UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the transition period from                    to                    

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 þ No o

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

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

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FORM 10-Q
INDEX

BAY VIEW CAPITAL CORPORATION

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Forward-Looking Statements

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

     A number of factors may affect our forward-looking statements regarding our ongoing operations in the future including the following:

	•	Our efforts to expand BVAC’s operations could be unsuccessful;
	•	Our ability to obtain and maintain financing to fund the ongoing operations of BVAC, including securitizing and selling automobile installment contracts in order to repay borrowings;
	•	Changes in general economic and business conditions;
	•	Interest rate fluctuations, including the results from our hedging activities;
	•	Our financial condition and liquidity, including our ability to generate future cash flows and earnings;
	•	Our degree of success in utilizing our net operating loss carryforwards;
	•	Competition;
	•	Our ability to control our operating expenses;
	•	The effect of new laws, regulations and court decisions affecting consumer finance transactions and net operating loss carryforwards;
	•	The condition of the market for the sale of new and used automobiles, including pricing options by automobile manufacturers;
	•	The level of chargeoffs on the contracts that BVAC purchases; and
	•	The outcome of pending litigation against us.

Cash Distributions

     On March 10, 2005, we announced that we would not make a first quarter cash distribution to stockholders. Our Board of Directors is evaluating whether an acquisition would better maximize stockholder value. Pending the conclusion of that analysis, our Board of Directors has decided to retain surplus cash for possible use in connection with a potential acquisition rather than distributing such surplus to stockholders. If we determine we will not seek an acquisition or if we are unable to locate a suitable acquisition over the next several months, our Board of Directors would then consider future cash distributions depending on a number of factors, including our financial condition and results of operations and other strategic alternatives.

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

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Bay View Capital Corporation and Subsidiaries

Condensed Consolidated Statements of Financial Condition

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
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)

See notes to condensed consolidated financial statements.

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Bay View Capital Corporation and Subsidiaries

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

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

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

     The interim period consolidated financial statements, including the notes thereto, are condensed and do not include all disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). These interim period financial statements should be read in conjunction with the Company’s consolidated financial statements that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. The information provided in these interim financial statements reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the Company’s financial condition as of March 31, 2005 and December 31, 2004, the results of its operations for the three-month periods ended March 31, 2005 and 2004, and its cash flows for the three-month periods ended March 31, 2005 and 2004. These adjustments are of a normal, recurring nature unless otherwise disclosed in this Quarterly Report on Form 10-Q (“Form 10-Q”). These interim financial statements have been prepared in accordance with the instructions to Form 10-Q.

     On June 30, 2004, the Company effected a 1-for-10 reverse stock split of the issued and outstanding shares of the Company’s common stock. Accordingly, all shares outstanding and per share amounts are presented on a post-reverse stock split basis for all periods reported. The Company’s issued common stock totaled 6,597,303 shares at March 31, 2005 and December 31, 2004.

Stock-based Employee Compensation

     The Company accounts for its stock-based awards to employees and directors using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion (“APB”) No. 25. Under the intrinsic value method, compensation cost is generally the excess, if any, of the quoted market price of the stock at the grant or other measurement date over the exercise price. There was no compensation expense recorded under APB 25 for the three-month periods ended March 31, 2005 and 2004. Had compensation expense related to the Company’s stock option awards to employees and directors been determined under the fair value method prescribed under Statement of Financial Accounting Standards No. 123, the Company’s net loss and loss per share would have been the pro forma amounts set forth in the table below for the periods indicated:

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

     The fair value of options determined above for the three months ended March 31, 2005 and 2004 was estimated using an option-pricing model with the following weighted average assumptions:

Reclassifications

     Certain reclassifications have been made to prior year balances in order to conform to the current year presentation.

Note 2.	Restatement of the Condensed Consolidated Financial Statements as of and for the Three Months Ended March 31, 2004

     As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 (“Form 10-K”) which was filed with the Securities and Exchange Commission on April 18, 2005, the Company is restating its consolidated financial statements for the first, second and third quarters of 2004 to correct its accounting for derivatives (interest rate cap contracts) maintained by an affiliated special purpose owners trust entity in connection with BVAC’s $350 million revolving receivables warehouse credit facility.

     The effect of the restatement is to increase the Company’s net loss for the three months ended March 31, 2004 by $58 thousand and decrease total assets as of March 31, 2004 by the same amount. Revised financial information for the periods presented reflecting these restatements was previously disclosed in the Company’s Form 10-K for the year ended December 31, 2004.

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

     Except as set forth above, the Company has not updated the disclosures contained herein to reflect any events that have occurred after the original filing. The following table sets forth the impact of the restatement on net loss and basic and diluted loss per share for the three months ended March 31, 2004:

Note 3. Loss per Share

     Basic loss per share is calculated by dividing net loss for the period by the weighted-average common shares outstanding for the period; there is no adjustment to the number of outstanding shares for potential dilutive instruments, such as stock options. Diluted loss per share takes into account the potential dilutive impact of such instruments and uses the average share price for the period in determining the number of incremental shares to add to the weighted-average number of shares outstanding. For the three-month periods ended March 31, 2005 and 2004, there were potential common shares of 77,100 and 81,430, respectively, related to shares issuable upon the exercise of options that could potentially dilute basic earnings per share in the future that were not included in

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

the computation of diluted loss per share because to do so would have been anti-dilutive for the respective periods.

