   |                                         | 926,498    |                                                                   |  | 77,000                             |   |                                                                   | 4,000   |                                                                       |  | 5,000  
|Expired                      |  | (15,188                                 | ) |                                         |           |                                                                   |  | (57,000                            | ) |                                                                   |        |                                                                       |  |       
|                             |  |                                         |   |                                         |            |                                                                   |  |                                    |   |                                                                   |         |                                                                       |  |        
|Total available for grant    |  |                                        |   |                                         | 205,998    |                                                                   |  |                                   |   |                                                                   | 311,000 |                                                                       |  | 123,000
|                             |  |                                         |   |                                         |            |                                                                   |  |                                    |   |                                                                   |         |                                                                       |  |        

BAY VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)








At June 30, 2000, we had outstanding options under the plans with expiration dates ranging from the year 2001
through 2013, as illustrated in the following table:





|                                 |  | Number of

Option Shares |   | Exercise Price

Range |             | Weighted-Average

Exercise Price
|-------------------------------- |  | ------------------------ | - | --------------------- | ----------- | --------------------------------
|Outstanding at December 31, 1999 |  | 2,907,776                |   |                       | $7.88-34.41 |                                 
|Granted                          |  | 513,250                  |   |                       | 7.53-10.03  |                                 
|Exercised                        |  | (6,000                   | ) |                       | 7.88- 7.88  |                                 
|Forfeited                        |  | (448,825                 | ) |                       | 7.53-31.56  |                                 
|                                 |  |                          |   |                       |             |                                 
|Outstanding at June 30, 2000     |  | 2,966,201                |   |                       | $7.53-34.41 |                                 
|                                 |  |                          |   |                       |             |                                 
|Exercisable at June 30, 2000     |  | 1,668,154                |   |                       | $7.88-34.41 |                                 
|                                 |  |                          |   |                       |             |                                 




Note 4.    Merger and Acquisition-Related Activity





| | Franchise Mortgage Acceptance Company
| | -------------------------------------




We completed our acquisition of Franchise Mortgage Acceptance Company and its wholly owned division, Bankers
Mutual, collectively referred to as FMAC, on November 1, 1999. Under the terms of the agreement, as amended, we acquired all of the common stock of FMAC for consideration valued at approximately $285 million. Each share of FMAC common stock was exchanged
for, at the election of the holder, either $9.80 in cash or 0.5444 shares of our common stock. In total, cash elections were limited to 15% of the shares of FMAC common stock outstanding immediately prior to closing and the elections for our common stock
were limited to 85% of the shares of FMAC common stock outstanding immediately prior to closing. We paid approximately $48 million in cash, including payments for certain acquisition costs, and issued 13,868,805 shares of our common stock, a portion of
which were issued from our shares in treasury. Upon consummation of the acquisition, we contributed substantially all of FMACs assets and liabilities to newly formed subsidiaries of Bay View Bank. On June 30, 2000, substantially all of the assets
and certain liabilities of Bankers Mutual were sold to or assumed by Berkshire Mortgage Finance Limited Partnership for approximately $40 million in cash.





The acquisition of FMAC was accounted for under the purchase method of accounting effective November 1, 1999. The
amount of goodwill recorded in connection with this acquisition was approximately $207 million, and is being amortized on a straight-line basis over 15 years. This goodwill amount represents the excess of the total purchase price over the estimated fair
value of net assets acquired.





The following table illustrates the allocation of the purchase price:





|                                                |  | (Dollars in thousands)
|----------------------------------------------- |  | ----------------------
|Cash paid                                       |  | $  44,058             
|Common stock issued                             |  | 237,022               
|Acquisition costs                               |  | 4,281                 
|                                                |  |                       
|Total purchase price                            |  | 285,361               
|Fair value of assets acquired                   |  | 316,550               
|Fair value of liabilities assumed               |  | 238,638               
|                                                |  |                       
|Net assets acquired                             |  | 77,912                
|                                                |  |                       
|Purchase price in excess of net assets acquired |  | $207,449              
|                                                |  |                       




The pro forma financial information in the following table illustrates the combined results of our operations and
the operations of FMAC for the three and six months ended June 30, 1999 as if the acquisition
of FMAC had occurred as of January 1, 1999. The pro forma financial information is presented for informational purposes and is not necessarily indicative of the results of operations which would have occurred if we had constituted a single entity as of
January 1, 1999. The pro forma financial information is also not necessarily indicative of the future results of operations of the combined company. In particular, our opportunity to achieve certain cost savings as a result of the acquisition has not been
included in the pro forma financial information.





|                                         |  | For the Three Months

Ended June 30, 1999 |   | For the Six Months

Ended June 30, 1999
|---------------------------------------- |  | ----------------------------------------- | - | ---------------------------------------
|
|                                        
|Net interest income                      |  | $  43,448                                 |   |                                        
|Provision for losses on loans and leases |  | (16,747                                   | ) |                                        
|Noninterest income                       |  | 30,863                                    |   |                                        
|Noninterest expense                      |  | (59,016                                   | ) |                                        
|Income tax expense                       |  | (784                                      | ) |                                        
|                                         |  |                                           |   |                                        
|Net income (loss)                        |  | $  (2,236                                 | ) |                                        
|                                         |  |                                           |   |                                        
|Basic earnings (loss) per share          |  | $    (0.07                                | ) |                                        
|                                         |  |                                           |   |                                        
|Diluted earnings (loss) per share        |  | $    (0.07                                | ) |                                        
|                                         |  |                                           |   |                                        




The pro forma combined net loss for the quarter ended June 30, 1999 of $2.2 million consists of our net income of
$7.5 million and FMACs net loss of $5.2 million, less pro forma adjustments of $4.5 million. The pro forma combined net income for the six months ended June 30, 1999 of $5.2 million consists of our net income of $14.7 million and FMACs net
loss of $0.1 million, less pro forma adjustments of $9.4 million. Significant pro forma adjustments include the reduction in net interest income from a sale of a portion of Bay View Banks loan portfolio in contemplation of the acquisition, the
interest and other costs associated with the issuance of $50 million in Subordinated Notes by Bay View Bank to partially finance the acquisition, the amortization expense relating to goodwill generated as a result of the acquisition, and the income tax
benefit associated with the pro forma adjustments.





| | Goodman Factors, Inc.
| | ---------------------




On February 1, 2000, we acquired the assets and operations of Goodman Factors, Inc., a Texas-based general purpose
factoring company. The average balance of the factoring receivable assets acquired was approximately $17.5 million. The amount of goodwill related to this acquisition was approximately $9.0 million, which is being amortized on a straight-line basis over
12 years. This goodwill amount represents the excess of the total purchase price over the estimated fair value of net assets acquired.





Note 5.    Segment and Related Information





We have two operating segments that we refer to as business platforms. The platforms were determined primarily
based upon the characteristics of our interest-earning assets and their respective distribution channels and reflect the way that we monitor, measure and evaluate our primary business activities. Our platforms are as follows:





A Retail Platform which is comprised of single-family real estate loans, home equity loans and lines of credit,
auto loans and leases, mortgage-backed securities and other investments, and consumer banking products and services. The Retail Platforms revenues are derived from customers throughout the United States.


BAY VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)








A Commercial Platform which is comprised of multi-family and commercial real estate loans, franchise loans,
asset-based loans, factoring loans, commercial leases, and business banking products and services. The Commercial Platforms revenues are derived from customers throughout the United States.





Each of our business platforms contributes to our overall profitability. We evaluate the performance of our
segments based upon contribution by platform. Contribution by platform is defined as each platforms net interest income and noninterest income less each platforms allocated provision for losses on loans and leases, direct general and
administrative expenses, including certain expense allocations, and other noninterest expense, including the amortization of intangible assets.





In computing net interest income by platform, the interest expense associated with our warehouse lines, which are
used primarily to fund franchise and multi-family mortgage loans held-for-sale, is allocated directly to the Commercial Platform. The interest expense associated with our remaining funding sources, including the noninterest expense associated with our
9.76% Capital Securities, is allocated to each platform on a pro-rata basis determined by the relative amount of average interest-bearing liabilities, excluding warehouse lines, that are required to fund the platforms interest-earning assets.





The Retail Platform incurs the direct general and administrative expenses related to operating our branch network
which serves primarily to generate deposits used to fund interest-earning assets in the Retail and Commercial Platforms. A portion of these direct general and administrative expenses is allocated to the Commercial Platform based upon the relative amount
of average interest-bearing liabilities that are required to fund the platforms interest-earning assets.





All indirect general and administrative expenses not specifically identifiable with, or allocable to, our business
platforms are included in indirect corporate overhead. Indirect corporate overhead includes both recurring items, such as our administrative and support functions, and certain special mention items, such as expenses associated with corporate-wide process
and systems re-engineering projects and third-party Year 2000 compliance-related activities.


BAY VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)








The following tables illustrate each platforms contribution for the periods indicated. The tables also
illustrate the reconciliation of total contribution by platform to our consolidated net income for the periods indicated. Reconciling items generally include indirect corporate overhead and income tax expense.





|                                                                 |  | For the Three Months Ended

June 30, 2000
|---------------------------------------------------------------- |  | -----------------------------------------
|
|
|Interest income                                                  |  | $      54,296                            
|Interest expense                                                 |  | (38,671                                  
|Provision for losses on loans and leases                         |  |                                         
|Noninterest income                                               |  | 24,390                                   
|Direct general and administrative expenses(1)                    |  | (17,945                                  
|Allocation of branch network general and administrative expenses |  | 4,808                                    
|Leasing expenses                                                 |  | (16,934                                  
|Dividend expense on Capital Securities                           |  | (1,316                                   
|Net income on real estate owned                                  |  | 12                                       
|Amortization of intangible assets                                |  | (2,187                                   
|                                                                 |  |                                          
|Contribution by platform                                         |  | $        6,453                           
|                                                                 |  |                                          
|Indirect corporate overhead(1)                                   |  |                                          
|Income tax benefit                                               |  |                                          
|                                                                 |  |                                          
|Net income                                                       |  |                                          
|                                                                 |  |                                          
|At June 30, 2000:                                                |  |                                          
|Interest-earning assets plus operating lease assets              |  | $3,068,214                               
|                                                                 |  |                                          
|Noninterest-earning assets                                       |  |                                          
|                                                                 |  |                                          
|Total assets                                                     |  |                                          
|                                                                 |  |                                          




|                                                                 |  | For the Three Months Ended

June 30, 1999
|---------------------------------------------------------------- |  | -----------------------------------------
|
|
|Interest income                                                  |  | $      64,637                            
|Interest expense                                                 |  | (40,341                                  
|Provision for losses on loans and leases                         |  | (6,407                                   
|Noninterest income                                               |  | 17,871                                   
|Direct general and administrative expenses(1)                    |  | (18,449                                  
|Allocation of branch network general and administrative expenses |  | 2,975                                    
|Leasing expenses                                                 |  | (8,938                                   
|Dividend expense on Capital Securities                           |  | (1,503                                   
|Net income on real estate owned                                  |  | 30                                       
|Amortization of intangible assets                                |  | (2,520                                   
|                                                                 |  |                                          
|Contribution by platform                                         |  | $        7,355                           
|                                                                 |  |                                          
|Indirect corporate overhead(1)                                   |  |                                          
|Income tax expense                                               |  |                                          
|                                                                 |  |                                          
|Net income                                                       |  |                                          
|                                                                 |  |                                          
|At June 30, 1999:                                                |  |                                          
|Interest-earning assets plus operating lease assets              |  | $3,628,169                               
|                                                                 |  |                                          
|Noninterest-earning assets                                       |  |                                          
|                                                                 |  |                                          
|Total assets                                                     |  |                                          
|                                                                 |  |                                          




BAY VIEW CAPITAL CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)








|                                                                 |  | For the Six Months Ended

June 30, 2000
|---------------------------------------------------------------- |  | ---------------------------------------
|
|
|Interest income                                                  |  | $112,660                               
|Interest expense                                                 |  | (79,435                                
|Provision for losses on loans and leases                         |  | (5,200                                 
|Noninterest income                                               |  | 54,792                                 
|Direct general and administrative expenses(1)                    |  | (37,286                                
|Allocation of branch network general and administrative expenses |  | 8,687                                  
|Leasing expenses                                                 |  | (32,315                                
|Dividend expense on Capital Securities                           |  | (2,683                                 
|Net income on real estate owned                                  |  | 6                                      
|Amortization of intangible assets                                |  | (4,452                                 
|                                                                 |  |                                        
|Contribution by platform                                         |  | $  14,774                              
|                                                                 |  |                                        
|Indirect corporate overhead(1)                                   |  |                                        
|Income tax expense                                               |  |                                        
|                                                                 |  |                                        
|Net income                                                       |  |                                        
|                                                                 |  |                                        




|                                                                 |  | For the Six Months Ended

June 30, 1999
|---------------------------------------------------------------- |  | ---------------------------------------
|
|
|Interest income                                                  |  | $132,726                               
|Interest expense                                                 |  | (83,293                                
|Provision for losses on loans and leases                         |  | (11,658                                
|Noninterest income(1)                                            |  | 33,544                                 
|Direct general and administrative expenses(1)                    |  | (37,498                                
|Allocation of branch network general and administrative expenses |  | 6,183                                  
|Leasing expenses                                                 |  | (15,619                                
|Dividend expense on Capital Securities                           |  | (3,124                                 
|Net income on real estate owned                                  |  | 11                                     
|Amortization of intangible assets                                |  | (5,061                                 
|                                                                 |  |                                        
|Contribution by platform                                         |  | $  16,211                              
|                                                                 |  |                                        
|Indirect corporate overhead(1)                                   |  |                                        
|Income tax expense                                               |  |                                        
|                                                                 |  |                                        
|Net income                                                       |  |                                        
|                                                                 |  |                                        




|(1) | Amounts include certain special mention items which are discussed at Noninterest Income and General and
Administrative Expenses. Special mention items generally include income and expense items recognized during the period that we believe are significant and/or unusual in nature and therefore useful to you in evaluating our performance and trends.
These items may or may not be nonrecurring in nature.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Item 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations





Strategic Overview





Bay View Capital Corporation is a diversified financial services company headquartered in San Mateo, California.
Our principal subsidiary is Bay View Bank, N.A. We operate two distinct business platforms representing the two basic distribution channels of our primary businesses, retail and commercial banking.





