UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended June 30, 2004

OR

For the transition period from                     to                    
Commission file number 001-14879

BAY VIEW CAPITAL CORPORATION

1840 Gateway Drive, San Mateo, California 94404
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (650) 312-7300

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o

     Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

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FORM 10-Q
INDEX

BAY VIEW CAPITAL CORPORATION

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Forward-Looking Statements

     This Form 10-Q of Bay View Capital Corporation (the “Company,” “we,” “us,” or “our”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that describe our plans for our automobile finance company, Bay View Acceptance Corporation (“BVAC”), and the continuing disposition of assets and satisfaction of liabilities the Company acquired when the banking activities of Bay View Bank, N.A. (the “Bank”) were discontinued effective September 30, 2003. These forward-looking statements are identified by use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” and similar terms and phrases, including references to assumptions. These forward-looking statements are necessarily based on assumptions as of the date of this Form 10-Q and involve risks and uncertainties. Accordingly, the Company’s actual results from the ongoing operations of BVAC and the continuing disposition of assets and satisfaction of liabilities from the discontinued banking activities may differ materially from those that the Company currently anticipates.

     There are a number of factors that may affect forward-looking statements regarding the ongoing operations of BVAC including the following:

•		Our Board of Directors (the “Board”) could determine to expand the Company’s and BVAC’s operations if it decides greater stockholder value would be realized by doing so;
•		The Company’s ability to obtain financing to fund the ongoing operations of BVAC, including securitizing and selling automobile installment contracts in order to repay an existing line of credit;
•		Changes in general economic and business conditions;
•		Interest rate fluctuations, including hedging activities;
•		The Company’s financial condition and liquidity, as well as future cash flows and earnings;
•		Competition;
•		The Company’s level of operating expenses;
•		The effect of new laws, regulations and court decisions affecting consumer finance transactions;
•		The condition of the market for the sale of new and used automobiles;
•		The level of chargeoffs on the contracts that BVAC purchases; and
•		Significant litigation.

     The Company anticipates making a series of cash distributions to our stockholders from the proceeds of the disposition of assets from discontinued banking activities. The factors that could reduce the amounts ultimately distributed or that could cause a delay in making the distributions include the following:

•		Unforeseen delays in the disposition of the assets;
•		The realization of the Company’s deferred tax assets could be less than the Company currently projects;
•		The Company may encounter difficulty in selling some of its assets, and certain assets may not be able to be sold for the prices the Company currently anticipates;
•		The Company may not be able to discharge certain liabilities for the amounts the Company currently estimates;
•		The Company may incur or discover presently unanticipated claims, liabilities or expenses;
•		Our current estimates of the cash distribution amounts include projections of future events and performance and, accordingly, are inherently subject to many uncertainties;
•		The expenses of the disposition of assets may exceed the amounts currently estimated;
•		Our Board could determine to expand the Company’s and BVAC’s operations if it decides greater stockholder value would be realized by doing so.

     As a result of the foregoing factors, no stockholder should place undue reliance on any forward-looking statements. The Company does not undertake, and specifically disclaims, any obligation to update any forward-looking statements and all forward-looking statements speak only as of the date made.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Bay View Capital Corporation and Subsidiaries

See notes to condensed consolidated financial statements.

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Bay View Capital Corporation and Subsidiaries

See notes to condensed consolidated financial statements.

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Bay View Capital Corporation and Subsidiaries

See notes to condensed consolidated financial statements.

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Bay View Capital Corporation and Subsidiaries

See notes to condensed consolidated financial statements.

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Bay View Capital Corporation and Subsidiaries

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Bay View Capital Corporation and Subsidiaries

See notes to condensed consolidated financial statements.

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Bay View Capital Corporation and Subsidiaries

Note 1. Basis of Presentation

     Bay View Capital Corporation (the “Company,” “we,” “us,” or “our”) is a financial services company headquartered in San Mateo, California.

     The condensed consolidated financial statements include the accounts of the Company, a Delaware corporation, and its wholly-owned subsidiaries: Bay View Acceptance Corporation (“BVAC”), a Nevada corporation, along with its subsidiaries, Bay View Receivables Corporation, a Delaware corporation and Bay View Transaction Corporation, a Delaware corporation; and the Company’s subsidiaries, Bay View Securitization Corporation, a Delaware corporation; Bay View Capital I, a Delaware business trust; FMAC Insurance Services, a Delaware corporation; FMAC 2000-A Holding Company, a California corporation; FMAC Franchise Receivables Corporation, a California corporation; Bay View Commercial Finance Group, a California corporation; XBVBKRS, Inc., a California corporation; MoneyCare, Inc., a California corporation; Bay View Auxiliary Corporation, a California corporation; and Bay View Bank, N.A. (the “Bank”), a national bank which was dissolved effective September 30, 2003. All intercompany accounts and transactions have been eliminated.

     The condensed consolidated financial statements as of June 30, 2004 and December 31, 2003 and for the three- and six-month periods ended June 30, 2004 have been prepared on a going concern basis. The condensed consolidated financial statements for the three- and six-month periods ended June 30, 2003 have been prepared under the liquidation basis of accounting.

     The information provided in these interim financial statements reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the Company’s financial condition as of June 30, 2004, the results of its operations for the three- and six-month periods ended June 30, 2004, the changes in net assets in liquidation for the three- and six-month periods ended June 30, 2003, and cash flows for the six-month periods ended June 30, 2004 and 2003. These adjustments are of a normal, recurring nature unless otherwise disclosed in this Form 10-Q. As necessary, reclassifications have been made to prior period amounts to conform to the current period presentation. These reclassifications had no effect on the Company’s financial position and results of operations. These interim financial statements have been prepared in accordance with the instructions to Form 10-Q.