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

Note 4. Auto Installment Contracts

     Auto installment contracts consist of the following:

Note 5. Investment in Operating Lease Assets

     The Company incurs expense in connection with its portfolio of auto leases. Because the leases are accounted for as operating leases, the corresponding assets are capitalized and depreciated to their estimated residual values over the terms of the leases. This depreciation expense is included in leasing expense, along with the amortization of capitalized initial direct lease costs and impairment charges. Leasing expense was $0.5 million for the first quarter of 2005 and $4.7 million for the first quarter of 2004.

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

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

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

     Using the projected ALG residual values, the Company’s experience-to-date relative to the projected ALG residual values (for example, for vehicle classes where actual amounts realized were less than what ALG had projected, the Company reduces the projected ALG residual values to equal the Company’s experience-to-date), and the probabilities of each of the three disposition scenarios discussed above occurring, the Company determines

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

a probability-weighted gross future undiscounted cash flow for each vehicle lease. For those leases where the gross future undiscounted cash flows are less than net book value, the lease is considered impaired.

     For those leases considered to be impaired, the Company then estimates the fair value of the lease. The fair value is determined by calculating the present value of the future estimated cash flows, again assuming the probabilities of each of the three disposition scenarios. The present value is calculated using current market rates, which the Company estimates as the original contract lease rate. For those leases where the estimated fair value is less than the net book value, an impairment charge is recorded for the difference. During the three months ended March 31, 2004, the Company recorded impairment charges of $0.7 million. There were no impairment charges recorded for the three months ended March 31, 2005.

Note 6. Income Taxes

     The Company recorded a tax benefit of $0.2 million for the first quarter of 2005. The effective tax rate used in computing the tax benefit for this period was 32.0%. This projected 2005 effective tax rate is lower than the federal statutory rate due to state tax payments on BVAC tax returns that must be filed on a separate company basis.

     For the first quarter of 2004, the Company recorded a tax benefit of $0.6 million. The effective tax rate for the first quarter of 2004 was 39.2%.

     At March 31, 2005, we had $17.1 million of deferred and current tax assets, net. Deferred tax assets totaling $21.4 million consisted of net deferred tax assets of $42.9 million less a valuation allowance of $21.5 million. This valuation allowance was established in consideration of our projected future taxable income available to realize the deferred tax assets under the Company’s Amended Plan of Dissolution and Stockholder Liquidity (the “Amended Plan”) in years after 2004.

Note 7. Commitments and Contingencies

     On August 29, 2003, Financial Security Assurance Inc. (“FSA”) filed a complaint against the Company and the Bank in the United States District Court for the Southern District of New York. The complaint, as amended, alleges breaches of representations and warranties or indemnity obligations with regard to a number of loans that served as collateral for two securitizations involving the Company and/or a former subsidiary, Bay View Franchise Mortgage Acceptance Company that were effected in 1998 and 2000. FSA guaranteed certain payments in connection with these securitizations. The Company vigorously denies any liability to FSA and has asserted numerous defenses to each of FSA’s claims. The Company has also filed counterclaims against FSA.

     The Company is a party to various other legal actions arising in the normal course of business.

     After consultation with counsel, the Company does not currently expect that the resolution of these legal actions will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.

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

Note 8. Liquidation Reserve

     The liquidation reserve represents a liability for estimated severance costs, costs related to facilities closures, estimated litigation settlements and related legal costs and other costs associated with the completion of remaining liquidating activities arising from the Company’s adoption of the Amended Plan during the fourth quarter of 2003. The liquidation reserve is accounted for in accordance with Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”

     At March 31, 2005, the remaining balance of the liquidation reserve was $8.8 million including accruals for severance, facilities and litigation and other costs of $1.3 million, $5.9 million and $1.6 million, respectively. The following table sets forth balances and activity in the liquidation reserve as of and for the periods indicated:

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

     The information included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” was written assuming that you have read or have access to the Company’s 2004 Annual Report on Form 10-K, which contains the latest audited consolidated financial statements and notes, along with Management’s Discussion and Analysis of Financial Condition and Results of Operations. Accordingly, only certain changes in financial condition and results of operations are discussed in this Form 10-Q. Furthermore, the interim financial results for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.

     On June 30, 2004, the Company effected a 1-for-10 reverse stock split of the issued and outstanding shares of its common stock. Accordingly, all shares outstanding and per share amounts are presented herein on a post-reverse stock split basis for all periods reported.