Our Retail Platform includes single-family real estate loans, home equity loans and lines of credit, auto loans
and leases, mortgage-backed securities and other investments, and other consumer banking products and services. The platforms results include the income and expenses related to these business activities.





Our Commercial Platform includes multi-family and commercial real estate loans, franchise loans, asset-based
loans, factoring loans, commercial leases, and other business banking products and services. The platforms results include the income and expenses related to these business activities.





Throughout 1999, we reported on four business platforms: a Banking Platform, a Home Equity Platform, an Auto
Platform, and a Commercial Platform. The Banking Platform included single-family, multi-family and commercial real estate loans, franchise loans, asset-based commercial participation loans, mortgage-backed securities and other investments, and retail and
business banking deposit products and services. The franchise lending operations and related assets were added in November 1999 through our acquisition of Franchise Mortgage Acceptance Company, sometimes referred to as FMAC. The Home Equity Platform
included home equity loans and lines of credit. The Auto Platform included auto loans and leases. The Commercial Platform included asset-based loans, factoring and commercial leases. Effective January 1, 2000, we reduced our number of business platforms
in order to reflect how we monitor, measure and evaluate our primary business activities. Our prior period platform results were revised to reflect the reduced number of business platforms. Intercompany revenues and expenses are eliminated in the
measurement of platform contribution.





Mission/Strategies





Our mission is to create a diversified financial services company by investing in and developing niche businesses
with risk-adjusted returns that enhance shareholder value. Our strategy is centered on the continued development of our commercial banking activities and the related ongoing change-out of our balance sheet to expand our net interest margin. In order to
realize this objective, our actions include the following:





| |  | Replacing lower-yielding mortgage-based loans and investments on our balance sheet with consumer and commercial loans and leases
with higher risk-adjusted returns, shorter maturities, less geographic concentration risk, and less interest rate sensitivity.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | Enhancing and expanding Bay View Banks deposit base by attracting and retaining lower-cost transaction accounts, including
commercial and business checking accounts, offering competitively priced certificates of deposit and introducing consumer and business internet banking.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | Developing a consistent franchise whole loan sale and securitization market.
| | - | ----------------------------------------------------------------------------




| |  | Maintaining the capital levels of both Bay View Bank and Bay View Capital Corporation at or above the well-capitalized level, as
defined for regulatory purposes.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | Implementing cost savings and other efficiencies related to our acquisitions.
| | - | -----------------------------------------------------------------------------




During the second quarter of 2000, our Board of Directors retained the services of Merrill Lynch & Co. to
assist us in evaluating our strategic options, including the potential sale of some or all of our business units. Merrill Lynch continues to assess our strategic options to help capture and return the underlying intrinsic value of Bay View to our
stockholders.





Retail Platform Strategy





One of the principal businesses of the Retail Platform is Bay View Banks 58 full service branch banking
network. A primary objective of the Retail Platform is to enhance the value of our deposit franchise by focusing on deposit growth and expanding and enhancing products and services. A primary component of the Retail Platforms deposit growth strategy
is to focus on lower-cost transaction accounts (e.g., checking, savings and money market accounts) as a source of financing. We also offer a full array of consumer banking products and services. We continued to make progress on our goal to increase
transaction accounts by growing business deposits and introducing internet banking to our customers. Consumer internet banking was launched at the end of the first quarter of 2000 with customer usage greatly exceeding expectations. Business online banking
was launched on June 30, 2000.





The Retail Platform includes our single-family loan portfolio. We discontinued originating single-family loans in
1996 to reduce our concentration risk and facilitate the change-out of our balance sheet from mortgage-based assets to higher-yielding commercial bank-like assets. As a result, the portfolio of single-family loans is decreasing over time as these loans
are repaid or sold.





The Retail Platfoms home equity loan portfolio includes conventional home equity loans and lines of credit
and high loan-to-value home equity loans. We define conventional home equity loans and lines of credit as having combined loan-to-value ratios of less than or equal to 100% and high loan-to-value home equity loans as having combined loan-to-value ratios
of greater than 100%. Our home equity loan production efforts are focused on conventional home equity loans and lines of credit originated through our branch banking network. The high loan-to-value home equity loans were purchased primarily in 1997 and
1998 and the balances are decreasing as these loans are repaid.





The Retail Platform originates and purchases fixed-rate loans and leases secured by new and used autos. In
executing our strategy, we identify product niches which are not the primary focus of traditional competitors in the auto lending area, such as banks and captive finance companies. One such niche includes auto loans where a highly qualified borrower
desires a higher relative loan amount and/or a longer term than is offered by many other more traditional auto financing sources. In return for the flexibility of the products offered, we charge higher interest rates while still applying traditional
underwriting criteria to mitigate any potential loan losses.





During 1998, we entered into an agreement with Lendco Financial Services for the purchase of auto loans and leases
which expired June 30, 2000. Accordingly, we do not anticipate any future auto loan or lease purchases from Lendco.





Commercial Platform Strategy





Our strategy to change-out our balance sheet from lower-yielding mortgage-based loans and investments to consumer
and commercial loans and leases with higher risk-adjusted returns has led to the development of our Commercial Platform. The Commercial Platforms strategy is to increase our earnings potential and enhance our deposit franchise by providing
commercial bank-like products and services to small and middle-market businesses on a nationwide basis.





The Commercial Platform originates loans and leases including multi-family and commercial real estate loans,
asset-based loans, factoring loans, equipment leases, and franchise loans. We also offer a full array of business banking products and services.





As a result of our acquisition of FMAC in November of 1999, we are now one of the nations leading small
business lenders specializing in franchise lending, with significant franchise loan origination capabilities. Our primary markets are franchised quick-service and casual dining restaurants, such as Burger King, Wendys, Pizza Hut, KFC, TGI
Fridays, Applebees, and Dennys, and retail energy businesses which include service stations, convenience stores, truck stops, car washes, and quick lube businesses. Our strategy is to portfolio a
portion of the commercial franchise loans we originate and to securitize and/or sell the remainder of our franchise loan production. Our earnings are largely dependent upon our franchise loan sales and securitizations.





Our acquisition of FMAC also included Bankers Mutual, which sells its multi-family loan production through
seller-servicer programs administered by Fannie Mae and Freddie Mac. On June 30, 2000 we sold substantially all of the assets and certain liabilities of Bankers Mutual to Berkshire Mortgage Finance Limited Partnership. This transaction improved our
regulatory capital ratios and, based on Bankers Mutuals performance-to-date, will have a positive net impact on future earnings.





Results of Operations





Net income for the second quarter of 2000 was $204,000, or $0.01 per diluted share, compared with $7.5 million, or
$0.40 per diluted share, for the second quarter of 1999. Net income for the first six months of 2000 was $722,000 or $0.02 per diluted share, as compared with $14.7 million, or $0.77 per diluted share, for the first six months of 1999. Earnings included
certain special mention expenses which amounted to approximately $0.02 per diluted share for the second quarter of 2000 and $0.07 per diluted share for the first six months of 2000, as discussed elsewhere herein.





While our non-franchise loan-related businesses continue to perform well, our earnings are impacted by the lack of
franchise loan sales and/or securitizations and the incremental general and administrative expenses associated with our November 1, 1999 acquisition of Franchise Mortgage Acceptance Company (FMAC). Our efforts to sell and securitize franchise
loans remain hampered by unfavorable market conditions, including widening spreads and a current decrease in investor demand for this asset class. Although the market dictates our ability to execute these transactions, we will continue to explore these
avenues and remain poised to execute if afforded the right opportunity. Our banking operations remain strong as we continue to focus our efforts on enhancing our core business lines, developing our deposit franchise, and improving operating efficiencies.





Net Interest Income and Net Interest Margin





Net interest income was $43.2 million for the second quarter of 2000 as compared with $42.7 million for the second
quarter of 1999. Net interest income for the first six months of 2000 was $86.4 million as compared with $83.5 million for the first six months of 1999. Net interest margin was 3.25% for the second quarter of 2000 as compared with 3.28% for the second
quarter of 1999. Net interest margin was 3.19% for the first six months of 2000 as compared with 3.22% for the first six months of 1999. The following tables illustrate net interest income and net interest margin, by platform, for the periods indicated:





|                    |  | For the Three Months Ended (Unaudited)
|------------------- |  | --------------------------------------
|
|
|
|Retail Platform(1)  |  | $15,625                               
|Commercial Platform |  | 27,550                                
|                    |  |                                       
|Total               |  | $43,175                               
|                    |  |                                       




|                    |  | For the Six Months Ended (Unaudited)
|------------------- |  | ------------------------------------
|
|
|
|Retail Platform(1)  |  | $33,225                             
|Commercial Platform |  | 53,141                              
|                    |  |                                     
|Total               |  | $86,366                             
|                    |  |                                     




|(1) | The Retail Platforms net interest margin and net interest income presented above do not include the revenue impact of our
auto leasing activities, which is included in noninterest income, but do include the associated funding costs.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The increases in net interest income for the second quarter of 2000, as compared with the second quarter of 1999,
and for the first six months of 2000, as compared with the first six months of 1999, were due to increases in average interest-earning assets partially offset by slight decreases in net interest margin. The increases in average interest-earning assets
were due primarily to higher franchise loan and investment securities balances. Our net interest spreads increased due to higher yields on interest-earning assets, resulting from the change-out of our balance sheet to more commercial bank-like assets and
the higher interest rate environment, partially offset by higher funding costs. However, our net interest margin decreased due to the increasing impact of the funding costs associated with our auto leasing activities. Our net interest margin, calculated
in accordance with generally accepted accounting principles, sometimes referred to as GAAP, excludes the revenue impact of our auto leasing activities, but includes the associated funding costs. Because auto leases are accounted for as operating leases,
the rental income and related expenses, including depreciation expense, are reflected in noninterest income and noninterest expense in accordance with GAAP. For a discussion of normalized net interest income and net interest margin, including the revenue
impact of our auto leasing activities, see Non-GAAP Performance MeasuresNormalized Net Interest Income and Net Interest Margin.





Net interest income and net interest margin by platform reflect our continued shift in asset mix toward more
commercial bank-like products (see the following table illustrating average interest-earning assets, by platform), specifically franchise loans and asset-backed securities. This shift in our asset mix to higher-yielding assets helped to mitigate the
impact of higher funding costs due to the rising rate environment. For more detail, see discussion of Interest Income and Interest Expense.





The following tables illustrate average interest-earning assets, excluding our auto-related operating lease
assets, by platform, for the periods indicated:





|                    |  | Average Balances for the

Three Months Ended

(Unaudited)
|------------------- |  | ---------------------------------------------------------
|
|
|Retail Platform     |  | $2,689,974                                               
|Commercial Platform |  | 2,585,838                                                
|                    |  |                                                          
|Total               |  | $5,275,812                                               
|                    |  |                                                          




|                    |  | Average Balances for the

Six Months Ended

(Unaudited)
|------------------- |  | -------------------------------------------------------
|
|
|Retail Platform     |  | $2,869,476                                             
|Commercial Platform |  | 2,502,565                                              
|                    |  |                                                        
|Total               |  | $5,372,041                                             
|                    |  |                                                        




The decreases in the Retail Platforms average interest-earning assets, excluding our auto-related operating
lease assets, and the corresponding increases in the Commercial Platforms average interest-earning assets, reflect our continued shift in asset mix toward more commercial bank-like products. The Retail Platforms average interest-earning assets
were significantly impacted from June of 1999 through June of 2000 by loan sales and securitizations throughout this period, as discussed elsewhere herein or as previously disclosed.





The following table illustrates interest-earning assets, excluding our auto-related operating lease assets, by
platform, as of the dates indicated:





|                    |  | (Unaudited)
|------------------- |  | -----------
|
|
|Retail Platform     |  | $2,535,901 
|Commercial Platform |  | 2,619,686  
|                    |  |            
|Total               |  | $5,155,587 
|                    |  |            




The significant decrease in the Retail Platforms interest-earning assets, excluding our auto-related
operating lease assets, at June 30, 2000, as compared with December 31, 1999, was due primarily to the sale of $251.4 million of single-family mortgage loans and the securitization and sale of $356.6 million of auto loans at the end of the first quarter
of 2000. These transactions were primarily regulatory capital driven and helped maintain our regulatory well-capitalized status as of March 30, 2000 and June 30, 2000.