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Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2004
(Unaudited)

     On June 24, 2004, the Company’s stockholders approved a 1-for-10 reverse stock split of the issued and outstanding shares of the Company’s common stock. The reverse stock split was effected at 5:00 p.m., EDT, on June 30, 2004 and as a result, the Company’s issued common stock was reduced from 65,910,689 shares prior to the reverse stock split to 6,590,461 shares following the reverse stock split, including an adjustment for fractional shares. The reverse stock split did not impact the par value of the common stock, which remains at $0.01 per share. Accordingly, the aggregate value of the issued common stock on the Company’s balance sheet was reduced by reclassifying the cumulative par value of the eliminated shares of common stock to additional paid-in capital. All shares outstanding and per share amounts are presented on a post-reverse stock split basis for all periods reported.

     The Company accounts for its stock-based awards to employees and directors using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25. Under the intrinsic value method, compensation cost is generally the excess, if any, of the quoted market price of the stock at the grant or other measurement date over the exercise price. There were no stock option awards, and no compensation expense was recorded under APB 25 for the six months ended June 30, 2004. Had compensation cost related to stock option awards outstanding to employees and directors been determined under the fair value method prescribed under Statement No. 123, the Company’s net loss and loss per share on a going-concern basis would have been the pro forma amounts illustrated in the table below for the period indicated:

     For the three- and six-month periods ended June 30, 2003, we reported our results using the liquidation basis of accounting under which earnings per share information is not presented.

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Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2004
(Unaudited)

Note 2. Earnings Per Share

     For the three- and six-month periods ended June 30, 2003, the Company reported its results using the liquidation basis of accounting, under which earnings per share information is not presented. Accordingly, earnings per share information has not been presented for the three- and six-month periods ended June 30, 2003.

     Basic earnings per share is calculated by dividing net earnings or loss for the period by the weighted-average common shares outstanding for the period. There is no adjustment to the number of outstanding shares for potential dilutive instruments, such as stock options. Diluted earnings per share takes into account the potential dilutive impact of such instruments and uses the average share price for the period in determining the number of incremental shares to add to the weighted-average number of shares outstanding. For the three- and six-month periods ended June 30, 2004, average dilutive potential common shares issuable upon the exercise of options and warrants of 7,001 and 7,492, respectively, were excluded from the computation because they were anti-dilutive.

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

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Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2004
(Unaudited)

Note 3. Investment in Operating Lease Assets

     Leasing expense represents expenses related to the Company’s auto leasing activities. Because the leases are accounted for as operating leases, the corresponding assets are capitalized and depreciated to their estimated residual values over their lease terms. This depreciation expense is included in leasing expenses, along with the amortization of capitalized initial direct lease costs and impairment charges. Leasing expenses were $2.8 million for the second quarter of 2004 compared to $8.0 million for the second quarter of 2003. Leasing expenses were $7.5 million for the first six months of 2004 as compared to $17.4 million for the first six months of 2003.

     The Company performs a quarterly impairment analysis of its automobile operating lease portfolio in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” A lease is considered impaired if its gross future undiscounted cash flows are less than the net book value of the lease. The net book value of the lease is defined as the original capitalized cost of the automobile, including initial direct capitalized costs, less the cumulative amount of depreciation recorded against the automobile and the cumulative amount of amortization of the initial direct capitalized costs recorded since the inception of the lease and less any impairment charges recorded-to-date on that lease.

     In determining gross future undiscounted cash flows, the Company contracts with Automotive Lease Guide, commonly referred to as ALG, to provide estimates of the residual value of the underlying automobiles at the end of their lease terms assuming that the vehicles are in average condition. The Company then estimates the probability that; i.) the automobiles will be purchased by the lessee prior to the end of the lease term; ii.) the automobile will be purchased by the lessee at the end of the lease term, either at a discount or at the full contractual residual amount; or iii.) the automobile will be returned to the lessor at the end of the lease term. These probabilities are estimated using a number of factors, including the Company’s experience-to-date and industry experience.

     Using the projected ALG residual values, the Company’s experience-to-date relative to the projected ALG residual values (for example, for vehicle classes where actual amounts realized were less than what ALG had projected, the Company reduced the projected ALG residual values to equal the Company’s experience-to-date), and the probabilities of each of the three disposition scenarios discussed above occurring, the Company determines a probability-weighted gross future undiscounted cash flow for each automobile lease. For those leases where the gross future undiscounted cash flows are less than net book value, the lease is considered impaired.

     For those leases considered impaired, the Company then estimates the fair value of the lease. The fair value is determined by calculating the present value of the future estimated cash flows, again assuming the probabilities of each of the three disposition scenarios. The present value is calculated using current market rates which are similar to the original contract lease rate. For those impaired leases where the estimated fair value is less than the net book value, an impairment charge is recorded for the difference. Since the inception of the lease portfolio in June 1998, the Company has recorded additional monthly depreciation charges, also included in leasing expense, to provide for losses that may be incurred at the end of the lease terms. During the first six months of 2004, we recorded $1.2 million of additional depreciation.

Note 4. Income Taxes

     The Company recorded tax benefits of $0.1 million and $0.6 million for the second quarter and the first six months of 2004, respectively. The effective tax rate used in computing the tax benefit for the second quarter and first six months of 2004 was 39.2%. This expected 2004 effective tax rate is higher than the federal statutory rate due primarily to state income and franchise taxes.

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Bay View Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2004
(Unaudited)

     For the second quarter and the first six months of 2003, the Company recorded tax benefits of $0.8 million and $1.6 million, respectively. The effective tax rate used in computing the tax benefit for the second quarter and first six months of 2003 was 32.1%.

     As of December 31, 2003 and March 31, 2004, the Company had a valuation allowance of $21.5 million based on the realizability of its deferred tax asset. The balance of the valuation allowance remained unchanged at June 30, 2004.