Strategic Overview

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

Restatement

     During the Company’s 2004 year-end audit and Sarbanes-Oxley Section 404 review, the Company determined that it should have recognized a total of $0.4 million of unrealized after-tax losses on certain derivative instruments (interest rate cap contracts). As a result, the Company is restating its consolidated financial statements for the first, second and third quarters of 2004 to correct its accounting for derivatives maintained by an affiliated special purpose owners trust entity in connection with BVAC’s $350 million revolving receivables warehouse credit facility. The impact of the restatement to first quarter 2004 results is to increase net loss by $58 thousand and decrease total assets by the same amount. See Note 2 to the Condensed Consolidated Financial Statements, “Restatement of the Condensed Consolidated Financial Statements as of and for the Three Months ended March 31, 2004.”

Bay View Bank Liquidation

     On October 3, 2002, we adopted a Plan of Dissolution and Stockholder Liquidity (the “Plan”). The Plan contemplated that we, under applicable provisions of the Delaware General Corporation Law, would dispose of all of our assets, including all of the assets of Bay View Bank, N.A. (the “Bank”), pay all of our debts and liabilities and make reasonable provision for any contingent liabilities, distribute the remaining proceeds from our asset sales to our stockholders and dissolve.

     During the fourth quarter of 2003, our Board amended the Plan to become a plan of partial liquidation, the Amended Plan, under which we are completing the liquidation of the assets and the satisfaction of the liabilities of the Bank remaining after the Bank’s September 30, 2003 dissolution. We have distributed a major portion of the proceeds to our stockholders through a series of cash distributions, and we continue to operate BVAC. With the Bank’s dissolution, its remaining assets and liabilities were transferred to us, as the Bank’s sole stockholder, and we ceased to be a bank holding company.

     In accordance with the Amended Plan, we redeemed the remaining $22.0 million of our 9.76% Cumulative Capital Securities on June 30, 2004 and, between December 31, 2003 and December 31, 2004, distributed $311.0 million in cash to our stockholders, or $47.25 per share after the adjustment to reflect the retroactive effect of the 1-for-10 reverse stock split of our common stock effective June 30, 2004. We did not make a cash distribution to our

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stockholders during the first quarter of 2005. Refer to “Forward-Looking Statements – Cash Distributions” for comments about future cash distributions.

     We continue to dispose of the assets and satisfy the liabilities we assumed from the Bank. During the first quarter of 2005, $5.1 million of these assets, primarily auto leases and real estate owned, were liquidated and $4.0 million of liabilities were discharged.

Automobile Finance

     BVAC, the Company’s indirect auto finance subsidiary, acquires retail auto installment contracts from a network of approximately 7,000 manufacturer-franchised and independent auto dealers in 30 states and has positioned itself in the market as a lender for well-qualified borrowers. While BVAC competes with other lenders for good credit quality loans, BVAC also offers specialized products such as extended term financing and larger advances for high credit quality customers and uses these products to establish relationships with automobile dealers.

     This strategy has enabled BVAC to establish a loyal dealership network by satisfying a unique niche within the indirect auto finance market that large commercial banks and captive finance companies have not served well. Recently, BVAC has begun leveraging this established reputation with its dealers to broaden its array of auto financing programs available to prime credit quality borrowers. Of the contracts purchased in the first quarter of 2005, approximately 91% were originated by manufacturer-franchised dealerships and approximately 9% were originated by independent dealerships compared to 95% and 5%, respectively, for the first quarter of 2004; 40% were contracts on new vehicles and 60% were contracts on used vehicles compared to 55% and 45% in the first quarter of 2004. BVAC purchases installment contracts with limited recourse to the dealer.

     BVAC places a strong emphasis on borrower stability, credit quality and debt serviceability. With Fair, Isaac & Co., or “FICO,” credit scores that averaged 742 in the first quarter of 2005, BVAC’s borrower base is largely comprised of prime credit quality borrowers. BVAC currently offers financing terms to 96 months and typically finances an amount in excess of a dealer’s wholesale value of a vehicle. During the first quarter of 2005, the term to maturity on auto contracts purchased by BVAC averaged 79 months and the loan-to-value ratio averaged 121%. The average loan amount financed by BVAC was $24,600. During the first quarter of 2004, the term to maturity on auto contracts purchased averaged 83 months and the loan-to-value ratio averaged 125%. The average loan amount financed by BVAC was $30,200.

     BVAC operates as an independent finance company, purchasing auto contracts primarily for sale or securitization, and servicing these auto contracts. BVAC has a $350.0 million revolving warehouse credit facility to fund its purchases of contracts, and periodically sells or securitizes a portion of its auto contracts in order to pay down the facility and maintain available borrowing capacity. BVAC retains the servicing obligation on the contracts that it sells or securitizes which provides us with a source of fee income over the life of the contracts. On February 17, 2005, BVAC issued $232.1 million of auto receivable backed notes and repaid $217.8 million of borrowings on the credit facility. At March 31, 2005, BVAC had $160.3 million outstanding under this credit facility.

     At March 31, 2005, BVAC was servicing 30,400 auto contracts with an aggregate outstanding balance of $619 million compared to 28,300 auto contracts with an aggregate outstanding balance of $571 million at December 31, 2004. BVAC also administers lease customer re-marketing and asset disposition activities in its operations center for the auto lease portfolio that we assumed from the Bank and are liquidating.