Average Balance Sheet





The following tables illustrate average yields on our interest-earning assets and average rates on our
interest-bearing liabilities for the periods indicated. These average yields and rates were calculated by dividing interest income by the average balance of interest-earning assets and by dividing interest expense by the average balance of
interest-bearing liabilities, for the periods indicated. Average balances of interest-earning assets and interest-bearing liabilities were calculated by averaging the relevant month-end amounts for the respective periods.





|                                            |  | AVERAGE BALANCES, YIELDS AND RATES (Unaudited)
|------------------------------------------- |  | ----------------------------------------------
|
|
|
|Assets                                      |  |                                               
|                                            |  |                                               
|                                            | 
|
|Interest-earning assets:                    |  |                                               
|Loans and leases                            |  | $3,848,488                                    
|Mortgage-backed securities(1)               |  | 909,151                                       
|Investments(1)                              |  | 518,173                                       
|                                            |  |                                               
|Total interest-earning assets               |  | 5,275,812                                     
|                                            |  |                                               
|Other assets(2)                             |  | 1,080,832                                     
|                                            |  |                                               
|Total assets                                |  | $6,356,644                                    
|                                            |  |                                               
|                                            | 
|
|Liabilities and Stockholders Equity        |  |                                               
|                                            | 
|
|Interest-bearing liabilities:               |  |                                               
|Deposits                                    |  | $3,656,865                                    
|Borrowings(3)                               |  | 1,894,819                                     
|                                            |  |                                               
|Total interest-bearing liabilities          |  | 5,551,684                                     
|                                            |  |                                               
|Other liabilities                           |  | 178,252                                       
|                                            |  |                                               
|Total liabilities                           |  | 5,729,936                                     
|Stockholders equity                        |  | 626,708                                       
|                                            |  |                                               
|Total liabilities and stockholders equit
y |  | $6,356,644                                    
|                                            |  |                                               
|Net interest income/net interest spread     |  |                                               
|                                            |  |                                               
|Net interest-bearing liabilities            |  | $  (275,872                                   
|                                            |  |                                               
|Net interest margin(4)                      |  |                                               
|                                            |  |                                               




|(1) | Average balances and yields for securities and other investments classified as available-for-sale are based on historical amortized
cost.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

|(2) | Other assets includes average auto lease balances of $528.6 million and $299.3 million for the three months ended June 30, 2000 and
1999, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Interest expense on borrowings includes interest expense and premiums on interest rate swaps and caps of $0.1 million and $1.0
million for the three months ended June 30, 2000 and 1999, respectively. Interest expense for borrowings excludes expenses related to our Capital Securities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Annualized net interest income divided by average interest-earning assets.
|--- | --------------------------------------------------------------------------




|                                            |  | AVERAGE BALANCES, YIELDS AND RATES (Unaudited)
|------------------------------------------- |  | ----------------------------------------------
|
|
|
|Assets                                      |  |                                               
|                                            |  |                                               
|                                            | 
|
|Interest-earning assets:                    |  |                                               
|Loans and leases                            |  | $4,167,620                                    
|Mortgage-backed securities(1)               |  | 821,617                                       
|Investments(1)                              |  | 382,804                                       
|                                            |  |                                               
|Total interest-earning assets(2)            |  | 5,372,041                                     
|                                            |  |                                               
|Other assets                                |  | 1,072,089                                     
|                                            |  |                                               
|Total assets                                |  | $6,444,130                                    
|                                            |  |                                               
|                                            | 
|
|Liabilities and Stockholders Equity        |  |                                               
|                                            | 
|
|Interest-bearing liabilities:               |  |                                               
|Deposits                                    |  | $3,671,111                                    
|Borrowings(3)                               |  | 1,942,314                                     
|                                            |  |                                               
|Total interest-bearing liabilities          |  | 5,613,425                                     
|                                            |  |                                               
|Other liabilities                           |  | 202,597                                       
|                                            |  |                                               
|Total liabilities                           |  | 5,816,022                                     
|Stockholders equity                        |  | 628,108                                       
|                                            |  |                                               
|Total liabilities and stockholders equit
y |  | $6,444,130                                    
|                                            |  |                                               
|Net interest income/net interest spread     |  |                                               
|                                            |  |                                               
|Net interest-bearing liabilities            |  | $  (241,384                                   
|                                            |  |                                               
|Net interest margin(4)                      |  |                                               
|                                            |  |                                               




|(1) | Average balances and yields for securities and other investments classified as available-for-sale are based on historical amortized
cost.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

|(2) | Other assets includes average auto lease balances of $510.4 million and $261.0 million for the six months ended June 30, 2000 and
1999, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Interest expense on borrowings includes interest expense and premiums on interest rate swaps and caps of $0.3 million and $2.0
million for the six months ended June 30, 2000 and 1999, respectively. Interest expense for borrowings excludes expenses related to our Capital Securities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Annualized net interest income divided by average interest-earning assets.
|--- | --------------------------------------------------------------------------




Interest Income





Interest income was $114.7 million for the second quarter of 2000 as compared with $102.7 million for the second
quarter of 1999. Interest income was $229.1 million for the first six months of 2000 as compared with $202.7 million for the first six months of 1999. The average yield on interest-earning assets was 8.69% for the second quarter of 2000 as compared with
7.90% for the second quarter of 1999. The average yield on interest-earning assets was 8.53% for the first six months of 2000 as compared with 7.87% for the first six months of 1999. The following tables illustrate interest income, by platform, for the
periods indicated:





|                           |  | For the Three Months Ended (Unaudited)
|-------------------------- |  | --------------------------------------
|
|
|
|Retail Platform:           |  |                                       
|Loans                      |  | $1,496,177                            
|Mortgage-backed securities |  | 909,151                               
|Investments                |  | 284,646                               
|                           |  |                                       
|Total Retail Platform      |  | 2,689,974                             
|                           |  |                                       
|Commercial Platform:       |  |                                       
|Loans and leases           |  | 2,352,312                             
|Investments                |  | 233,526                               
|                           |  |                                       
|Total Commercial
Platform  |  | 2,585,838                             
|                           |  |                                       
|Total                      |  | $5,275,812                            
|                           |  |                                       




|                           |  | For the Six Months Ended (Unaudited)
|-------------------------- |  | ------------------------------------
|
|
|
|Retail Platform:           |  |                                     
|Loans                      |  | $1,799,592                          
|Mortgage-backed securities |  | 821,617                             
|Investments                |  | 248,267                             
|                           |  |                                     
|Total Retail Platform      |  | 2,869,476                           
|                           |  |                                     
|Commercial Platform:      
|Loans and leases           |  | 2,368,028                           
|Investments                |  | 134,537                             
|                           |  |                                     
|Total Commercial
Platform  |  | 2,502,565                           
|                           |  |                                     
|Total                      |  | $5,372,041                          
|                           |  |                                     




| | Retail Platform
| | ---------------




Interest income for the Retail Platform was $54.3 million for the second quarter of 2000 as compared with $64.6
million for the second quarter of 1999. Interest income for the Retail Platform was $112.7 million for the first six months of 2000 as compared with $132.7 million for the first six months of 1999. The average yield on interest-earning assets for the
Retail Platform was 8.08% for the second quarter of 2000 as compared with 7.60% for the second quarter of 1999. The average yield on interest-earning assets for the Retail Platform was 7.87% for the first six months of 2000 as compared with 7.54% for the
first six months of 1999.





The Retail Platforms interest income on loans was $32.2 million for the second quarter of 2000 as compared
with $52.8 million for the second quarter of 1999. The Retail Platforms interest income on loans was $75.0 million for the first six months of 2000 as compared with $108.0 million for the first six months of 1999. The Retail Platforms average
loan yield was 8.62% for the second quarter of 2000 as compared with 8.07% for the second quarter of 1999. The Retail Platforms average loan yield was 8.36% for the first six months of 2000 as compared with 8.01% for the first six months of 1999.
The decreases in interest income on loans for the second quarter of 2000, as compared with the second quarter of 1999, and for the first six months of 2000, as compared with the first six months of 1999, were due to lower average loan balances, as
previously discussed, partially offset by an increase in the platforms average loan yield, which was primarily due to a change in the mix of average retail loans from single-family mortgage to relatively higher-yielding auto and home equity loans
and lines of credit combined with the impact related to the higher interest rate environment.





The Retail Platforms interest income on mortgage-backed securities was $16.4 million for the second quarter
of 2000 as compared with $8.8 million for the second quarter of 1999. The Retail Platforms interest income on mortgage-backed securities was $28.6 million for the first six months of 2000 as compared with $18.2 million for the first six months of
1999. The Retail Platforms average yield on mortgage-backed securities was 7.20% for the second quarter of 2000 as compared with 6.28% for the second quarter of 1999. The Retail Platforms average yield on mortgage-backed securities was 6.95%
for the first six months of 2000 as compared with 6.28% for the first six months of 1999. The increases in interest income on mortgage-backed securities for the second quarter of 2000, as compared to the second quarter of 1999, and for the first six
months of 2000, as compared with the first six months of 1999, were due to increases in both average balances and yields. The increases in average balances and yields were due to purchases of relatively higher-yielding Government National Mortgage
Association (sometimes referred to as GNMA) securities during the fourth quarter of 1999 and the first six months of 2000. These securities, which have a zero risk-based regulatory capital requirement, had yields higher than our existing mortgage-backed
securities portfolio.





The Retail Platforms interest income on investment securities, which consist primarily of short-term
investments and our retained interests in auto loan securitizations, was $5.7 million for the second quarter of 2000 as compared with $3.0 million for the second quarter of 1999. The Retail Platforms interest income on investment securities was $9.1
million for the first six months of 2000 as compared with $6.5 million for the first six months of 1999. The Retail Platforms average yield on investment securities was 8.09% for the second quarter of 2000 as compared with 5.29% for the second
quarter of 1999. The Retail Platforms average yield on investment securities was 7.37% for the first six months of 2000 as compared with 5.20% for the first six months of 1999. The increases in interest income on investments for the second quarter
of 2000, as compared with the second quarter of 1999, and for the first six months of 2000, as compared with the first six months of 1999, were due to both higher average balances and increases in average yields related to the higher interest rate
environment, the purchases of higher yielding FHLB securities and an increase in the average residual interest balance as a result of our December 1999 and March 2000 auto securitizations, which have a higher yield relative to the total investment
securities portfolio.





| | Commercial Platform
| | -------------------




Interest income for the Commercial Platform was $60.4 million for the second quarter of 2000 as compared with
$38.1 million for the second quarter of 1999. Interest income for the Commercial Platform was $116.5 million for the first six months of 2000 as compared with $70.0 million for the first six months of 1999. The average yield on interest-earning assets for
the Commercial Platform was 9.31% for the second quarter of 2000 as compared with 8.46% for the second quarter of 1999. The average yield on interest-earning assets for the Commercial Platform was 9.28% for the first six months of 2000 as compared with
8.57% for the first six months of 1999.





The Commercial Platforms interest income on loans was $55.3 million for the second quarter of 2000 as
compared with $38.1 million for the second quarter of 1999. The Commercial Platforms interest income on
loans was $109.7 million for the first six months of 2000 as compared with $70.0 million for the first six months of 1999. The Commercial Platforms average loan and lease yield was 9.37% for the second quarter of 2000 as compared with 8.46% for the
second quarter of 1999. The Commercial Platforms average loan and lease yield was 9.23% for the first six months of 2000 as compared with 8.57% for the first six months of 1999. The increases in interest income on loans and leases for the second
quarter of 2000, as compared with the second quarter of 1999, and for the first six months of 2000, as compared with the first six months of 1999, were due to higher average loan and lease balances, as previously discussed, and increases in the
platforms average loan and lease yields, which were a result of the positive impact of the shift from lower-yielding multi-family mortgage-based loans to higher-yielding franchise and commercial business loans combined with the impact related to the
higher interest rate environment.





The Commercial Platforms interest income on investment securities, which consist of asset-backed securities
and residual interests in franchise loan securitizations, was $5.1 million for the second quarter of 2000 and $6.8 million for the first six months of 2000. There were no investment securities in the Commercial Platform during the first six months of
1999. The Commercial Platforms average yield on investment securities was 8.71% for the second quarter of 2000 and 10.11% for the first six months of 2000.





We completed a $268.2 million on-balance sheet franchise loan securitization within the Commercial Platform during
the second quarter of 2000 whereby we securitized a portfolio of franchise loans and retained the resulting AAA-rated, credit enhanced securities and residual interests. This transaction benefited us by providing lower funding sources as well as potential
future regulatory capital relief. The transaction effectively transferred $268.2 million in franchise loans to investment securities, generating $264.2 million in asset-backed securities classified as held-to-maturity and a retained interest valued at
$12.1 million classified as securities available-for-sale. There was no gain or loss recognized as a result of this transaction.