Note 5. Commitments and Contingencies

     The Company is involved as plaintiff or defendant in various legal actions and is occasionally exposed to unasserted claims arising in the normal course of business. In the opinion of management, after consultation with counsel, the resolution of these legal actions will not have a material adverse effect on its financial statements.

Note 6. Liquidation Reserve

     The liquidation reserve, recorded while the Company was using the liquidation basis of accounting, includes accruals for severance payments, costs related to facility closures and estimated litigation expense and settlement costs. At June 30, 2004, the remaining balance of the liquidation reserve was $10.3 million, including accruals for severance and facilities of $1.6 million and $5.7 million, respectively.

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

     The information included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” was written assuming that you have read or have access to the Company’s 2003 Annual Report on Form 10-K, as amended and restated on Form 10-K/A, which contains the latest audited consolidated financial statements and notes, along with Management’s Discussion and Analysis of Financial Condition and Results of Operations. Accordingly, only certain changes in financial condition and results of operations are discussed in this Form 10-Q. Furthermore, the interim financial results for the three- and six-month periods ended June 30, 2004 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.

Strategic Overview

     Bay View Capital Corporation (the “Company,” “we,” “us,” or “our”) is a financial services company headquartered in San Mateo, California, whose primary subsidiary, Bay View Acceptance Corporation (“BVAC”), specializes in indirect purchases of retail automobile installment contracts originated by manufacturer-franchised and independent dealers in connection with the sale of new and used automobiles. BVAC generates revenue through its investment in installment contracts, and the subsequent securitization or sale and servicing of these installment contracts.

Reverse Stock Split

     On June 24, 2004, our stockholders approved a 1-for-10 reverse stock split of the issued and outstanding shares of our common stock. The reverse stock split was effected at 5:00 p.m., EDT, on June 30, 2004 and as a result, our issued common stock was reduced from 65,910,689 shares prior to the reverse stock split to 6,590,461 shares following the reverse stock split, including an adjustment for fractional shares. Accordingly, all shares outstanding and per share amounts are presented on a post-reverse stock split basis for all periods reported.

Bay View Bank Liquidation

     On October 3, 2002, we adopted a Plan of Dissolution and Stockholder Liquidity (the “Plan”). The Plan contemplated that we, under applicable provisions of the Delaware General Corporation Law, would:

•		dispose of all of our assets, including all of the assets of Bay View Bank, N.A. (the “Bank”);
•		pay all of our debts and liabilities and make reasonable provision for any contingent liabilities;
•		distribute the remaining proceeds from our asset sales to our stockholders; and
•		dissolve.

     As a result of the adoption of the Plan, we adopted the liquidation basis of accounting effective September 30, 2002.

     During the fourth quarter of 2003, our Board of Directors amended the Plan to become a plan of partial liquidation (the “Amended Plan”) under which we are completing the liquidation of the assets and satisfaction of the liabilities of the Bank remaining after the Bank’s September 30, 2003 dissolution, distributing the proceeds to our stockholders through a series of cash distributions, and continuing to operate BVAC on an ongoing basis. In connection with the Amended Plan, we discontinued our use of liquidation basis accounting and re-adopted the going concern basis of accounting effective October 1, 2003.

     During the fourth quarter of 2003, in accordance with the Amended Plan, we made an initial cash distribution of $263.2 million to our stockholders and redeemed $63.5 million of the 9.76% Cumulative Capital Securities (“Capital Securities”) issued by Bay View Capital I Trust.

     On June 30, 2004, we redeemed the remaining $22.0 million of the Capital Securities at a price equal to 100% of the $25.00 par value of each Capital Security. In connection with the liquidation of assets and satisfaction of the liabilities of the Bank remaining after the Bank’s September 30, 2003 dissolution, we also paid a cash distribution of $16.5 million to common stockholders on June 30, 2004.

Automobile Finance

     BVAC, the Company’s auto finance subsidiary, acquires auto installment contracts from approximately 7,000 manufacturer-franchised and independent auto dealers in 25 states and has positioned itself in the market as a premium priced lender for well-qualified borrowers seeking extended financing terms and higher advances than those generally offered by traditional lenders. The Company believes this strategy has enabled BVAC to establish

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a loyal dealership network and a unique niche by satisfying consumer demand within this market segment that has not been well served by the large commercial banks and auto finance companies. Of the contracts purchased in the first half of 2004, approximately 95% were originated by manufacturer franchised dealerships and approximately 5% were originated by independent dealerships; 55% were contracts on new vehicles and 45% were contracts on used vehicles. BVAC purchases installment contracts with limited recourse to the dealer.

     BVAC places a strong emphasis on borrower stability, credit quality, and debt serviceability. With Fair, Isaac & Co. “FICO” credit scores that averaged 734 in the second quarter of 2004, BVAC’s borrower base is largely comprised of prime borrowers. BVAC offers loan terms to 96 months and typically finances an amount in excess of a dealer’s wholesale value of a vehicle. During the quarter, the average loan amount BVAC financed was $30,300, the average contract term was 84 months and the average loan-to-value ratio was 127% of vehicle wholesale value. BVAC utilizes a proprietary credit scoring system in connection with its underwriting and credit approvals. The credit scoring system captures data from consumers’ credit bureau reports, consumers’ loan applications and the terms of proposed loans.

Critical Accounting Policies

     We have identified the most critical accounting policies upon which our financial status depends. We determined the critical policies by considering accounting principles that involve the most complex or subjective decisions or assessments. We have identified our most critical accounting policies to be those related to our investment in operating lease assets, retained interests in securitizations, and income taxes.