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Critical Accounting Policies

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

Loan Sales and Retained Interests in Securitizations

     BVAC has periodically transferred a portion of its warehouse inventory of auto contracts held-for-sale to trusts that, in turn, issue asset-backed securities to investors. These transactions have historically been structured as sales in accordance with Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and we have recognized a gain on the sale of the auto contracts to the trusts — which represents the difference between the sum of sale proceeds, net of transaction costs, and cash deposited into a securitization trust account in order to enhance the credit rating of the asset-backed securities and the sum of our net carrying value of the auto contracts and the present value of future excess cash flow anticipated to be distributed to us by the trust over the life of the asset-backed securities – and an asset that is referred to as a “retained interest” in the securitization.

     The retained interest is comprised of the cash initially deposited into the securitization trust account and the present value of the future excess cash flow anticipated to be distributed to us by the trust over the life of the asset-backed securities. These estimated future cash flows - which are comprised of interest income received on the auto contracts less interest paid to investors in the asset-backed securities, credit losses and trust expenses — are initially retained by the trust to build the trust cash account to pre-designated levels and provide further credit enhancement. Once the pre-designated levels of cash are attained, the trust distributes the excess cash flow to BVAC. In recording the gain on sale and the retained interest, we have made assumptions in calculating the present value of the future excess cash flow anticipated to be distributed to us by the trust over the life of the asset-backed securities and recording the retained interest.

     We designate retained interests as available-for-sale and carry them at fair value. Unrealized gains and losses which are deemed to be temporary are reported in other comprehensive income. For retained interests which have experienced a decline in fair value below their amortized cost basis and for which the decline in fair value has been deemed to be other-than-temporary, the cost basis of the retained interest is written down to fair value as the new cost basis and the write down is charged to earnings.

     Our retained interests are subordinate to investor interests in the related asset-backed securities and their value is subject to credit and prepayment risks in the pool of underlying auto contracts. We are not aware of an active secondary market for our retained interests and, accordingly, estimate the fair value of our retained interests by calculating the present value of the future excess cash flow anticipated to be received, using management’s best estimates of key valuation assumptions including credit losses, prepayment speeds and discount rates commensurate with the underlying risks in the anticipated future cash flow.

     The following table sets forth the significant assumptions used in the valuation of our retained interests as of March 31, 2005:

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

     During the first quarter of 2005, BVAC transferred $232.1 million of auto receivables to a special purpose entity, Bay View 2005-LJ-1 Owner Trust, and issued a corresponding amount of auto receivable backed notes. Under the terms of the notes, BVAC retained certain rights that results in its maintaining control over the transferred receivables and, in accordance with provisions of Statement No. 140, have accounted for this transaction as a secured financing.

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Allowance for Credit Losses

     The allowance for credit losses on auto contracts held-for-investment is established through a provision charged to expense and maintained at a level that we believe is sufficient to cover estimated probable losses in this loan portfolio. We consider BVAC’s portfolio of auto contracts to be comprised of relatively small balance, homogeneous receivables and, accordingly, determine its allowance for credit losses in accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies.” The allowance for credit losses is evaluated and adjusted on a quarterly basis.

     In determining the level of the allowance for credit losses, we evaluate BVAC’s auto contracts held-for-investment using two methodologies. The primary methodology is based upon an analysis of BVAC’s historical loss experience using a “vintage” analysis of its past purchases of auto contracts from which BVAC predicts probable losses that are inherent in its portfolio of auto contracts held-for-investment. Under this method, BVAC’s historical credit loss experience is stratified by quarter and correlated with the related auto contracts that have been similarly stratified by the number of quarters that have elapsed since date of purchase. This credit loss data is derived from “static pool” information that has been internally collected on the historical loss experience of BVAC’s portfolio of managed auto contracts. BVAC defines managed auto contracts as the sum of its warehouse inventory of auto contracts receivable plus auto contracts that have been securitized and/or sold with servicing retained by BVAC. We also use a secondary method for evaluating the sufficiency of the allowance for credit losses. This secondary method, a “roll rate” analysis, projects the migration of quarter-end auto contracts held-for-investment from current payment status through 30-, 60- and 90-day delinquent status to charge-off and correlates this projection with loss reserve factors.

     These methodologies incorporate quantitative as well as qualitative factors, including historical loss experience, changes in underwriting practices, changes in the credit quality of contracts and an assessment of economic conditions.

Investment in Operating Lease Assets

     We purchased auto leases, which are accounted for as operating leases, from March 1998 through June 2000. These purchases were recorded as fixed assets and are being depreciated on a straight-line basis over the respective lease terms to the estimated residual values of the leases. This depreciation and other related expenses, including the amortization of initial direct costs that are deferred and amortized over the lease term, are classified as noninterest expense. Lease payments received are recorded as noninterest income.

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

     In determining gross future undiscounted cash flows, we contract with Automotive Lease Guide, commonly referred to as ALG, to provide updated estimates of the residual value of the underlying vehicles comprising our portfolio of auto leases at the end of their lease terms, assuming that the vehicles are in average condition. This information is obtained from ALG on a quarterly basis. We then estimate the probability of one of three lease payoff scenarios occurring: (i) the vehicle will be purchased by the lessee prior to the end of the lease term, (ii) the vehicle will be purchased by the lessee at the end of the lease term, either at a discount or at the full contractual residual amount or (iii) the vehicle will be returned by the lessee at the end of the lease term. These probabilities are estimated using a number of factors, including our experience-to-date and industry experience.