Interest Expense





| | Deposits
| | --------




Interest expense on our deposits was $41.2 million for second quarter of 2000 as compared with $33.5 million for
the second quarter of 1999. Interest expense on our deposits was $81.1 million for first six months of 2000 as compared with $67.1 million for the first six months of 1999. The average cost of deposits was 4.53% for the second quarter of 2000 as compared
with 4.02% for the second quarter of 1999. The average cost of deposits was 4.44% for the first six months of 2000 as compared with 4.08% for the first six months of 1999. The increases in interest expense were due to both higher average deposit balances
and increases in the cost of deposits. The increases in the cost of our deposits were primarily associated with the rising interest rate environment and our increased usage of brokered certificates of deposit. Despite the rising interest rate environment,
the average cost of transaction accounts, which comprise more than 51% of our total deposits, only increased 4 basis points as compared with the first quarter of 2000 and 12 basis points as compared with the second quarter of 1999.





The following table summarizes our deposit costs by type and our transaction accounts as a percentage of retail
deposits for the periods indicated:





|                                                        |  | At or for the Three Months Ended
|------------------------------------------------------- |  | --------------------------------
|
|Transaction accounts                                    |  | 3.34                            
|Retail certificates of deposit                          |  | 5.27                            
|                                                        |  |                                 
|Total retail deposits                                   |  | 4.31                            
|Brokered certificates of deposit                        |  | 6.51                            
|                                                        |  |                                 
|Total deposits                                          |  | 4.53                            
|                                                        |  |                                 
|Transaction accounts as a percentage of retail deposits |  | 51.3                            
|                                                        |  |                                 




| | Borrowings
| | ----------




Interest expense on our borrowings was $30.3 million for the second quarter of 2000 as compared with $26.5 million
for the second quarter of 1999. Interest expense on our borrowings was $61.7 million for the first six months of 2000 as compared with $52.1 million for the first six months of 1999. The average cost of borrowings was 6.39% for the second quarter of 2000
as compared with 5.59% for the second quarter of 1999. The average cost of borrowings was 6.35% for the first six months of 2000 as compared with 5.65% for the first six months of 1999. In accordance with GAAP, these amounts exclude the expense associated
with our Capital Securities. The increases in interest expense on borrowings for the second quarter of 2000, as compared with second quarter of 1999, and for the first six months of 2000, as compared with the first six months of 1999, were due primarily
to increases in borrowing costs. The increases in borrowing costs were due to the higher interest rate environment combined with the utilization of warehouse lines established during the latter half of 1999 primarily to fund our franchise loan production,
which carry higher costs relative to our more traditional borrowing sources, and an increase in the cost of our long-term debt. Our $50 million of 8.42% Senior Debentures matured on June 1, 1999, and Bay View Bank issued $50 million of 10% Subordinated
Notes on August 18, 1999, a portion of which was used to partially finance our acquisition of FMAC.





The following tables illustrate the changes in net interest income due to changes in the rate and volume of our
interest-earning assets and interest-bearing liabilities for the three- and six-month periods ended June 30, 2000 as compared with the three- and six-month period ended June 30, 1999. Changes in rate and volume which cannot be segregated (e.g., changes in
average interest rate multiplied by average portfolio balance) have been allocated proportionately between the change in rate and the change in volume.





|                           |  | For the Three Months Ended

June 30, 2000 vs. 1999 (Unaudited)
|-------------------------- |  | --------------------------------------------------------------
|
|
|Interest income:           |  |                                                               
|Loans and leases           |  | $12,334                                                       
|Mortgage-backed securities |  | 1,440                                                         
|Investment securities      |  | 2,215                                                         
|                           |  |                                                               
|                           |  | 15,989                                                        
|                           |  |                                                               
|Interest expense:          |  |                                                               
|Deposits                   |  | 4,432                                                         
|Borrowings                 |  | 3,888                                                         
|                           |  |                                                               
|                           |  | 8,320                                                         
|                           |  |                                                               
|Net interest income        |  | $  7,669                                                      
|                           |  |                                                               




|                           |  | For the Six Months Ended

June 30, 2000 vs. 1999

(Unaudited)
|-------------------------- |  | -------------------------------------------------------------
|
|
|Interest income:           |  |                                                              
|Loans and leases           |  | $14,461                                                      
|Mortgage-backed securities |  | 2,108                                                        
|Investment securities      |  | 4,545                                                        
|                           |  |                                                              
|                           |  | 21,114                                                       
|                           |  |                                                              
|Interest expense:          |  |                                                              
|Deposits                   |  | 6,373                                                        
|Borrowings                 |  | 6,989                                                        
|                           |  |                                                              
|                           |  | 13,362                                                       
|                           |  |                                                              
|Net interest income        |  | $  7,752                                                     
|                           |  |                                                              




Provision for Losses on Loans and Leases





The provision for losses on loans and leases for the second quarter of 2000 was $9.5 million as compared with $6.8
million for the second quarter of 1999. The provision for losses on loans and leases for the first six months of 2000 was $17.5 million as compared with $12.1 million for the first six months of 1999. The increases in the provision for losses on loans and
leases for the second quarter of 2000, as compared with the second quarter of 1999, and for the first six months of 2000, as compared with the first six months of 1999, were due to higher provision levels within the Commercial Platform related to
franchise loans combined with higher net charge-offs within the commercial equipment lease portfolio. These factors were partially offset by a decline in provision levels in the Retail Platform related to lower net charge-offs in the high loan-to-value
home equity loan and auto loan portfolios combined with declines in loan balances. The following tables illustrate the provision for losses on loans and leases, by platform, for the periods indicated:





|                    |  | For the

Three Months

Ended (Unaudited)
|------------------- |  | ----------------------------------------
|
|
|Retail Platform     |  | $                                      
|Commercial Platform |  | 9,500                                   
|                    |  |                                         
|Total               |  | $9,500                                  
|                    |  |                                         




|                    |  | For the

Six Months Ended

(Unaudited)
|------------------- |  | --------------------------------------
|
|
|Retail Platform     |  | $  5,200                              
|Commercial Platform |  | 12,300                                
|                    |  |                                       
|Total               |  | $17,500                               
|                    |  |                                       




Noninterest Income





Noninterest income for the second quarter of 2000 was $33.6 million as compared with $18.1 million for the second
quarter of 1999. Noninterest income for the first six months of 2000 was $68.1 million as compared with $34.1 million for the first six months of 1999. The increases in noninterest income for the second quarter of 2000, as compared with the second quarter
of 1999, and for the first six months of 2000, as compared with the first six months of 1999, were largely attributable to higher auto leasing income in the Retail Platform and higher loan servicing and fee income in the Commercial Platform, combined with
higher net gains on sales of assets and liabilities. The following tables illustrate noninterest income, by platform, for the periods indicated:





|                    |  | For the

Three Months Ended

(Unaudited)
|------------------- |  | ----------------------------------------
|
|
|Retail Platform     |  | $24,390                                 
|Commercial Platform |  | 9,206                                   
|                    |  |                                         
|Total               |  | $33,596                                 
|                    |  |                                         




|                    |  | For the

Six Months Ended

(Unaudited)
|------------------- |  | --------------------------------------
|
|
|Retail Platform     |  | $54,792                               
|Commercial Platform |  | 13,276                                
|                    |  |                                       
|Total               |  | $68,068                               
|                    |  |                                       




Noninterest income for the second quarter of 2000 included a $10.0 million gain on the auction of $180 million of
Federal Home Loan Bank liabilities with below-market interest rates, a $4.7 million loss on the sale of substantially all of the assets and certain liabilities of Bankers Mutual, and net gains of $1.0 million on sales of loans and leases, all of which
were in the Commercial Platform, partially offset by $5.1 million in losses in the Retail Platform primarily related to the revaluation of our retained interests in our 2000 auto loan securitization combined with charges associated with the anticipated
exercise of the cleanup call on our 1997 auto loan securitization. Noninterest income for the first quarter of 2000 included a $2.1 million gain for the Retail Platform associated with the sale of servicing rights and $1.3 million in gains for the
Commercial Platform from the sales of multi-family mortgage loans. There were no gains or losses on sales of assets or liabilities for the first six months of 1999.





Noninterest Expense





| | General and Administrative Expenses
| | -----------------------------------




General and administrative expenses for the second quarter of 2000 were $42.8 million as compared with $25.9
million for the second quarter of 1999. General and administrative expenses for the first six months of 2000 were $84.1 million as compared with $52.0 million for the first six months of 1999. Excluding special mention items, as discussed below, the
increases in general and administrative expenses for the second quarter of 2000, as compared with the second quarter of 1999, and for the first six months of 2000, as compared with the first six months of 1999, were primarily attributable to expenses
related to our acquisition of FMAC on November 1, 1999 and inflationary pressures.





General and administrative expenses for the second quarter of 2000 included $1.3 million in special mention
items largely related to FMAC transition costs and other operational restructuring charges. General and administrative expenses for the first quarter of 2000 included $2.4 million in transition and restructuring charges, including the consolidation of
certain loan servicing operations, the closure of an FMAC satellite loan production office and the outsourcing of our internal audit function. General and administrative expenses for the second quarter of 1999 included $379,000 in special mention items
related primarily to our listing on the New York Stock Exchange and third-party Year 2000 compliance related costs. General and administrative expenses for the first quarter of 1999 included $933,000 in special mention items related to operational
restructuring costs and third-party Year 2000 compliance-related costs. Special mention items generally include items recognized during the period that we believe are significant and/or unusual in nature and therefore useful to you in evaluating our
performance and trends. These items may or may not be nonrecurring in nature.





The following tables illustrate general and administrative expenses, by platform (not reflecting the allocation of
branch network general and administrative expenses), for the periods indicated:





|                               |  | For the Three Months

Ended (Unaudited)
|------------------------------ |  | ---------------------------------------
|
|
|Retail Platform                |  | $17,945                                
|Commercial Platform            |  | 16,176                                 
|                               |  |                                        
|Subtotal                       |  | 34,121                                 
|Indirect corporate overhead(1) |  | 8,636                                  
|                               |  |                                        
|Total                          |  | $42,757                                
|                               |  |                                        
|
|
|
|
|Retail Platform                |  | $37,286                                
|Commercial Platform            |  | 31,407                                 
|                               |  |                                        
|Subtotal                       |  | 68,693                                 
|Indirect corporate overhead(1) |  | 15,420                                 
|                               |  |                                        
|Total                          |  | $84,113                                
|                               |  |                                        




|(1) | Amount represents indirect corporate expenses not specifically identifiable with, or allocable to, our business platforms.
|--- | --------------------------------------------------------------------------------------------------------------------------




The following tables illustrate general and administrative expenses, excluding the special mention items as
previously discussed, by platform (not reflecting the allocation of branch network general and administrative expenses), for the periods indicated:





|                               |  | Excluding Special

Mention Items for

the Three Months

Ended (Unaudited)
|------------------------------ |  | -------------------------------------------------------------------------
|
|
|Retail Platform                |  | $17,935                                                                  
|Commercial Platform            |  | 15,572                                                                   
|                               |  |                                                                          
|Subtotal                       |  | 33,507                                                                   
|Indirect corporate overhead(1) |  | 7,940                                                                    
|                               |  |                                                                          
|Total                          |  | $41,447                                                                  
|                               |  |                                                                          




|                               |  | Excluding Special

Mention Items for

the Six Months

Ended (Unaudited)
|------------------------------ |  | -----------------------------------------------------------------------
|
|
|Retail Platform                |  | $36,598                                                                
|Commercial Platform            |  | 29,762                                                                 
|                               |  |                                                                        
|Subtotal                       |  | 66,360                                                                 
|Indirect corporate overhead(1) |  | 14,075                                                                 
|                               |  |                                                                        
|Total                          |  | $80,435                                                                
|                               |  |                                                                        




|(1) | Amount represents indirect corporate expenses not specifically identifiable with, or allocable to, our business platforms.
|--- | --------------------------------------------------------------------------------------------------------------------------




| | Retail Platform
| | ---------------




The decrease in the Retail Platforms general and administrative expenses, excluding special mention items,
for the second quarter of 2000, as compared with the second quarter of 1999, was due to cost savings initiatives implemented and other efficiencies realized, which were partially offset by inflationary pressures, including annual salary increases which
were effective March 1, 2000 and 1999. The Retail Platforms general and administrative expenses, excluding special mention items, for the first six months of 2000, as compared with the first six months of 1999, remained relatively constant as
inflationary pressures were more than offset by cost savings and efficiencies.





| | Commercial Platform
| | -------------------




The increases in the Commercial Platforms general and administrative expenses, excluding special mention
items, for the second quarter of 2000, as compared with the second quarter of 1999, and for the first six months of 2000, as compared with the first six months of 1999, were directly attributable to our acquisition of FMAC effective November 1, 1999.





| | Indirect Corporate Overhead
| | ---------------------------




The increases in indirect corporate overhead, excluding special mention items, for the second quarter of 2000, as
compared with the second quarter of 1999, and for the first six months of 2000, as compared with the first six months of 1999, were due to inflationary pressures, including annual salary increases which were effective March 1, 2000 and 1999, and higher
expenses in the bank holding company necessary to support our expanding business activities (primarily related to FMAC), which were partially offset by cost savings initiatives.