Investment in Operating Lease Assets

     In accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we perform a quarterly impairment analysis of our long-lived assets including our automobile leases, which are accounted for as operating leases. Statement No. 144 addresses the recognition and measurement of the impairment of long-lived assets and defines impairment as the condition that exists when the carrying amount of long-lived assets exceeds fair value. When identified, Statement No. 144 requires the recognition of an impairment loss. Under Statement No. 144, we consider an auto lease to be impaired if its gross future undiscounted cash flows are less than the net book value of the lease. The net book value of the lease is defined as the original capitalized cost of the automobile, including initial direct capitalized costs, less the cumulative amount of depreciation recorded against the automobile and the cumulative amount of amortization of the initial direct capitalized costs recorded since the inception of the lease and less any impairment charges recorded-to-date on that lease.

     In determining gross future undiscounted cash flows, we contract with Automotive Lease Guide, commonly referred to as ALG, to provide estimates of the residual value of the underlying automobiles at the end of their lease terms assuming that the vehicles are in average condition. We then estimate the probability that i.) the automobiles will be purchased by the lessee prior to the end of the lease term, ii.) the automobile will be purchased by the lessee at the end of the lease term, either at a discount or at the full contractual residual amount, or iii.) the automobile will be returned to the lessor at the end of the lease term. These probabilities are estimated using a number of factors, including our experience-to-date and industry experience.

     Using the projected ALG residual values combined with our experience-to-date relative to the projected ALG residual values, we reduce the projected ALG residual values to reflect our experience-to-date. This experiential analysis, along with the probabilities of each of the three disposition scenarios discussed above occurring, enables us to determine a probability-weighted gross future undiscounted cash flow for each automobile lease. For those leases where the gross future undiscounted cash flows are less than net book value, the lease is considered impaired.

     For those leases considered impaired, we then estimate the fair value of the lease. The fair value is determined by calculating the present value of the future estimated cash flows again assuming the probabilities of each of the three disposition scenarios. The present value is calculated using current market rates, which are similar to the original contract lease rate. For those impaired leases where the estimated fair value is less than the net book value,

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an impairment charge is recorded for the difference. Annual depreciation expense associated with those leases that have reduced residual values is recomputed over the remaining term of the lease.

Retained Interests in Securitizations

     BVAC periodically transfers installment contracts to securitization trusts, which then issue asset-backed securities. BVAC has structured these transactions as sales of the installment contracts. In order to enhance the credit rating of these asset-backed securities, BVAC deposits cash into restricted cash accounts established by the securitization trusts. Excess cash flow within the securitization trusts — resulting from interest income received on the installment contracts in excess of interest paid to investors in the asset-backed securities, credit losses and trust expenses — is utilized to build the restricted cash account to pre-designated levels and provide further credit enhancement. Once these pre-designated levels are attained, excess cash flow is distributed to BVAC. In accounting for these securitization transactions, BVAC has typically recognized a gain on the sale transaction and a related asset, a retained interest in the securitization, that represents the present value of the cash deposit and excess cash flow that is anticipated to be produced by the securitization trust over the life of the asset-backed securities.

     We incorporate various assumptions in calculating the present value of the cash deposit and excess cash flow. The following table illustrates the significant assumptions utilized in the valuation of retained interests in securitizations as of June 30, 2004:

     Changes in the above assumptions due to actual experiences or market conditions could affect the value of our retained interests in securitizations.

Income Taxes

     At June 30, 2004, we had deferred tax assets of $16.3 million, consisting of net deferred tax assets of $37.8 million less a valuation allowance of $21.5 million. This valuation allowance was established in consideration of our projected future net income available to realize the deferred tax assets under the Amended Plan in years after 2003.

Results of Operations

     As discussed above, we discontinued the use of the liquidation basis of accounting and re-adopted the going concern basis of accounting effective October 1, 2003. From September 30, 2002, we reported our results under the liquidation basis of accounting under which we reported the value of, and the changes in, net assets available for distribution to stockholders (“net assets in liquidation”) instead of results from continuing operations. Accordingly, our financial statements as of June 30, 2004 and December 31, 2003 and for the three- and six-month periods ended June 30, 2004 have been prepared under the going concern basis of accounting while our financial statements for the three- and six-month periods ended June 30, 2003 have been prepared under the liquidation basis of accounting.

Going Concern Basis

Results of Operations — Three- and Six-Month Periods ended June 30, 2004

     Our net loss for the second quarter of 2004 was $121 thousand, or $0.02 per diluted share. Net loss for the first six months of 2004 was $964 thousand, or $0.15 per diluted share. Our net losses for the quarter and the first six months of 2004 were comprised of net income from BVAC’s ongoing auto finance business totaling $1.5 million and $2.2 million, respectively, offset by net losses from the continued liquidation of the assets and liabilities we assumed from the Bank of $1.6 million and $3.2 million, respectively.

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     Our second quarter results improved, compared to the prior quarter’s net loss of $843 thousand, primarily due to increased interest income, unrealized gains in the Company’s interest rate swap portfolio and decreased general and administrative expenses. Interest income for the quarter was $5.2 million and the average yield on interest-earning assets was 7.14% while interest expense on our borrowings was $2.2 million and the average cost of borrowings was 4.19%. Interest income for the first six months of 2004 was $10.1 million and the average yield on interest-earning assets was 7.27% while interest expense on our borrowings was $4.1 million and the average cost of borrowings was 4.13%.

     The following tables illustrate average yields on our interest-earning assets and average rates on our interest-bearing liabilities for the periods indicated:

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     For the quarter and six-month period ended June 30, 2004, our provision for credit losses was $0.5 million. During the second quarter of 2004, BVAC transferred auto contracts of $103.0 million from its held-for-sale portfolio to its held-for-investment portfolio and, in connection with this transfer, established an allowance for credit losses on these contracts through the $0.5 million provision for credit losses.