     Using the projected ALG residual values combined with our experience-to-date relative to our realization of projected ALG residual values, we reduce the projected ALG residual values to reflect our experience-to-date. This experiential analysis, along with the probabilities of each of the three disposition scenarios discussed above

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occurring, enables us to determine a probability-weighted gross future undiscounted cash flow for each vehicle lease. For those leases where the gross future undiscounted cash flows are less than net book value, the lease is considered impaired.

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

Income Taxes

     We file consolidated federal income tax returns in which our taxable income or loss is combined with that of our subsidiaries. Consolidated, combined and separate company state tax returns are filed in certain states, as applicable, including California. Each subsidiary’s share of income tax expense (benefit) is based on the amount that would be payable (receivable) if separate returns were filed.

     At March 31, 2005, we had $17.1 million of deferred and current income taxes, net. Deferred tax assets totaling $21.4 million consisted of net deferred tax assets of $42.9 million less a valuation allowance of $21.5 million. This valuation allowance was established in consideration of our projected future net income available to realize the deferred tax assets under the Amended Plan in years after 2004. The realization of deferred tax assets is dependent upon our ability to generate future taxable income.

Derivative Instruments

     We use derivative instruments to reduce our exposure to interest rate risk embedded in our fixed-rate auto contracts which are funded by floating-rate financing. Rising interest rates reduce the net interest spread produced by our auto contracts, a primary component of our profitability, as well as the economic value of our inventory of auto contracts. Additionally, under the terms of our warehouse credit facility, the indenture trustee maintains derivative instruments to provide interest rate risk protection to our lenders. We account for these derivative instruments in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivatives and Hedging Activities.”

     Statement No. 133 establishes accounting and reporting standards for derivative instruments and requires that derivative instruments (including certain derivative instruments embedded in other contracts) be recorded in the statement of financial condition as either an asset or liability measured at its fair value. Statement No. 133 further dictates that the accounting treatment for gains or losses from changes in the derivative instrument’s fair value is contingent on whether the derivative instrument qualifies as a hedge under the standard. Risk management instruments must qualify and be designated as hedges upon their inception and must be effective in substantially reducing the risk arising from the asset or liability identified as exposing the Company to risk throughout the hedge period in order to receive hedge accounting treatment. To qualify as hedges, among other things, risk management instruments must be linked to specific assets or liabilities or pools of similar assets or liabilities. If the derivative instrument does not qualify as a hedge, the gains or losses are reported in the consolidated statement of income when they occur. If the derivative instrument qualifies and is designated as a hedge under the standard, depending on the type of risk being hedged, the gains and losses are either reported in the consolidated statement of income, offsetting the fair value change in the hedged item, or reported as accumulated other comprehensive income in the equity section of the consolidated statement of financial condition. If a hedged asset or liability is sold or paid off before maturity of the hedging derivative, the derivative is closed out or settled, and any net settlement amount upon the close-out or termination of the derivative is recognized in earnings. The standard requires that an entity formally document, designate and assess the effectiveness of transactions that receive hedge accounting.

     Our derivative instruments outstanding at March 31, 2005 were comprised of interest rate swap contracts and interest rate caps. In accordance with Statement No. 133, these derivative instruments are accounted for as assets or liabilities and recorded at fair value. Because these derivatives were not formally designated as hedges, which is

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required to use hedge accounting, changes in fair values are charged or credited to earnings. Refer to Item 3. “Quantitative and Qualitative Disclosures about Market Risk” – “Asset/Liability Management” for further comments about our use of derivative instruments.

Results of Operations

     Our net loss for the first quarter of 2005 was $334 thousand, or $0.05 per diluted share, compared to $901 thousand, or $0.14 per diluted share, for the first quarter of 2004.

Net Interest Income and Net Interest Margin

     Net interest income represents the difference between interest income earned on auto contracts and other interest-earning assets and interest expense paid on borrowings and other funding sources, and is our principal source of revenue. Net interest margin represents net interest income expressed as a percentage of average interest-earning assets.

     Net interest income was $3.4 million for the first quarter of 2005 compared to $3.0 million for the first quarter of 2004. Net interest margin was 3.37% for the first quarter of 2005 compared to 4.50% for the first quarter of 2004. The increase in net interest income for the first quarter of 2005, compared to the first quarter of 2004, was attributable to an increase in average interest-earning assets of $148 million and a $0.6 million reduction in interest expense produced by redemption of the remaining $22.0 million of our 9.76% Cumulative Capital Securities in 2004. This was offset, in part, by decreased net interest margin caused by runoff of higher-yielding auto contracts receivable and increased funding costs produced by rising market interest rates.

     For the first quarter of 2005, interest income was $7.1 million and the average yield on interest-earning assets was 6.92%, while interest expense on our borrowings was $3.7 million and the average cost of borrowings was 4.29%. Our average interest earning assets totaled $414.7 million for the same period.