The following tables illustrate the ratio of general and administrative expenses to average total assets,
including auto-related securitized assets, on an annualized basis for the periods indicated:





|                                                                                                                        |  | Three Months Ended

(Unaudited)
|----------------------------------------------------------------------------------------------------------------------- |  | -------------------------------
|
|
|General and administrative expenses                                                                                     |  | $      42,757                  
|Average total assets, including auto-related securitized assets                                                         |  | $6,897,377                     
|                                                                                                                        |  |                                
|Annualized general and administrative expenses to average total assets, including

     auto-related securitized assets |  | 2.48                           
|                                                                                                                        |  |                                




|                                                                                                                        |  | Six Months Ended

(Unaudited)
|----------------------------------------------------------------------------------------------------------------------- |  | -----------------------------
|
|
|General and administrative expenses                                                                                     |  | $      84,113                
|Average total assets, including auto-related securitized assets                                                         |  | $6,896,283                   
|                                                                                                                        |  |                              
|Annualized general and administrative expenses to average total assets, including

     auto-related securitized assets |  | 2.44                         
|                                                                                                                        |  |                              




Another measure that management uses to monitor our level of general and administrative expenses is the efficiency
ratio. The efficiency ratio is calculated by dividing the amount of general and administrative expenses by operating revenues, defined as net interest income, as adjusted to include expenses associated with our Capital Securities, the excess of our
leasing-related rental income over leasing-related depreciation expense, and other noninterest income. This ratio reflects the level of general and administrative expenses required to generate $1 of operating revenue.





The following tables illustrate the efficiency ratio for the periods indicated:





|                                    |  | Three Months Ended

(Unaudited)
|----------------------------------- |  | -------------------------------
|
|
|General and administrative expenses |  | $42,757                        
|Operating revenues, as defined      |  | $59,419                        
|                                    |  |                                
|Efficiency ratio(1)                 |  | 72.0                           
|                                    |  |                                




|                                    |  | Six Months Ended

(Unaudited)
|----------------------------------- |  | -----------------------------
|
|
|                                   
|General and administrative expenses |  | $  84,113                    
|Operating revenues, as defined      |  | $121,139                     
|                                    |  |                              
|Efficiency ratio(1)                 |  | 69.4                         
|                                    |  |                              




|(1) | Prior to November 1, 1999, for the purpose of calculating the efficiency ratio, other noninterest income excluded gains or losses
from securitizations and/or sales of loans and securities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The increase in the efficiency ratio for the second quarter of 2000, as compared with the second quarter of 1999,
was due to higher general and administrative expenses, primarily associated with FMAC, partially offset by higher net leasing-related rental income and higher noninterest income. The increase in the efficiency ratio for the first six months of 2000, as
compared with the first six months of 1999, was due to higher general and administrative expenses, primarily associated with FMAC, partially offset by higher net leasing income, higher noninterest income and higher net interest income.





| | Leasing Expenses
| | ----------------




Leasing expenses represent expenses related to our auto leasing activities. Because the leases are accounted for
as operating leases, the corresponding assets are capitalized and depreciated to their estimated residual values over their lease terms. This depreciation expense is included in leasing expenses, along with the amortization of capitalized initial direct
lease costs. Leasing expenses were $16.9 million for the second quarter of 2000 as compared with $8.9 million for the second quarter of 1999. Leasing expenses were $32.3 million for the first six months of 2000 as compared with $15.6 million for the first
six months of 1999. The increases in leasing expenses were due to growth in our auto-related operating lease portfolio.





| | Capital Securities
| | ------------------




On December 21, 1998, we issued $90 million in Capital Securities through Bay View Capital I, a business trust
formed to issue the securities. The Capital Securities pay quarterly cumulative cash distributions at an annual rate of 9.76% of the liquidation value of $25 per share. Dividend expense on the Capital Securities was $2.2 million for both the second
quarter of 2000 and the second quarter of 1999. Dividend expense on the Capital Securities was $4.5 million for both the first six months of 2000 and the first six months of 1999.





| | Amortization of Intangible Assets
| | ---------------------------------




Amortization expense related to intangible assets was $6.5 million for the second quarter of 2000 as compared with
$2.9 million for the second quarter of 1999. Amortization expense related to intangible assets was $12.8 million for the first six months of 2000 as compared with $5.8 million for the first six months of 1999. The increases in amortization expense were
due to higher amortization expense in the Commercial Platform, primarily related to our acquisitions of FMAC during the fourth quarter of 1999 and, to a much lesser degree, Goodman Factors during the first quarter of 2000.





| | Income Tax Benefit/Expense
| | --------------------------




Our income tax benefit was $1.3 million for the second quarter of 2000 as compared with income tax expense of $6.6
million for the second quarter of 1999. Income tax expense was $2.5 million for the first six months of 2000 as compared with $12.9 million for the first six months of 1999. Our effective tax rate for the first six months of 2000, based on our projected
2000 pre-tax income, was 90.09%, partially offset by a reduction in certain tax exposure items. This compares with 46.9% for the first six months of 1999. The
increase in the effective tax rate was primarily due to an increase in nondeductible goodwill amortization related to the aforementioned acquisitions and a decrease in our income before income tax expense.





Non-GAAP Performance Measures





The following measures of earnings excluding amortization of intangible assets, normalized net interest income and
normalized net interest margin, and their corresponding ratios, are not measures of performance in accordance with GAAP. These measures should not be considered alternatives to net income, net interest income and net interest margin as indicators of our
operating performance. These measures are included because we believe they are useful tools to assist you in assessing our performance and trends. These measures may not be comparable to similarly titled measures reported by other companies.





Earnings Excluding Amortization of Intangible Assets





Earnings excluding amortization of intangible assets represent net income excluding charges related to the
amortization of intangible assets, largely goodwill. This illustration is intended to approximate what our earnings would have been excluding the non-cash expense associated with amortization of goodwill and other intangible assets generated from our
acquisitions, all of which have been accounted for under the purchase method of accounting.





Goodwill is generated from acquisitions accounted for under the purchase method of accounting. Under the purchase
method of accounting, the assets acquired and liabilities assumed are recorded at their fair values. The excess of the consideration paid for the acquisition, including certain acquisition-related costs, over the fair value of net assets acquired is
recorded as goodwill. This goodwill is then amortized as an expense in the acquiring companys income statement over a period not exceeding 40 years.





The purchase method of accounting differs significantly from the pooling-of-interests method of accounting for
acquisitions. Under the pooling-of-interests method of accounting, the assets and liabilities of the company being acquired are combined with the assets and liabilities of the acquiring company at their recorded cost and, as a result, no goodwill is
generated. As no goodwill is generated, a company that has accounted for its acquisitions under the pooling-of-interests method of accounting incurs no goodwill amortization expense.





The purchase and the pooling-of-interests methods of accounting are not alternatives for accounting for
acquisitions. Instead, generally accepted accounting principles prescribe which method must be applied depending upon the characteristics of the underlying acquisition.





As a result of the two distinct methods of accounting for acquisitions discussed above, it may be difficult for
investors and other interested parties to compare the operating results of companies that have accounted for acquisitions under the purchase method of accounting with companies that have accounted for acquisitions under the pooling-of-interests method of
accounting.





In response to this situation, we have illustrated what our earnings would have been excluding the non-cash
expense associated with amortization of the intangible assets generated from our acquisitions. While this disclosure is not intended to represent what our operating results would have been had our acquisitions been accounted for under the p
ooling-of-interests method of accounting, due to other differences between the two methods, we do believe it represents a reasonable approximation of what our results would have been.





The following tables illustrate the reconciliation of income (loss) before income tax expense to earnings
excluding amortization of intangible assets, and the corresponding annualized performance return measures, for the periods indicated:





|                                                                     |  | Three Months Ended

(Unaudited)
|-------------------------------------------------------------------- |  | -------------------------------
|
|
|Income (loss) before income tax expense(1)                           |  | $(1,126                        
|Amortization of intangible assets                                    |  | 6,502                          
|                                                                     |  |                                
|Pre-tax earnings excluding intangible amortization                   |  | 5,376                          
|Income tax expense                                                   |  | (2,152                         
|                                                                     |  |                                
|Earnings excluding amortization                                      |  | $  3,224                       
|                                                                     |  |                                
|Earnings per diluted share                                           |  | $    0.01                      
|                                                                     |  |                                
|Earnings excluding amortization per diluted share                    |  | $    0.10                      
|                                                                     |  |                                
|Return on average assets(2)                                          |  | 0.01                           
|                                                                     |  |                                
|Return on average equity(2)                                          |  | 0.13                           
|                                                                     |  |                                
|Earnings excluding amortizationreturn on average assets(3)          |  | 0.20                           
|                                                                     |  |                                
|Earnings excluding amortizationreturn on average equity(3)          |  | 2.06                           
|                                                                     |  |                                
|Earnings excluding amortizationreturn on average tangible assets(4) |  | 0.21                           
|                                                                     |  |                                
|Earnings excluding amortizationreturn on average tangible equity(4) |  | 4.40                           
|                                                                     |  |                                




|                                                                     |  | Six Months Ended

(Unaudited)
|-------------------------------------------------------------------- |  | -----------------------------
|
|
|Income before income tax expense(1)                                  |  | $  3,247                     
|Amortization of intangible assets                                    |  | 12,809                       
|                                                                     |  |                              
|Pre-tax earnings excluding intangible amortization                   |  | 16,056                       
|Income tax expense                                                   |  | (6,618                       
|                                                                     |  |                              
|Earnings excluding amortization                                      |  | $  9,438                     
|                                                                     |  |                              
|Earnings per diluted share                                           |  | $    0.02                    
|                                                                     |  |                              
|Earnings excluding amortization per diluted share                    |  | $    0.29                    
|                                                                     |  |                              
|Return on average assets(2)                                          |  | 0.02                         
|                                                                     |  |                              
|Return on average equity(2)                                          |  | 0.23                         
|                                                                     |  |                              
|Earnings excluding amortizationreturn on average assets(3)          |  | 0.29                         
|                                                                     |  |                              
|Earnings excluding amortizationreturn on average equity(3)          |  | 3.01                         
|                                                                     |  |                              
|Earnings excluding amortizationreturn on average tangible assets(4) |  | 0.31                         
|                                                                     |  |                              
|Earnings excluding amortizationreturn on average tangible equity(4) |  | 6.38                         
|                                                                     |  |                              




|(1) | Income (loss) before income tax expense for the periods indicated includes certain special mention items, as discussed above.
|--- | -----------------------------------------------------------------------------------------------------------------------------

|(2) | Return on average assets is defined as net income divided by average assets. Return on average equity is defined as net income
divided by average equity.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Earnings excluding amortizationreturn on average assets is defined as earnings excluding amortization of intangible assets
divided by average assets. Earnings excluding amortizationreturn on average equity is defined as earnings excluding amortization of intangible assets divided by average equity.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Earnings excluding amortizationreturn on average tangible assets is defined as earnings excluding amortization of intangible
assets divided by average tangible assets. Earnings excluding amortizationreturn on average tangible equity is defined as earnings excluding amortization of intangible assets divided by average tangible equity. Average tangible assets are defined as
average assets less average intangible assets. Average tangible equity is defined as average equity less average intangible assets.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Normalized Net Interest Income and Net Interest Margin





Normalized net interest income and net interest margin include net rental income from our auto leasing activities
(that is, the excess of rental income over depreciation expense on auto-related lease assets), which are principally funded by our deposits, and also include expenses related to our Capital Securities. Because our auto leases are accounted for as
operating leases, the rental income is reflected as noninterest income and the related expenses, including depreciation expense, are reflected as noninterest expenses, in accordance with GAAP. Normalized net interest income also excludes certain
nonrecurring interest income and interest expense items.





Normalized net interest income for second quarter of 2000 was $50.5 million as compared with $45.7 million for the
second quarter of 1999. Normalized net interest income for first six months of 2000 was $100.2 million as compared with $88.1 million for the first six months of 1999. Normalized net interest margin for the second quarter of 2000 was 3.46% as compared
with 3.31% for the second quarter of 1999. Normalized
net interest margin for the first six months of 2000 was 3.39% as compared with 3.23% for the first six months of 1999. The following tables illustrate normalized net interest income and net interest margin, by platform, for the periods indicated:





|                    |  | For the Three Months Ended (Unaudited)
|------------------- |  | --------------------------------------
|
|
|
|                   
|Retail Platform     |  | $23,911                               
|Commercial Platform |  | 26,580                                
|                    |  |                                       
|Total               |  | $50,491                               
|                    |  |                                       




|                    |  | For the Six Months Ended (Unaudited)
|------------------- |  | ------------------------------------
|
|
|
|Retail Platform     |  | $  48,668                           
|Commercial Platform |  | 51,489                              
|                    |  |                                     
|Total               |  | $100,157                            
|                    |  |                                     




The increases in total normalized net interest income and total net interest margin for the second quarter of
2000, as compared with the second quarter of 1999, and for the first six months of 2000, as compared with the first six months of 1999, were largely attributable to higher net rental income from our auto leasing activities, higher asset yields, increases
in average interest-earning assets, and the continued change-out of our balance sheet, as previously discussed, partially offset by higher funding costs, as previously discussed.