     For the quarter ended June 30, 2004, noninterest income was $6.3 million and included leasing income of $3.6 million, loan servicing and other fee income of $1.1 million, $2.8 million of unrealized gains in interest rate swaps carried at fair value, $1.4 million of unrealized losses in auto contracts carried at the lower of cost or estimated fair value, and $0.1 million of other income. Noninterest expense was $9.0 million and included leasing expenses of $2.8 million and operating expenses of $6.1 million.

     Year-to-date, noninterest income was $13.4 million and included leasing income of $8.8 million, loan servicing and other fee income of $2.5 million, $2.6 million of unrealized gains in interest rate swaps carried at fair value, $1.6 million of unrealized losses in auto contracts carried at the lower of cost or estimated fair value, and $1.1 million of other income. Noninterest expense was $20.5 million and included leasing expenses of $7.5 million and operating expenses of $13.0 million.

Leasing Expenses

     Because our auto leases are accounted for as operating leases, the corresponding assets are capitalized and depreciated to their estimated residual values over their lease terms. This depreciation expense is included in leasing expenses, along with the amortization of capitalized initial direct lease costs and impairment charges. For the second quarter and the first half of 2004, leasing expenses were $2.8 million and $7.5 million, respectively. We ceased purchasing auto leases in June 2000 and since then, the balance of our lease portfolio has continued to

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decline as leases have reached their end-of-term. Our leasing expenses continue to decline in line with this reduction in the balance of the remaining portfolio.

     At June 30, 2004, there were no vehicles in our automobile lease portfolio that were considered impaired under Statement of Financial Accounting Standards No. 144. Approximately 2% and 59% of the vehicles in our automobile lease portfolio were considered impaired at December 31, 2003 and June 30, 2003, respectively. We perform impairment testing on our auto lease portfolio on a quarterly basis. Accordingly, the percentage of leases considered impaired is a measure of the quarterly change (normally a decline) in residual values versus our depreciation and writedown of the book value of our auto lease portfolio since the prior quarterly valuation. This impairment is subject to a number of significant assumptions that could change in the near term, and adversely affect the valuation of the automobile lease portfolio. These assumptions were previously described under Critical Accounting Policies, Investment in Operating Lease Assets. Two of these assumptions, including the residual values of individual leases that are projected by ALG and the relative probabilities of the three alternatives for disposing of vehicles, are particularly susceptible to changes in market conditions. As an illustration of the sensitivity of these assumptions at June 30, 2004, if the market values of the individual vehicles declined by $250, approximately 40 of the 3,043 vehicles in our automobile lease portfolio, or 1%, would be deemed to be impaired and, therefore, potentially subject to an impairment charge. The impairment charge could increase if the percentage of vehicles returned to us is greater than the percentage that was projected at year-end, because the proceeds realized when the Company must dispose of the vehicle are generally less than if the lessee purchases the automobile prior to the end of the lease term.

Income Taxes

     We recorded tax benefits of $0.1 million and $0.6 million for the second quarter and the first half of 2004, respectively. The effective tax rate used in computing the tax benefit for the second quarter and the first half of 2004 was 39.2%. This expected 2004 effective tax rate is higher than the federal statutory rate due primarily to state income and franchise taxes.

     For the second quarter and the first six months of 2003, we recorded tax benefits of $0.8 million and $1.6 million, respectively. The effective tax rate used in computing the tax benefit for the first six months of 2003 was 32.1%.

Liquidation Basis

Changes in Net Assets in Liquidation — Three- and Six-Month Periods Ended June 30, 2003

     Our net assets in liquidation at June 30, 2003 totaled $409.9 million, or $63.70 in net assets in liquidation per outstanding diluted share.

     The changes in net assets in liquidation during the second quarter included dividends paid on the Capital Securities totaling $2.3 million. The dividend payments were partially offset by second quarter net income from operations of $0.6 million and proceeds from stock options and warrants exercised during the quarter of $0.6 million.

     Net income for the second quarter consisted of $0.7 million of pre-tax income from operations, $0.9 million of net charges for changes in estimated values of assets and liabilities which were largely attributable to writedowns on the auto lease and liquidating loan portfolios, and a tax benefit of $0.8 million.

     The dividends paid on our Capital Securities totaled $4.5 million for the first six months of 2003. The distributions were partially offset by net income from operations for the first six months of 2003 totaling $1.1 million and proceeds from stock options and warrants exercised of $3.2 million.

     The net income from operations for the first six months of 2003 consisted of $2.1 million of pre-tax income from operations, $2.6 million of net charges for changes in estimated values of assets and liabilities, and a tax benefit of $1.6 million.

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     The net charges for changes in estimated values of assets and liabilities consisted primarily of $4.8 million of additional mark-to-market writedowns on the auto lease portfolio as the residual values on these autos declined on continued weakness in used car resale values. This was partially offset by a $1.3 million gain associated with the financing secured by our auto lease cash flows resulting from favorable experience with the underlying cash flows, and a $1.0 million reduction of an accrual related to the settlement of litigation that was negotiated during the first quarter of 2003.

     The net assets in liquidation per outstanding diluted share at June 30, 2003 was unfavorably impacted by an increase of approximately 60,500 diluted common shares, resulting from exercises of stock options and warrants during the first six months of 2003.

     During the second quarter of 2003, BVAC completed a study of its loan production and servicing operations, and identified a number of opportunities to increase efficiencies without compromising existing underwriting and servicing standards. To this end, the Chicago and Houston loan production offices were consolidated into the Covina, California office. In addition, BVAC reduced the size of its loan servicing and collections staff while expanding its lending operations from five to seven days per week. Second quarter results include a pre-tax charge of $675 thousand for the costs of this restructuring.