     For the first quarter of 2004, interest income was $4.9 million and the average yield on interest-earning assets was 7.40%, while interest expense on our borrowings was $1.9 million and the average cost of borrowings was 4.08%. Our average interest earning assets for the first quarter of 2004 totaled $266.8 million.

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     The following tables set forth average outstanding balances of assets and liabilities, interest income and expense, and average yields on our interest-earning assets and the average cost of our borrowings for the periods indicated:

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     Net interest margin, calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”), excludes the revenue from our auto leasing assets, but includes the associated funding costs. Because our auto leases are accounted for as operating leases, the rental income and related expenses, including depreciation expense, are reflected in noninterest income and noninterest expense.

Provision for Credit Losses

     At March 31, 2005, BVAC had $293.5 million of auto contracts designated as held-for-investment. An allowance for credit losses on these contracts was established through the provision for credit losses. Our provision for credit losses totaled $0.8 million for the quarter ended March 31, 2005. During the first quarter of 2004, there were no auto contracts designated as held-for-investment and, accordingly, no provision for credit losses for the quarter ended March 31, 2004. Refer to “Balance Sheet Analysis - Auto Contracts and Other Loans – Auto Installment Contracts and Other Loans” for related information on BVAC’s allowance for credit losses on auto contracts held-for-investment.

Noninterest Income

     Noninterest income was $4.1 million for the first quarter of 2005 compared to $7.0 million for the first quarter of 2004. The decrease in noninterest income for the first quarter of 2005, compared to the first quarter of 2004, was largely a result of decreased leasing income and loan servicing income offset, in part, by unrealized gains on our derivative instruments.

     Leasing income decreased by $3.2 million quarter-over-quarter as a result of continued runoff of our liquidating auto lease portfolio, offset, in part, by favorable experience on the disposition of vehicles coming off

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lease during the quarter. We ceased purchasing auto leases in June 2000 and, since then, the balance of our lease portfolio has continued to decline as leases have reached their end-of-term.

     Loan servicing income for the first quarter of 2005 declined from the corresponding quarter in the prior year on a decline in the balance of our investor-owned servicing portfolio to $224 million at March 31, 2005 from $357 million at March 31, 2004.

     As discussed in additional detail in Item 3. “Quantitative and Qualitative Disclosures About Market Risk – Asset/Liability Management,” we employ derivative instruments primarily to protect the value of BVAC’s fixed-rate auto contracts from rising interest rates. Our strategy is to protect the economic value of these auto contracts rather than the accounting values. We account for changes in the market value of our derivative instruments as prescribed by Statement No. 133. Our derivative instruments are not treated as designated hedge instruments under Statement No. 133 and are, accordingly, carried at fair value, with changes in such fair value charged or credited to earnings. Our use of fair value accounting for our derivative instruments has resulted in certain fluctuations in noninterest income. The $1.4 million of unrealized gains on our derivative instruments in the first quarter of 2005 resulted from rising market interest rates during the quarter. Conversely, declining interest rates resulted in $0.3 million of unrealized losses on our derivative instruments in the first quarter of 2004. Future changes in interest rates will likely continue to produce fluctuations in the fair value of our derivatives and, therefore, the level of our noninterest income.

     Noninterest income for the first quarter of 2005 and 2004 included $0.4 million and $0.3 million, respectively, of write-offs of premium on auto contracts held-for-sale due to prepayments and chargeoffs of defaulted auto contracts, and net losses on sales of assets.

Noninterest Expense

     Noninterest expense was $7.1 million for the first quarter of 2005 compared to $11.5 million for the first quarter of 2004. For the first quarter of 2005, our noninterest expense included $6.6 million of general and administrative expense and $0.5 million of leasing expense. For the first quarter of 2004, noninterest expense included $6.5 million of general and administrative expense, $4.7 million of leasing expense and $0.3 million of real estate owned expenses. The following table sets forth the components of general and administrative expense:

     The decrease in noninterest expense for the first quarter of 2005, compared to the first quarter of 2004, was primarily the result of a $4.2 million decline in leasing expense on our liquidating auto lease portfolio. In addition, professional and legal services expense increased in the first quarter of 2005 on increased audit costs and costs attributable to implementing compliance with the Sarbanes-Oxley Act of 2002. During the quarter, we also recognized expense associated with a settlement of litigation involving a claim against the Bank related to its past servicing of a pool of commercial equipment leases. We believe there is no basis for this claim but agreed to settle the case in order to avoid further potential costs of litigation.