The following tables illustrate average interest-earning assets, including our auto-related operating lease
assets, by platform, for the periods indicated:





|                    |  | Average Interest-Earning

Assets for the Three Months

Ended (Unaudited)
|------------------- |  | ------------------------------------------------------------------------
|
|
|Retail Platform     |  | $3,218,584                                                              
|Commercial Platform |  | 2,585,838                                                               
|                    |  |                                                                         
|Total               |  | $5,804,422                                                              
|                    |  |                                                                         




|                    |  | Average Interest-Earning

Assets for the Six Months

Ended (Unaudited)
|------------------- |  | ----------------------------------------------------------------------
|
|
|Retail Platform     |  | $3,379,909                                                            
|Commercial Platform |  | 2,502,565                                                             
|                    |  |                                                                       
|Total               |  | $5,882,474                                                            
|                    |  |                                                                       




The decreases in the Retail Platforms average interest-earning assets, including our auto-related
operating lease assets, and the corresponding increases in the Commercial Platforms average interest-earning assets, reflect our continued shift in asset mix toward more commercial bank-like products, specifically franchise loans. The Retail
Platforms average interest-earning assets were significantly impacted from June of 1999 through June of 2000 by loan sales and securitizations throughout this period, as discussed elsewhere herein or previously disclosed.





The following table illustrates interest-earning assets, including our auto-related operating lease assets, by
platform, as of the dates indicated:





|                    |  | (Unaudited)
|------------------- |  | -----------
|
|
|Retail Platform     |  | $3,068,214 
|Commercial Platform |  | 2,619,686  
|                    |  |            
|Total               |  | $5,687,900 
|                    |  |            




The significant decrease in the Retail Platforms interest-earning assets, including our auto-related
operating lease assets, at June 30, 2000, as compared with December 31, 1999, was due primarily to the sale of $251.4 million of single-family mortgage loans and the securitization and sale of $356.6 million of auto loans at the end of the first quarter
of 2000. These transactions were capital management driven and helped maintain our regulatory well-capitalized status as of March 31, 2000 and June 30, 2000.





Balance Sheet Analysis





Our total assets were $6.3 billion at June 30, 2000 as compared with $6.5 billion at December 31, 1999. The
decrease in total assets relates primarily to certain capital management-driven transactions we executed during the first six months of 2000 in order to help maintain our regulatory well-capitalized status. Specifically, we sold $251.4 million
of single-family mortgage loans and securitized and sold $356.6 million of auto loans during the first quarter of 2000. These activities were partially offset by our loan and lease originations and our investment of $363.6 million in additional GNMA and
FHLB securities during the first six months of 2000.





As previously discussed, we completed a $268.2 million on-balance sheet franchise loan securitization during the
second quarter of 2000. The transaction effectively transferred $268.2 million in franchise loans to investment securities, generating $264.2 million in asset-backed securities classified as held-to-maturity and a $12.1 million retained interest in
securities classified as available-for-sale.





| | Securities
| | ----------




Our securities activities are primarily conducted by Bay View Bank. Bay View Bank has historically purchased
securities to supplement our loan production. The majority of the securities purchased are high-quality mortgage-backed securities, including securities issued by GNMA, Fannie Mae and Freddie Mac and senior tranches of private issue collateralized
mortgage obligations, or aCMOs. In addition to these securities, we also hold asset-backed securities, retained interests in loan and lease securitizations, U.S. government agency notes and other short-term securities.





The following table illustrates our securities portfolio as of the dates indicated:





|                                            |  | (Unaudited)   
|------------------------------------------- |  | --------------
|
|
|
|Available-for-sale                          |  |               
|Federal National Mortgage Association stock |  | $          579
|Asset-backed securities                     |  | 4,703         
|                                            |  |               
|Total investment
securities(1)              |  | 5,282         
|                                            |  |               
|Mortgage-backed securities:                 |  |               
|Issued by GNMA                              |  |              
|Issued by Freddie Mac and Fannie Mae        |  | 394           
|CMOs                                        |  | 299           
|                                            |  |               
|Total
mortgage-backed securities            |  | 693           
|                                            |  |               
|Total securities
available-for-sale(1)      |  | $        5,975
|                                            |  |               
|Held-to-maturity                            |  |               
|Asset-backed securities                     |  | $    262,402  
|Federal Home Loan Bank callable notes       |  | 45,302        
|                                            |  |               
|Total investment
securities                 |  | 307,704       
|                                            |  |               
|Mortgage-backed securities:                 |  |               
|Issued by GNMA                              |  | 492,792       
|Issued by Freddie Mac and Fannie Mae        |  | 273,814       
|Issued by other financial intermediaries    |  | 15,291        
|CMOs                                        |  | 143,423       
|                                            |  |               
|Total
mortgage-backed securities            |  | 925,320       
|                                            |  |               
|Total securities
held-to-maturity           |  | $1,233,024    
|                                            |  |               




|(1) | Excludes retained interests in securitizations classified as securities available-for-sale of $57.1 million and $43.1 million at
June 30, 2000 and December 31, 1999, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




We purchased $327.8 million of GNMA securities and $35.3 million of Federal Home Loan Bank callable notes for our
held-to-maturity portfolio during the first six months of 2000 due to their attractive yields and favorable regulatory capital risk-weighting. The on-balance sheet franchise loan securitization we completed during the second quarter of 2000 generated
$264.2 million in asset-backed securities held-to-maturity and a $12.1 million retained interest in securities available-for-sale. In addition, securities available-for-sale increased during the first six months of 2000 due to the retained interests
generated from our securitization and sale of auto loans, partially offset by cash payments received, purchase accounting adjustments related to FMAC and the revaluation of our auto loan securitization residuals during the second quarter of 2000. We sold
$9.0 million of GNMA mortgage-backed securities from our available-for-sale portfolio during the first six months of 2000.





Mortgage-backed securities pose risks not associated with fixed maturity bonds, primarily related to the ability
of the borrower to prepay the underlying loan with or without penalty. This risk, known as prepayment risk, may cause the mortgage-backed securities to remain outstanding for a period of time different than that assumed at the time of purchase. When
interest rates decline, prepayments generally tend to increase, causing the average expected remaining maturity of the mortgage-backed securities to decline. Conversely, if interest rates rise, prepayments tend to decrease, lengthening the average
expected remaining maturity of the mortgage-backed securities.





Loans and Leases





The following table illustrates our loan and lease portfolio as of the dates indicated:





|                                                         |  | (Unaudited) 
|-------------------------------------------------------- |  | ------------
|
|
|Loans and Leases Receivable:                             |  |             
|Retail Platform:                                         |  |             
|Single-family
mortgage loans                             |  | $    612,656
|Home equity loans
and lines of credit                    |  | 602,727     
|Auto loans(1)                                            |  | 222,459     
|                                                         |  |             
|Total retail loans                                       |  | 1,437,842   
|Commercial Platform:                                     |  |             
|Multi-family
mortgage loans                              |  | 652,296     
|Commercial mortgage
loans                                |  | 307,800     
|Franchise loans                                          |  | 993,792     
|Asset-based loans,
factoring loans and commercial leases |  | 315,856     
|Business loans                                           |  | 43,099      
|                                                         |  |             
|Total commercial loans and leases                        |  | 2,312,843   
|                                                         |  |             
|Gross loans and leases                                   |  | 3,750,685   
|Premiums and discounts and deferred fees and costs, net  |  | 39,529      
|Allowance for losses on loans and leases                 |  | (54,273     
|                                                         |  |             
|Net loans and leases                                     |  | $3,735,941  
|                                                         |  |             




|(1) | Amounts exclude auto-related operating lease assets reported separately from loans and leases totaling $532.3 million at June 30,
2000 and $463.1 million at December 31, 1999.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




During the first six months of 2000 we sold $251.4 million of single-family loans and securitized and sold $356.6
million of auto loans. In addition, franchise loans were reduced by $268.2 million due to our on-balance sheet franchise loan securitization, as previously discussed. These capital management-driven transactions occurred toward the end of the first
quarter and helped maintain our regulatory well-capitalized status. The reduction in single-family loans also reduced our geographic concentration risk and is consistent with our continuing efforts to replace lower-yielding mortgage-based
assets with higher-yielding commercial bank-like assets. Additionally, during the first six months of 2000 we sold $26.1 million of commercial equipment leases, $18.7 million of franchise loans and $11.8 million in multi-family mortgage loans.





Our strategy is to focus our loan and lease production efforts on high-quality consumer and commercial loans and
leases with higher risk-adjusted yields relative to mortgage loans. In 1999, we supplemented our originations with a significant amount of loan and lease purchases. The franchise loans purchased in 1999 were originated by FMAC. The following tables
illustrate our loan and lease production for the periods indicated:





|                                                         |  | Three Months Ended

(Unaudited)
|-------------------------------------------------------- |  | -------------------------------
|
|
|Loan and Lease Production:                               |  |                                
|Originations:                                            |  |                                
|Home equity loans
and lines of credit                    |  | $  21,291                      
|Auto loans and
leases(1)                                 |  | 121,774                        
|Mortgage loans                                           |  | 62,593                         
|Franchise loans                                          |  | 64,755                         
|Bankers Mutual
multi-family loans(2)                     |  | 89,371                         
|Asset-based loans,
factoring loans and commercial leases |  | 38,506                         
|Business loans                                           |  | 16,833                         
|                                                         |  |                                
|Total originations                                       |  | 415,123                        
|                                                         |  |                                
|Purchases:                                               |  |                                
|Home equity loans                                        |  | 826                            
|Auto loans                                               |  |                               
|Mortgage loans                                           |  | 306                            
|Franchise loans                                          |  |                               
|                                                         |  |                                
|Total purchases                                          |  | 1,132                          
|                                                         |  |                                
|Total loan and lease production                          |  | $416,255                       
|                                                         |  |                                




|                                                         |  | Six Months Ended

(Unaudited)
|-------------------------------------------------------- |  | -----------------------------
|
|
|Loan and Lease Production:                               |  |                              
|Originations:                                            |  |                              
|Home equity loans
and lines of credit                    |  | $  37,420                    
|Auto loans and
leases(1)                                 |  | 254,851                      
|Mortgage loans                                           |  | 100,912                      
|Franchise loans                                          |  | 257,282                      
|Bankers Mutual
multi-family loans(2)                     |  | 220,145                      
|Asset-based loans,
factoring loans and commercial leases |  | 76,685                       
|Business loans                                           |  | 31,678                       
|                                                         |  |                              
|Total originations                                       |  | 978,973                      
|                                                         |  |                              
|Purchases:                                               |  |                              
|Home equity loans                                        |  | 826                          
|Auto loans                                               |  | 2,836                        
|Mortgage loans                                           |  | 1,802                        
|Franchise loans                                          |  |                             
|                                                         |  |                              
|Total purchases                                          |  | 5,464                        
|                                                         |  |                              
|Total loan and lease production                          |  | $984,437                     
|                                                         |  |                              




|(1) | Includes auto-related operating lease assets totaling $52.1 million and $89.7 million for the three months ended June 30, 2000 and
June 30, 1999, respectively and $114.6 million and $177.5 million for the
six months ended June 30, 2000 and June 30, 1999, respectively, which are not included in our total loan and lease portfolio in accordance with GAAP.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | 100% of Bankers Mutual multi-family mortgage loans are originated and sold through seller-servicer programs administered by Fannie
Mae and Freddie Mac.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------




Credit Quality





We define nonperforming assets as nonaccrual loans and leases, real estate owned, defaulted mortgage-backed
securities, and other repossessed assets. We define nonaccrual loans and leases as loans and leases 90 days or more delinquent as to principal and interest payments (unless the principal and interest are well secured and in the process of collection) and
loans and leases less than 90 days delinquent designated as nonperforming when we determine that the full collection of principal and/or interest is doubtful. Troubled debt restructurings are defined as loans that have been modified (due to borrower
financial difficulties) to allow a stated interest rate and/or a monthly payment rate lower than those prevailing in the market. We do not record interest on nonaccrual loans and leases.





The following table illustrates our nonperforming assets and troubled debt restructurings as of the dates indicated:





|                             |  | (Unaudited)
|---------------------------- |  | -----------
|
|
|Nonaccrual loans and leases  |  | $44,256    
|Real estate owned            |  | 5,289      
|Other repossessed assets     |  | 162        
|                             |  |            
|Nonperforming assets         |  | 49,707     
|Troubled debt restructurings |  | 921        
|                             |  |            
|Total                        |  | $50,628    
|                             |  |            




The increase in nonaccrual loans and leases at June 30, 2000, as compared with December 31, 1999, was primarily
due to a loan associated with the funeral home business, a former FMAC business line that is no longer offered, and a specific asset-based loan within the Commercial Platform. Non-franchise nonperforming assets decreased to $14.7 million at June 30, 2000
from $15.8 million at December 31, 1999. The increase in real estate owned was primarily due to the foreclosure of four FMAC franchise properties.