Leasing Expenses

     Leasing expenses were $8.0 million and $17.4 million for the second quarter and the first six months of 2003, respectively. At June 30, 2003, approximately 5,005 of the 8,469 vehicles in our automobile lease portfolio, or 59%, were considered impaired under Statement No. 144. If the market values of the individual vehicles declined by $250, an additional 5% of the leases would have been deemed to be impaired and, therefore, potentially subject to an impairment charge.

Income Taxes

     We recorded tax benefits of $0.8 million and $1.6 million for the second quarter and the first six months of 2003, respectively. The effective tax rate used in computing the tax benefit for the first six months of 2003 was 32.1%. The income tax benefit includes the deduction of the dividends on Capital Securities. This 2003 effective tax rate was lower than the federal statutory rate primarily due to the tax benefits from state income and franchise taxes.

Balance Sheet Analysis

     Our total assets were $387.9 million at June 30, 2004 compared to $364.1 million at December 31, 2003. The increase in total assets was primarily due to $86.3 million of net growth in auto contracts offset, in part, by $39.6 million of payoffs of auto leases.

Cash and Cash Equivalents

     At June 30, 2004, our cash and cash equivalents totaled $5.8 million of cash deposited at depository institutions. At December 31, 2003, our cash and cash equivalents totaled $11.6 million and consisted of $11.5 million of cash deposited at depository institutions and $0.1 million of money market funds.

Restricted Cash

     Our restricted cash balances were $37.1 million and $32.2 million at June 30, 2004 and December 31, 2003, respectively. Restricted cash attributable to BVAC’s auto finance business includes cash retained in reserve accounts established by BVAC’s auto securitization trusts for purposes of providing credit enhancement for asset-backed bond issuances, cash collateral provided to counterparties to BVAC’s hedging contracts to meet margin requirements, and cash collateral provided to cure potential borrowing base deficiencies on BVAC’s warehouse

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credit facility. The remaining assets from the Bank liquidation also include restricted cash that has been pledged for purposes of securing a letter of credit, the financing secured by the auto lease portfolio contractual cash flow, and other contractual obligations.

Retained Interests in Securitizations

     The following table provides information, by securitization transaction, on the balance of retained interests in securitizations of auto installment contracts as of the dates indicated:

     Our retained interests are subordinate to investor interests. Their value is subject to credit, prepayment, and interest rate risks on the transferred auto installment contracts. At June 30, 2004, all retained interests in securitizations were classified as available-for-sale and reported at fair value. Unrealized gains of $0.5 million in these retained interests available-for-sale were included in our stockholders’ equity (net of taxes) at June 30, 2004.

Mortgage-backed and Other Securities

     The following table provides information on the balance of mortgage-backed and other securities as of the dates indicated:

     At June 30, 2004, our securities were classified as available-for-sale. We do not maintain a trading portfolio. Net unrealized gains and losses on our securities available-for-sale are excluded from earnings and reported, net of applicable income taxes, as a separate component of stockholders’ equity. Gains and losses on sales of securities are recorded in earnings at the time of sale.

     We sold $5.5 million of mortgage-backed securities during the first half of 2004 and recognized losses of $11 thousand. There were no purchases of mortgage-backed or other securities during this period.

     At June 30, 2004, our stockholders’ equity included $8 thousand of unrealized losses, net of taxes, from mortgage-backed and other securities available-for-sale.

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Installment Contracts and Loans

     The following table illustrates our portfolio of installment contracts and loans as of the dates indicated:

	(1)	Amounts exclude auto-related operating lease assets reported separately from loans and leases totaling $27.0 million at June 30, 2004 and $66.7 million at December 31, 2003.
	(1) (2)	Includes allowances for mark-to-market valuation reserves and credit losses of $2.5 million and $3.2 million at June 30, 2004 and December 31, 2003, respectively.

     The increase in loans receivable from December 31, 2003 to June 30, 2004 was attributable to BVAC’s purchases of auto contracts partially offset by loan sales and repayments during the first six months of 2004. During the first six months of 2004, we sold $15.6 million of auto contracts and $4.8 million of business loans, and received $52.3 million of loan repayments. Other than BVAC’s purchases, we ceased all other loan production activities during the fourth quarter of 2002.

Auto Installment Contracts

     During the second quarter of 2004, BVAC purchased $75.9 million of auto contracts compared to $69.3 million for the first quarter of 2004 - representing a 9% quarter-over-quarter increase in production. Second quarter purchased contract rates averaged 7.86% and FICO scores averaged 734; compared to first quarter purchased contract rates which averaged 7.90% and FICO scores which averaged 734. At June 30, 2004, BVAC was servicing 29,057 auto contracts representing $561.6 million compared to 30,808 auto contracts representing $562.8 million at December 31, 2003.

     BVAC sold approximately $10.2 million and $15.6 million of auto contracts during the second quarter and the first half of 2004, respectively. Repayments of $27.3 million and $50.1 million were received during the second quarter and the first six months of 2004, respectively.

     BVAC anticipates securitizing a portion of its auto contracts in an asset-backed bond offering in the fourth quarter of 2004 or the first quarter of 2005. Its previous securitizations were structured as sales transactions; however, many banks and finance companies have recently elected to structure such transactions as financings that preclude the use of “gain-on-sale” accounting. BVAC anticipates structuring its future securitizations as financings that will not qualify for “gain-on-sale” accounting. As a result of this decision, and in anticipation of securitizing auto contracts and marketing an asset-backed bond offering in the next two to three quarters, BVAC transferred $103.0 million of auto contracts from its held-for-sale portfolio to its held-for-investment portfolio during the second quarter of 2004.

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Other Loans

     During the first six months of 2004, we sold $4.8 million of business loans and received $2.2 million of asset-based and franchise loan repayments. At June 30, 2004, the net carrying value of our remaining investment in loans to be liquidated was $5.3 million compared to $12.1 million at December 31, 2003.