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     Because our auto leases are accounted for as operating leases, the corresponding leased vehicles are capitalized and depreciated to their estimated residual values over their lease terms. This depreciation expense is included in leasing expense, along with the amortization of capitalized initial direct lease costs and lease impairment charges. We test the residual value of our auto lease portfolio for impairment on a quarterly basis. The percentage of leases considered impaired is a measure of the quarterly rate of decline in the residual value of our auto lease portfolio versus our depreciation and writedown of the residual value of our auto lease portfolio since the prior quarterly valuation. At March 31, 2005 and 2004, there were no vehicles in our auto lease portfolio that were considered impaired under Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. Higher percentages of impaired leases are indicative of more rapidly declining resale values for used vehicles. Current rates of impairment are not necessarily indicative of future rates of impairment. Impairment of lease residual values is a function of a number of significant factors that could change in the near term, and adversely affect the valuation of the auto lease portfolio. These factors were previously described under “Critical Accounting Policies — Investment in Operating Lease Assets.” Two of these factors, including ALG’s projections of lease residual values and the relative probabilities of the three alternatives for disposing of vehicles, are particularly susceptible to changes in market conditions.

     In previous quarters, a $250 decline in the market value of individual vehicles in our lease portfolio would have resulted in additional vehicles being deemed impaired, and subject to an impairment charge. At March 31, 2005 and 2004, however, there were no additional vehicles that would have been determined to have been impaired if their market values had declined by such an amount. Impairment could increase if the percentage of vehicles returned to us were greater than the percentage that was projected at March 31, 2005, because the proceeds realized when we must dispose of vehicles at the end of lease terms are generally less than if lessees purchase vehicles prior to the end of lease terms.

Income Taxes

     The Company recorded a tax benefit of $0.2 million for the first quarter of 2005. The effective tax rate used in computing the tax benefit for this period was 32.0%. This projected 2005 effective tax rate is lower than the federal statutory rate due to state tax payments on BVAC tax returns that must be filed on a separate company basis.

     For the first quarter of 2004, the Company recorded a tax benefit of $0.6 million. The effective tax rate for the first quarter of 2004 was 39.2%.

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Balance Sheet Analysis

     Our total assets were $502.9 million at March 31, 2005 compared to $423.3 million at December 31, 2004. The increase in total assets was primarily attributable to BVAC’s purchases of auto contracts which produced $75.2 million of growth in our warehouse inventory of auto contracts, net of repayments and sales.

Cash

     At March 31, 2005, we had cash totaling $8.1 million compared to $4.4 million at December 31, 2004. We did not make a cash distribution to our stockholders during the first quarter of 2005. Refer to “Forward-Looking Statements – Cash Distributions” for comments about future cash distributions.

Restricted Cash

     Our restricted cash balances were $33.1 million and $26.8 million at March 31, 2005 and December 31, 2004, respectively. Restricted cash attributable to BVAC’s auto finance business includes cash collateral provided to counterparties to BVAC’s hedging contracts to meet margin requirements, cash collateral provided to cure potential borrowing base deficiencies on BVAC’s warehouse credit facility, cash on deposit in connection with credit enhancement of securitization notes payable and cash payments received from our customers that are in-transit to trust accounts for BVAC’s auto securitization trusts. The remaining assets from the Bank liquidation also include restricted cash that has been pledged to secure a letter of credit, cash collateral pledged in connection with financing secured by our auto lease portfolio contractual cash flow as well as cash collateral pledged in connection with the Company’s servicing of a multi-family loan pool and other contractual obligations.

Retained Interests in Securitizations

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

     Our retained interests are subordinate to investor interests. At March 31, 2005, all retained interests in securitizations were classified as available-for-sale and reported at fair value. Unrealized losses of $161 thousand and $279 thousand in these retained interests were included in our stockholders’ equity, net of taxes, at March 31, 2005 and December 31, 2004, respectively. For the first quarter of 2005, the retained interest in the Bay View 2003-LJ-1 Owner Trust was deemed to be other-than-temporarily impaired by $124 thousand and, accordingly, this amount was charged against noninterest income.

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Auto Installment Contracts and Other Loans

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

Auto Contracts

     During the first quarter of 2005, BVAC purchased $115.5 million of auto contracts, an increase of 43% compared to purchases of $80.7 million in the fourth quarter of 2004 and an increase of 67% from first quarter 2004 purchases of $69.3 million. We attribute this increase to the initial success of our efforts to broaden BVAC’s market for good credit quality customers and expand its origination of high quality loans. BVAC has consistently improved its monthly loan purchase volumes since September 2004, and its March 2005 loan purchase volume was the highest achieved in the Company’s history. Repayments totaled $36.3 million and $23.4 million for the first quarter of 2005 and 2004, respectively.

     For the first quarter of 2005, BVAC’s purchased contract rates averaged 8.30% compared to first quarter 2004 rates of 7.90%. Credit quality indicators also improved during the quarter. FICO scores for the quarter averaged 742 compared to an average of 734 for first quarter 2004 production. Of the contracts purchased in the first quarter of 2005, 91% were originated by manufacturer-franchised dealerships and 9% were originated by independent dealerships compared to 95% and 5%, respectively, for the first quarter of 2004; 40% were contracts on new vehicles and 60% were contracts on used vehicles compared to 55% and 45% for the first quarter of 2004. Net chargeoffs improved to 1.11% of managed contracts in the first quarter of 2005 from 1.23% in the first quarter of 2004.

     At March 31, 2005, BVAC was servicing 30,400 auto contracts with an aggregate outstanding balance of $619 million compared to 29,800 auto contracts with an aggregate outstanding balance of $560 million at March 31, 2004.