The following table illustrates, by platform, nonperforming assets and nonperforming assets as a percentage of
total assets, excluding loans and leases held-for-sale:





|                                                         |  | Nonperforming Assets

as a Percentage of Specified Assets

(Unaudited)
|-------------------------------------------------------- |  | ----------------------------------------------------------------------
|
|
|Retail Platform:                                         |  |                                                                       
|Single-family mortgage                                   |  | $  3,350                                                              
|Home equity                                              |  | 3,142                                                                 
|Auto                                                     |  | 263                                                                   
|                                                         |  |                                                                       
|Total retail platform                                    |  | 6,755                                                                 
|Commercial Platform:                                     |  |                                                                       
|Multi-family mortgage                                    |  | 309                                                                   
|Commercial real estate                                   |  | 1,185                                                                 
|Franchise                                                |  | 34,966                                                                
|Asset-based loans, factoring loans and commercial leases |  | 6,492                                                                 
|Business loans                                           |  |                                                                      
|                                                         |  |                                                                       
|Total commercial
platform                                |  | 42,952                                                                
|                                                         |  |                                                                       
|Total                                                    |  | $49,707                                                               
|                                                         |  |                                                                       




The following table illustrates, by platform, loans and leases delinquent 60 days or more as a percentage of gross
loans and leases, excluding loans and leases held-for-sale:





|                    |  | Loans and Leases Delinquent 60 Days

or More as a Percentage of Specified

Assets (Unaudited)
|------------------- |  | ---------------------------------------------------------------------------------------------
|
|
|Retail Platform     |  | $14,198                                                                                      
|Commercial Platform |  | 32,683                                                                                       
|                    |  |                                                                                              
|Total               |  | $46,881                                                                                      
|                    |  |                                                                                              




The increase in loans and leases delinquent 60 days or more at June 30, 2000, as compared with December 31, 1999,
was due primarily to the two large nonaccrual loans previously discussed.





Allowance for Loan and Lease Losses





Credit risk is defined as the possibility of sustaining a loss because other parties to the financial instrument
fail to perform in accordance with the terms of the contract. While we follow underwriting and credit monitoring procedures which we believe are appropriate in both growing and managing the loan and lease portfolio, in the event of nonperformance by these
other parties, our potential exposure to credit losses could significantly affect our consolidated financial position and results of operations.





Lending money involves an inherent risk of nonpayment. Management seeks to reduce such credit risk by
administering lending policies and underwriting procedures combined with its monitoring of the loan and lease portfolio. The allowance for losses on loans and leases represents managements estimate of probable inherent losses which have occurred as
of the date of the financial statements. The process of determining the necessary levels of allowances for loan and lease losses is subjective and requires considerable judgement. In accordance with applicable guidelines, this process results in an
allowance for losses on loans and leases that consists of three components as described below:





| | 1.  Reserves for loans and leases that have been individually
evaluated and identified as loans or leases which have probable losses.These loans and leases are generally larger-balance commercial or income producing real estate loans or leases which are evaluated on an individual basis. Reserves for these loans and leases are attributable to specific weaknesses in these loans or
leases evidenced by factors such as a deterioration in the borrowers ability to meet its obligations, a deterioration in the quantity or quality of the collateral securing the loan or lease, payment delinquency, or other events of default under the
terms of the loan or lease agreement or promissory note.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 2.  Reserves for groups of smaller-balance homogenous loans and leases
that are collectively evaluated for impairment and for groups of performing larger-balance loans and leases which currently exhibit no identifiable weaknesses.    The smaller-balance homogenous loans and leases generally consist of single-family mortgage loans and consumer loans, including auto loans, home equity loans and lines of credit and unsecured personal loans. The larger-balance
loans and leases generally consist of commercial or income producing real estate loans and leases. These loans and leases have specific characteristics which indicate that it is probable that a loss has been incurred in a group of loans or leases with
those similar characteristics. Reserves for these groups of loans and leases are determined based on a combination of factors including historical loss experience, asset concentrations, levels and trends of classified assets, and loan and lease
delinquencies. Reserves for these groups of loans and leases also include an additional reserve for certain products we have introduced more recently, such as high loan-to-value home equity loans and franchise loans and leases, where we do not have
extensive historical data, other than industry experience, upon which to base its reserve levels. This additional reserve is intended to provide for those situations where our experience may be different than industry experience.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3.  Unallocated Reserves.    Management
determines the unallocated portion of the allowance for losses on loans and leases based on factors that are not necessarily associated with a specific credit, group of loans or leases or loan or lease category. These factors include, but are not limited
to, managements evaluation of economic conditions in regions where we lend money, loan and lease concentrations, lending policies or underwriting procedures, and trends in delinquencies and nonperforming assets. The unallocated portion of the
allowance for losses on loans and leases reflects managements efforts to ensure that the overall allowance appropriately reflects the probable losses inherent in the loan and lease portfolio.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The allowance for losses on loans and leases at June 30, 2000 was $54.3 million as compared with $52.2 million at
December 31, 1999. The increase in the allowance for losses on loans and leases was primarily related to higher provision levels associated with the franchise loan sector partially offset by the transfers of loans and leases to held-for-sale during the
first six months of 2000. These factors resulted in an increase in the allowance for losses on loans and leases to 1.59% of gross loans and leases held-for-investment at June 30, 2000 as compared with 1.22% at December 31, 1999, reflecting the more
commercial bank-like shift in the Companys loan composition.





The following table illustrates the allowance for losses on loans and leases as a percentage of both
nonperforming assets and gross loans and leases, excluding loans and leases held-for-sale:





|                                                                   |  | Allowance for Losses on Loans and Leases as a

Percentage of Specified Assets (Unaudited)
|------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------
|
|
|
|Nonperforming assets                                               |  | $      49,707                                                                            
|Gross loans and leases, excluding loans and leases held-

for-sale |  | $3,403,863                                                                               




The following table illustrates the changes in the allowance for losses on loans and leases for the periods
indicated:





|                                                         |  | (Unaudited)
|-------------------------------------------------------- |  | -----------
|
|
|Beginning balance                                        |  | $49,344    
|Reserves related to acquisitions                         |  |           
|Transfers of loans to held-for-sale                      |  | (538       
|Charge-offs:                                             |  |            
|Mortgage                                                 |  | (48        
|Home Equity                                              |  | (4,193     
|Auto                                                     |  | (514       
|Asset-based loans, factoring loans and commercial leases |  | (1,083     
|Franchise(1)                                             |  |           
|                                                         |  |            
|                                                         |  | (5,838     
|Recoveries:                                              |  |            
|Mortgage                                                 |  | 64         
|Home Equity                                              |  | 996        
|Auto                                                     |  | 408        
|Asset-based loans, factoring loans and commercial leases |  | 191        
|Franchise(1)                                             |  | 146        
|                                                         |  |            
|                                                         |  | 1,805      
|Net charge-offs                                          |  | (4,033     
|Provision for losses on loans and leases                 |  | 9,500      
|                                                         |  |            
|Ending balance                                           |  | $54,273    
|                                                         |  |            
|Net charge-offs to average loans and leases (annualized) |  | 0.42       
|                                                         |  |            




|(1) | Represents franchise amounts subsequent to the acquisition of FMAC on November 1, 1999.
|--- | ---------------------------------------------------------------------------------------




The decreases in the annualized percentage of net charge-offs to average loans and leases for the second quarter
of 2000 and the six months ended June 30, 2000, as compared with the year ended December 31, 1999, were due primarily to lower annualized net charge-offs partially offset by a decrease in average loan and lease balances.





Deposits





As a primary part of our business, we generate deposits for the purpose of funding loans, leases and securities.
The following table illustrates deposits as of the dates indicated:





|                                 |  | (Unaudited)
|-------------------------------- |  | -----------
|
|
|
|Transaction accounts             |  | $1,713,381 
|Retail certificates of deposit   |  | 1,624,193  
|                                 |  |            
|Total retail deposits            |  | 3,337,574  
|Brokered certificates of deposit |  | 502,865    
|                                 |  |            
|Total                            |  | $3,840,439 
|                                 |  |            




Borrowings





In addition to deposits, we utilize collateralized advances from the Federal Home Loan Bank of San Francisco and
other borrowings, such as subordinated debt, capital securities, warehouse lines, and securities sold under agreements to repurchase (also known as reverse repurchase agreements), on a collateralized and noncollateralized basis, for various purposes
including the funding of loans, leases and securities as well as to support the execution of our business strategies.





The following table illustrates outstanding borrowings as of the dates indicated:





|                                                          |  | (Unaudited) 
|--------------------------------------------------------- |  | ------------
|
|
|Advances from the Federal Home Loan Bank of San Francisco |  | $    964,300
|Securities sold under agreements to repurchase            |  | 447,964     
|Warehouse lines                                           |  | 174,846     
|Subordinated Notes, net                                   |  | 149,534     
|Other borrowings                                          |  | 1,668       
|Capital Securities                                        |  | 90,000      
|                                                          |  |             
|Total                                                     |  | $1,828,312  
|                                                          |  |             




On August 18, 1999, Bay View Bank issued $50 million of 10% Subordinated Notes, which mature in August 2009.
During 1999, two warehouse lines with initial committed amounts totaling $600 million were secured. Both lines had maturities of one year or less. One warehouse line of $500 million was established to provide financing for franchise loans. The other
warehouse line of $100 million, which was established to fund Bankers Mutual multi-family loan production, was terminated following the sale of substantially all of the assets and certain liabilities of Bankers Mutual during the second quarter of 2000.





The lower borrowing level at June 30, 2000, as compared with December 31, 1999, was due primarily to a decrease in
warehouse lines related to franchise loans and the paydown of Federal Home Loan Bank advances associated with the aforementioned sales of single-family mortgage loans, partially offset by an increase in securities sold under agreements to repurchase used
primarily to fund the securities generated from the on-balance sheet franchise loan securitization, as previously discussed. Additionally, in June 2000 we auctioned $180 million of Federal Home Loan Bank liabilities with below-market interest rates. We
anticipate that the balances of our Federal Home Loan Bank advances will continue to decline due to the decrease in eligible mortgage-based collateral resulting from the continuing change-out of our balance sheet.





Liquidity





The objective of our liquidity management program is to ensure that funds are available in a timely manner to meet
loan demand and depositors needs, and to service other liabilities as they come due, without causing an undue amount of cost or risk, and without causing a disruption to normal operating conditions.





We regularly assess the amount and likelihood of projected funding requirements through a review of factors such
as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, and existing and planned business activities. Our Asset and Liability Committee provides oversight to the liquidity management process and
recommends policy guidelines, subject to Board of Directors approval, and courses of action to address our actual and projected liquidity needs.





The ability to attract a stable, low-cost base of deposits is a significant source of liquidity. Other sources of
liquidity available to us include short-term borrowings, which consist of advances from the Federal Home Loan Bank of San Francisco, reverse repurchase agreements, warehouse lines and other short-term borrowing arrangements. Our liquidity requirements can
also be met through the use of our portfolio of liquid assets. Liquid assets, as defined by us, include cash and cash equivalents in excess of the minimum levels necessary to carry out normal business operations, federal funds sold, commercial paper, and
other short-term investments.





To assist you in analyzing our liquidity, you should review our Consolidated Statements of Cash Flows at Item 1.
Financial Statements and Supplementary Data.





Capital Resources





Management seeks to maintain adequate capital to support anticipated asset growth and credit risks, and to ensure
that Bay View Capital Corporation and Bay View Bank are in compliance with all regulatory capital guidelines. Stockholders equity totaled $627.0 million at June 30, 2000 as compared with $631.2 million at December 31, 1999. This decrease was largely
due to dividends declared partially offset by earnings for the first six months of 2000. Tangible stockholders equity, which excludes intangible assets, was $299.3 million at June 30, 2000 as compared with $302.2 million at December 31, 1999. This
decrease was largely due to additional intangible assets, related to our acquisitions combined with dividends declared, partially offset by our earnings for the first six months of 2000 combined with the amortization of intangible assets and certain
purchase accounting adjustments related to FMAC.





The following table illustrates the reconciliation of our stockholders equity to tangible stockholders
equity as of the dates indicated:





|                              |  | (Unaudited)  
|----------------------------- |  | -------------
|
|
|Stockholders equity          |  | $  626,998   
|Intangible assets             |  | (327,653     
|                              |  |              
|Tangible stockholders equity |  | $  299,345   
|                              |  |              
|Book value per share          |  | $      19.25 
|                              |  |              
|Tangible book value per share |  | $        9.19
|                              |  |              




The following table illustrates the changes in our tangible stockholders equity for the periods indicated:





|                                                                                                            |  | (Unaudited)
|----------------------------------------------------------------------------------------------------------- |  | -----------
|
|
|Beginning tangible stockholders equity                                                                     |  | $302,189   
|Net income                                                                                                  |  | 722        
|Equity issued in connection with acquisitions                                                               |  |           
|Additional intangible assets related to acquisitions accounted

for under the purchase method of accounting |  | (14,233    
|Intangible assets generated from branch acquisitions                                                        |  |           
|Write-off of intangible assets related to Bankers Mutual                                                    |  | 2,776      
|Amortization of intangible assets                                                                           |  | 12,809     
|Repurchase of common stock                                                                                  |  |           
|Exercise of stock options                                                                                   |  | 59         
|Cash dividends declared                                                                                     |  | (6,517     
|Other                                                                                                       |  | 1,540      
|                                                                                                            |  |            
|Ending tangible stockholders equity                                                                        |  | $299,345   
|                                                                                                            |  |            




Intangible assets generated from our acquisitions accounted for under the purchase method of accounting are
deducted from stockholders equity in the above calculation to arrive at tangible stockholders equity. Conversely, the amortization of intangible assets increases tangible stockholders equity as well as Bay View Capital Corporations
and Bay View Banks Tier 1 regulatory capital.