Credit Quality

     We define nonperforming assets as nonaccrual loans, real estate owned and other repossessed assets. We define nonaccrual loans as loans 90 days or more delinquent as to principal and interest payments (unless the principal and interest are well secured and in the process of collection) and loans less than 90 days delinquent when we determine that the full collection of principal and/or interest is doubtful. We do not record interest on nonaccrual loans.

     The following table illustrates our nonperforming assets as of the dates indicated:

     Our nonperforming assets included mark-to-market valuation reserves of $0.8 million and $1.4 million at June 30, 2004 and December 31, 2003, respectively. Nonperforming assets excluding franchise-related assets were $0.8 million at June 30, 2004 compared to $1.4 million at December 31, 2003, while non-franchise nonaccrual loans were $0.3 million at June 30, 2004 compared to $0.9 million at December 31, 2003.

     The following table illustrates nonperforming assets and nonperforming assets as a percentage of consolidated total assets by their original loan and lease type:

     Total loans delinquent 60 days or more were $1.8 million at June 30, 2004 compared to $748 thousand at December 31, 2003. Total loans delinquent 60 days or more as a percentage of loans receivable was 0.70% at June 30, 2004 compared to 0.42% at December 31, 2003. The increase in total loans delinquent 60 days or more at June 30, 2004, compared to December 31, 2003, was primarily due to an increase in delinquent franchise loans.

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Borrowings

     Our borrowings totaled $227.1 million at June 30, 2004 compared to $179.1 million at December 31, 2003. Borrowings increased as BVAC utilized its warehouse credit facility to fund purchases of auto contracts. These borrowings were partially offset by the redemption of the Capital Securities at the end of the second quarter and repayments of the financing secured by the auto lease portfolio contractual cash flow. During the second quarter of 2004, BVAC secured a $350.0 million warehouse credit facility to replace its existing $250.0 million credit facility. The following table illustrates outstanding borrowings as of the dates indicated:

Capital Securities

     During 2003, we adopted FASB Financial Interpretation No. 46, “Consolidation of Variable Interest Entities,” and accordingly, deconsolidated Bay View Capital I Trust. As a result, the 9.76% Cumulative Capital Securities (the “Capital Securities”) of Bay View Capital I Trust are no longer reflected on our Consolidated Statement of Financial Condition while the underlying 9.76% Junior Subordinated Deferrable Interest Debentures, which were acquired by Bay View Capital I Trust, are reflected as borrowings.

     On June 30, 2004, we redeemed the remaining $22.0 million of the Capital Securities at a price equal to 100% of the $25.00 par value of each Capital Security plus the quarterly dividend on the Capital Securities totaling $0.61 per Capital Security.

Stockholders’ Equity

     On June 24, 2004, our stockholders approved a 1-for-10 reverse stock split of the issued and outstanding shares of our common stock. The reverse stock split was effected at 5:00 p.m., EDT, on June 30, 2004 and, as a result, our issued common stock was reduced from 65,910,689 shares prior to the reverse stock split to 6,590,461 shares following the reverse stock split, including an adjustment for fractional shares. The reverse stock split did not impact the par value of our common stock, which remains at $0.01 per share. Accordingly, all shares outstanding and per share amounts are presented on a post-split basis for all periods reported.

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Liquidity and Capital Resources

     The objective of our liquidity management is currently threefold — to ensure that funds are available to finance BVAC’s purchases, warehousing and securitization/sale of installment contracts; to fund other working capital needs; and to complete the liquidation of the assets and liabilities we acquired from the Bank and distribute the proceeds from the remainder of the liquidation to stockholders. At June 30, 2004, we had $5.8 million of cash and cash equivalents and $129.1 million of available borrowing capacity on our warehouse credit facility of which $6.0 million was immediately available based upon the availability of BVAC-owned auto installment contracts eligible for pledging.

     With our adoption of a plan of partial liquidation, BVAC is our primary remaining subsidiary. With the exception of BVAC’s assets and liabilities and our operating auto lease assets, we are proceeding with the remaining liquidation and anticipate that this process will be substantially completed during 2004. The liquidation of the auto leases, which will result from sales of the leased vehicles as the lease contracts are repaid or expire, is anticipated to be completed by the end of the third quarter of 2005, consistent with the maturities of these leases.

     On December 30, 2003, we distributed $263.2 million, or $40.00 per share in cash, to our common stockholders and, on December 31, 2003, redeemed $63.5 million, or approximately 74%, of the outstanding Capital Securities.

     During the first quarter of 2004, we paid the quarterly dividend due on the remaining Capital Securities.

     On June 30, 2004, we redeemed the remaining $22.0 million of the Capital Securities at the $25.00 par value of each Capital Security plus the quarterly dividend on the Capital Securities. We also paid a cash distribution of $16.5 million, or $2.50 per share, to our common stockholders on June 30, 2004.

     BVAC funds its purchases of installment contracts with its credit facility and periodically securitizes or sells these contracts in order to provide it with liquidity to continue its purchases. During the second quarter of 2004, BVAC secured a $350.0 million warehouse credit facility to replace its existing $250.0 million warehouse credit facility. The $100.0 million increase in borrowing capacity has provided BVAC with additional liquidity, greater flexibility to manage its warehouse inventory and allowed BVAC to maintain additional auto contracts in its warehouse inventory and increase net interest income.

     Stockholders’ equity totaled $139.3 million at June 30, 2004 compared to $155.9 million at December 31, 2003.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Asset/Liability Management

     Interest rate risk, the fluctuation of market interest rates, impacts the value of our fixed-rate auto installment contracts, which are held-for-sale. It also impacts the net interest income component of our earnings because we fund purchases of fixed-rate installment contracts with a floating-rate warehouse credit facility. The rate on the warehouse facility, a revolving purchase facility, is tied to the one-month Libor rate as well as commercial paper rates and subject to frequent adjustments to reflect prevailing money market rates.