Bay View Bank is subject to various regulatory capital guidelines administered by the Office of the Comptroller of
the Currency. Under these capital guidelines, the minimum total risk-based capital ratio and Tier 1 risk-based capital ratio requirements are 8.00% and 4.00%, respectively, of risk-weighted assets and certain off-balance sheet items. The minimum Tier 1
leverage ratio requirement is 4.00% of quarterly average assets, as adjusted.





Additionally, the Federal Deposit Insurance Corporation Improvement Act of 1991 defines five capital tiers:
well-capitalized, adequately-capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, depending upon the capital level of the institution. Each federal banking agency, including the Office of the Comptroller of the
Currency, is required to implement prompt corrective actions for undercapitalized institutions that it regulates.





Bay View Banks regulatory capital levels at June 30, 2000 exceeded both the minimum requirements as well as
the requirements necessary to be considered well-capitalized as illustrated in the following table:





|                  |  | (Unaudited)
|----------------- |  | -----------
|
|
|
|Tier 1 Leverage   |  | $359,803   
|Tier 1 Risk-based |  | $359,803   
|Total Risk-based  |  | $463,637   




Bay View Capital Corporations regulatory capital levels at June 30, 2000 exceeded both the Federal Reserve
Boards minimum requirements as well as the requirements necessary to be considered well-capitalized by the Federal Reserve Board as illustrated in the following table:





|                  |  | (Unaudited)
|----------------- |  | -----------
|
|
|
|Tier 1 Leverage   |  | $386,831   
|Tier 1 Risk-based |  | $386,831   
|Total Risk-based  |  | $590,638   




Share Repurchase Program





In August 1998, our Board of Directors authorized the repurchase of up to $50 million in shares of our common
stock. During 1999 we repurchased 460,000 shares of our common stock for $8.3 million at an average price of $18.22 per share. We did not repurchase any shares of our common stock during the first six months of 2000. In November 1999, our treasury shares
were reissued in conjunction with the acquisition of FMAC. At June 30, 2000, we had approximately $17.6 million in remaining authorization available for future share repurchases.





Impact of New Accounting Standards





In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those instruments at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative. We currently utilize interest rate derivatives to
hedge mismatches in the rate and maturity of loans, leases and securities and their funding sources and to reduce interest rate risk on anticipated transactions, including loan and lease securitizations and/or sales. To the extent these interest rate
derivatives qualify as a cash flow hedge under Statement No. 133, the effective portion of the derivatives gain or loss would be initially reported as a component of other comprehensive income (outside of earnings) and subsequently reclassified into
earnings when the forecasted transaction affected earnings. Statement No. 133, as amended by Statement of Financial Accounting Standards Nos. 137 and 138, will be effective for the fiscal quarter beginning January 1, 2001. At this time, we are in the
process of evaluating the impact of the adoption of Statement 133, and have not determined the effect the standard will have on our consolidated financial condition, results of operations and cash flows.





Item 3.    Quantitative and Qualitative Disclosures About Market Risk





Asset and Liability Management





The objective of our asset and liability management activities is to improve our earnings by adjusting the type
and mix of assets and liabilities to effectively address changing conditions and risks. Through overall management of our balance sheet and by controlling various risks, we seek to optimize our financial returns within safe and sound parameters. Our
operating strategies for attaining this objective include managing net interest margin through appropriate risk/return pricing of assets and liabilities and emphasizing growth in retail deposits, as a percentage of interest-bearing liabilities, to reduce
our cost of funds. Our strategy includes originating and purchasing quality assets with higher risk-adjusted yields and selling assets with lower risk-adjusted yields or repricing characteristics that do not meet our objectives for managing interest rate
risk. We also seek to improve earnings through controlling noninterest expense, enhancing noninterest income and utilizing improved information systems to facilitate our analysis of the profitability of our business platforms. We utilize derivative
financial instruments to hedge mismatches in the rate and maturity of our assets and their funding sources and to reduce interest rate and spread risk on anticipated transactions. Finally, we perform internal analyses to measure, evaluate and monitor risk.





Interest Rate Risk





A key objective of asset and liability management is to manage interest rate risk associated with changing asset
and liability cash flows and market interest rate movements. Interest rate risk occurs when interest rate sensitive assets and liabilities do not reprice simultaneously and in equal volumes. Our Asset and Liability Committee provides oversight to our
interest rate risk management process and recommends policy guidelines regarding exposure to interest rates for approval by our Board of Directors. Adherence to these policies is monitored on an ongoing basis, and decisions related to the management of
interest rate exposure are made when appropriate in accordance with our policy guidelines.





Financial institutions are subject to interest rate risk to the degree that interest-bearing liabilities reprice
or mature on a different basis and at different times than interest-earning assets. Our strategy has been to reduce the sensitivity of our earnings to interest rate fluctuations by more closely matching the effective maturities or repricing
characteristics of our assets and liabilities. Certain assets and liabilities, however, may react in different degrees to changes in market interest rates. Further, interest rates on certain types of assets and liabilities may fluctuate prior to changes
in market interest rates, while rates on other types may lag behind. Additionally, certain assets, such as adjustable-rate mortgages, have features, including payment and rate caps, which restrict changes in their interest rates. We consider the
anticipated effects of these factors when implementing our interest rate risk management objectives.





| | Interest Rate Exchange Agreements (Swaps)
| | -----------------------------------------




We use interest rate exchange agreements, or swaps, to hedge mismatches in the rate and maturity of certain of our
assets and their funding sources and to mitigate the risk of the effects of interest rate fluctuations on the value of our fixed rate loans classified as available-for-sale. Interest rate swaps involve the exchange of fixed-rate and variable-rate interest
payment obligations without the exchange of the underlying notional amounts. We were a party to interest rate swaps with notional principal amounts of $306.5 million at June 30, 2000 and $256.5 million at December 31, 1999. These interest rate swaps
involve the receipt of floating interest rates (based on the three-month London Interbank Offered Rate, sometimes referred to as LIBOR) and payment of fixed interest rates on the underlying notional amounts.





| | Treasury Futures Contracts
| | --------------------------




To mitigate the risk of the effects of interest rate fluctuations on the value of our fixed-rate loans classified
as held-for-sale, we will in certain cases hedge our interest rate risk related to these assets by entering into United States Treasury futures contracts. We had open positions with notional amounts of $243.7 million at June 30, 2000 and $32.5 million at
December 31, 1999 related to the United States Treasury futures contracts used to hedge fixed-rate franchise loans classified as held-for-sale.





| | Interest Rate Caps
| | ------------------




Interest rate caps are option contracts that limit the cap holders risk associated with an increase in
interest rates. If rates go above a specified interest rate (strike price or cap rate), the cap holder is entitled to receive cash payments equal to the excess of the market rate over the strike price multiplied by the notional amount. We use interest
rate caps, for which we pay a premium, to protect against rising interest rates on our debt, utilized to fund our recent purchase of GNMA securities, while retaining the ability to benefit from a decline in rates. As of June 30, 2000, we had interest rate
caps with notional amounts totaling $180 million and cap rates at 7% and a cap index based on either the one-or three-month LIBOR rate.





Interest rate risk is the most significant market risk impacting us; however, other types of market risk also
affect us in the normal course of our business activities. The impact on us resulting from other market risks is deemed immaterial and no separate disclosure of quantitative information related to such market risks is deemed necessary. We do not maintain
a portfolio of trading securities and do not intend to engage in such activities in the foreseeable future.





Interest Rate Sensitivity





Our monitoring activities related to managing interest rate risk include both interest rate sensitivity 
gap analysis and the use of a simulation model. While traditional gap analysis provides a simple picture of the interest rate risk embedded in the balance sheet, it provides only a static view of interest rate sensitivity at a specific point in time
and does not measure the potential volatility in forecasted results relating to changes in market interest rates over time. Accordingly, we combine the use of gap analysis with the use of a simulation model which provides a dynamic assessment of interest
rate sensitivity.





The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets
anticipated to reprice within a specific time period and the amount of interest-bearing liabilities anticipated to reprice within that same time period. A gap is considered positive when the amount of interest rate sensitive assets repricing within a
specific time period exceeds the amount of interest-bearing liabilities repricing within that same time period. Positive cumulative gaps suggest that earnings will increase when interest rates rise. Negative cumulative gaps suggest that earnings will
increase when interest rates fall.





The following table illustrates our combined asset and liability repricing as of June 30, 2000:





|                                                                     |  | Repricing Period (Unaudited)
|-------------------------------------------------------------------- |  | ----------------------------
|
|
|Assets:                                                              |  |                             
|                                                                     |  |                             
|Cash and investments                                                 |  | $    169,916                
|Mortgage-backed securities and loans and

     leases(1)             |  | 2,130,968                   
|                                                                     |  |                             
|Total interest rate
sensitive

                         assets       |  | $2,300,884                  
|                                                                     |  |                             
|Liabilities:                                                         |  |                             
|                                                                     |  |                             
|Deposits:                                                            |  |                             
|Transaction accounts                                                 |  | $1,587,083                  
|Retail certificates of deposit                                       |  | 521,714                     
|Brokered certificates of deposit                                     |  | 502,865                     
|Borrowings(2)                                                        |  | 1,152,510                   
|                                                                     |  |                             
|Total interest rate
sensitive

                         liabilities  |  | $3,764,172                  
|                                                                     |  |                             
|Repricing gap-positive (negative) before

     impact of derivatives |  | $(1,463,288                 
|                                                                     |  |                             
|Impact of derivatives                                                |  | 119,000                     
|                                                                     |  |                             
|                                                                     |  | $(1,344,288                 
|                                                                     |  |                             
|Cumulative repricing gap-positive

     (negative)                   |  | $(1,344,288                 
|                                                                     |  |                             




|(1) | Based on assumed annual prepayment and amortization rates, which approximate our historical experience.
|--- | -------------------------------------------------------------------------------------------------------

|(2) | Includes Capital Securities.
|--- | ----------------------------




The simulation model discussed above also provides the Asset and Liability Committee with the ability to
simulate our net interest income. In order to measure, at June 30, 2000, the sensitivity of our forecasted net interest income to changing interest rates, both a rising and falling interest rate scenario were projected and compared to a base market
interest rate forecast derived from the current treasury yield curve. For the rising and falling interest rate scenarios, the base market interest rate forecast was increased or decreased, on an instantaneous and sustained basis, by 100 and 200 basis
points. At June 30, 2000, our net interest income exposure related to these hypothetical changes in market interest rates was within our policy guidelines as illustrated in the following table:





|                                                                      |  | Increase/(Decrease) in Net Interest Income (Unaudited)
|--------------------------------------------------------------------- |  | ------------------------------------------------------
|
|
|Projected effect:                                                     |  |                                                       
|Net interest income without swaps                                     |  | $210,953                                              
|Net interest income with swaps                                        |  | $208,184                                              
|Impact of swaps                                                       |  | $  (2,769                                             
|% Increase (decrease) from base net interest income,

     with swaps |  | 5.15                                                  
|Policy guidelines                                                     |  | (15.00                                                




The computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions,
including relative levels of market interest rates, asset prepayments and deposit decay, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions we may undertake in response to changes in
interest rates. Actual amounts may differ from those projections set forth above should market conditions vary from the underlying assumptions used.





PART II.    OTHER INFORMATION





Item 1.    Legal Proceedings





None





Item 2.    Changes in Securities





None





Item 3.    Defaults Upon Senior Securities





None





Item 4.    Submission of Matters to a Vote of Security Holders





At the annual meeting of our stockholders, held April 27, 2000, the stockholders considered the following proposal:





| | I.    The election of three directors of Bay View Capital
Corporation:
| | ----------------------------------------------------------------------




The following directors were re-elected:





| | Paula R. Collins
| | ----------------

| | Thomas M. Foster
| | ----------------

| | Wayne L. Knyal
| | --------------




The vote on the election of the directors at the annual meeting was as follow:





|                 |  | For        |  | Withheld

or Against
|---------------- |  | ---------- |  | --------------------
|Paula R. Collins |  | 31,030,502 |  | 397,444             
|Thomas M. Foster |  | 31,032,037 |  | 395,909             
|Wayne L. Knyal   |  | 31,037,136 |  | 390,810             




Item 5.    Other Information





None





Item 6.    Exhibits and Reports on Form 8-K





a  (i) Employment Contract with Mark E. Lefanowicz (Exhibit 10)





a  (ii) Computation of Ratios of Earnings to Fixed Charges (Exhibit 12)





a  (iii) Financial Data Schedule (Exhibit 27)





b The Registrant did not file any reports on Form 8-K during the three months ended June 30, 2000.