     Fixed-rate Auto Installment Contracts

     The installment contracts we purchase are fixed-rate contracts. We purchase these contracts with the intention of periodically selling the contracts through asset-backed securitization transactions or sales of pools of whole loans. Investors in these securitization or whole loan sale transactions require a yield that is commensurate with prevailing market interest rates. The prices offered by investors in these transactions reflect prevailing market interest rates at the time of these transactions, which creates price risk for the Company during the period it warehouses, or owns, these fixed-rate contracts. Accordingly, our earnings are affected by changes in prevailing market interest rates. Rising market interest rates generally reduce the value of our fixed-rate installment contracts.

     Net Interest Income

     We fund purchases of fixed-rate installment contracts with our floating-rate warehouse credit facility. While we own these contracts, we earn net interest income, the amount by which interest income earned on the contracts exceeds the interest paid on our warehouse credit facility. Changes in prevailing market interest rates produce corresponding changes in the cost of our floating-rate warehouse credit facility thereby creating interest rate risk. Rising market interest rates generally increase the interest expense we incur on our warehouse credit facility.

     To protect the Company from interest risk, we use various derivative financial instruments including interest rate swap contracts to protect the market value of our warehouse inventory of installment contracts and the net interest income produced by our warehouse inventory. The market value of these derivative instruments is designed to respond inversely to the market value of our warehouse inventory resulting from changes in prevailing market interest rates. These agreements are entered into as we purchase installment contracts; the agreements are closed out at the time underlying installment contracts are securitized or sold. Our policy is to maintain a substantially hedged position on our warehouse inventory.

     At June 30, 2004, we had entered into swap contracts with a total notional amount of $198.0 million under which we pay a fixed interest rate of 2.32% and receive a floating interest rate of 1.36%. These contracts mature from September 2004 to May 2007. At June 30, 2004, we had an unrealized gain of $1.1 million in our swap contracts. At this date, we estimate that an increase of 100 and 200 basis points would have resulted in an approximate unrealized gain of $3.6 million and $6.1 million; respectively; while a decrease of 100 basis points would have resulted in an approximate unrealized loss of $1.6 million.

     We account for changes in the market value of derivative instruments as prescribed by Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Our swap agreements are not treated as hedge instruments under Statement No. 133 and are, accordingly, carried at fair value, with changes in such fair value charged or credited to earnings.

     Prior to our re-adoption of the going concern basis of accounting, we accounted for changes in the market value of derivative instruments using the liquidation basis of accounting. Changes in the market value of these derivative instruments were reflected in our consolidated statements of net assets in liquidation under pre-tax loss from operations, while offsetting changes in the market value of underlying installment contracts were included in changes in estimated values of assets and liabilities.

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Item 4. Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures

     As we have previously reported, on July 22, 2004, Deloitte & Touche LLP advised our Audit Committee and our management of a reportable condition that Deloitte & Touche LLP considers a material weakness in our internal control relating to financial reporting. The condition related to our incorrect amortization of premiums paid, origination fees and direct costs of auto installment contracts held for sale, which, under FASB Statement No. 91, should be deferred until the contracts are sold. We were amortizing such deferred amount resulting in material misstatements in our consolidated financial statements as of and for the three months ended December 31, 2003 and condensed consolidated financial statements as of and for the three months ended March 31, 2004. Deloitte & Touche LLP attributed this misstatement to insufficient qualified accounting personnel to identify and resolve complex accounting issues on a timely basis and lack of appropriate resources resulting in insufficient supervision and review of the financial reporting process.

     We have corrected our accounting for the aforementioned premiums paid, origination fees and direct costs, and restated our consolidated financial statements as of and for the three months ended December 31, 2003 and condensed consolidated financial statements as of and for the three months ended March 31, 2004 (the “Restatement”).

     As of the end of the period covered by this Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of the effectiveness of the design and operation of our disclosure controls and procedures. In making the evaluation described above, we have considered matters relating to the Restatement including the above described reportable condition.

     Based upon this evaluation, our principal executive officer and principal financial officer concluded that, except for the material weakness described above, our disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and our principal financial officer, to allow timely decisions regarding required disclosure.

(b)

Changes in Internal Control Over Financial Reporting

     There have been no changes in the Company’s internal controls as part of the ongoing evaluation of the reportable condition discussed above. Our principal executive officer and principal financial officer, under the oversight of our Audit Committee, are developing a plan to correct the material weakness in internal control.

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PART II. OTHER INFORMATION

		Item 1. Legal Proceedings
		We are involved as plaintiff or defendant in various legal actions and are occasionally exposed to unasserted claims arising in the normal course of business. In the opinion of management, after consultation with counsel, the resolution of these legal actions will not have a material adverse effect on our statements of financial condition, results of operations or cash flows.
		Item 2. Changes in Securities

               None.

Item 3. Defaults Upon Senior Securities

               None.

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

At the annual meeting of our stockholders, held April 29, 2004, the stockholders considered the following proposals:

I. The election of two directors of Bay View Capital Corporation:

The following were re-elected:

Robert B. Goldstein
Joel E. Hyman

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

At a special meeting of our stockholders, held June 24, 2004, the stockholders considered and voted on the following proposal:

I. Amend the Restated Certificate of Incorporation of Bay View Capital Corporation to effect a 1-for-10 reverse stock split of the Company’s issued and outstanding shares of common stock:

Item 5. Other Information

               None.

Item 6. Exhibits and Reports on Form 8-K

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During the three months ended June 30, 2004, we filed the following reports on Form 8-K:

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		BAY VIEW CAPITAL CORPORATION Registrant
DATE: August 13, 2004	BY:	/s/ John Okubo
			John Okubo
		Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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EXHIBIT INDEX