Other Loans Receivable

     At March 31, 2005, the net carrying value of other loans receivable, which we are in the process of liquidating, was $0.4 million compared to $0.9 million at December 31, 2004. These loans are designated as held-for-sale and carried at the lower of cost or fair value. During first quarter of 2005, we collected repayments of $0.3 million and charged-off $0.2 million.

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Credit Quality

     We define nonperforming assets as nonaccrual loans, real estate owned and other repossessed assets. We define nonaccrual loans as those which are 90 days or more delinquent as to principal and interest payments (unless the principal and interest are well secured and in the process of collection) and loans less than 90 days delinquent are designated as nonperforming when we determine that the full collection of principal and/or interest is doubtful. We do not record interest on nonaccrual loans. We charge-off auto contracts and reverse related accrued interest receivable when the contracts become 120 days delinquent.

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

     The decrease in total nonperforming assets at March 31, 2005, compared to December 31, 2004, was primarily due to the repayments and chargeoff of other loans receivable, discussed above, combined with a sale of $0.7 million of real estate owned. Our nonperforming assets included mark-to-market valuation reserves of $1.2 million at March 31, 2005 and December 31, 2004.

     The following table sets forth loans delinquent 60 days or more as a percentage of gross loans:

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Allowance for Credit Losses

     The Company maintains an allowance for credit losses on auto contracts held-for-investment that represents management’s estimate of inherent credit losses that have occurred as of the date of the financial statements. The process of determining the necessary level of the allowance is subjective and requires considerable judgment. Our auto contracts held-for-investment represent an inventory of small-balance loans with relatively homogeneous credit quality characteristics. Refer to “Critical Accounting Policies – Allowance for Credit Losses” for further details. The following table sets forth the activity in the allowance for credit losses on loans held-for-investment as of and for the periods indicated:

Borrowings

     Our borrowings totaled $381.4 million at March 31, 2005 compared to $300.7 million at December 31, 2004 as set forth in the following table:

     As discussed below, BVAC issued $232.1 million of auto receivable backed notes during the first quarter of 2005 and repaid $217.8 million of borrowings on its warehouse credit facility. Additional borrowings on the warehouse credit facility provided the funding for purchases of auto contracts during the first quarter of 2005.

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Liquidity and Capital Resources

     BVAC’s $350.0 million revolving warehouse credit facility allows us to purchase and warehouse auto contracts while our ability to securitize or sell auto contracts on a whole loan basis allows us to periodically pay down the warehouse facility in order to maintain available borrowing capacity to fund future purchases of auto contracts. Repayments from warehoused auto contracts also provide liquidity. During the first quarter of 2005, liquidation of the assets of the Bank remaining from its September 30, 2003 dissolution, primarily the auto lease portfolio, also provided liquidity; however, the liquidation of these assets was largely completed in 2004 and they are a decreased source of liquidity in 2005 and beyond.

     At March 31, 2005, we had $8.1 million of cash, and $189.7 million of available borrowing capacity on our revolving warehouse credit facility of which $11.7 million was immediately available based upon BVAC-owned auto contracts eligible for pledging.

     On February 17, 2005, we issued $232.1 million of auto receivable backed notes payable through Bay View 2005-LJ-1 Owner Trust. Proceeds from the issuance of the notes were used to repay $217.8 million of borrowings on our warehouse credit facility. The notes have final maturities ranging between February 27, 2006 and May 25, 2012 and contain a call provision that grants the Company the option of calling the notes at any time after the aggregate balance of the receivables has been reduced to 15% of the original pool of receivables. We anticipate that prepayments will reduce the effective life of the notes.

     On June 30, 2004, we redeemed the remaining $22.0 million of our 9.76% Cumulative Capital Securities (the “Capital Securities”). Between December 31, 2003 and December 31, 2004, we distributed $311.0 million in cash to our stockholders, or $47.25 per share after the adjustment to reflect the retroactive effect of the 1-for-10 reverse stock split of our common stock effective June 30, 2004. We did not make a cash distribution to our stockholders during the first quarter of 2005. Refer to “Forward-Looking Statements – Cash Distributions” for comments about future cash distributions.

     Under the Amended Plan, we are completing the liquidation of the assets and the satisfaction of the liabilities of the Bank remaining after its September 30, 2003 dissolution and anticipate that this process will be substantially completed during 2005.

     Stockholders’ equity totaled $104.0 million and $104.2 million at March 31, 2005 and December 31, 2004, respectively.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Asset/Liability Management

     Interest rate risk, the fluctuation of market interest rates, impacts the value of our fixed-rate auto contracts. It also impacts the net interest income component of our earnings because BVAC funds the purchase of fixed-rate auto contracts with its warehouse credit facility, which is a floating-rate facility. The rate on the warehouse facility, a revolving purchase facility, is indexed to the one-month Libor rate as well as commercial paper rates and is subject to frequent adjustments.

     Fixed-rate Auto Contracts

     BVAC purchases fixed-rate auto contracts primarily for sale or for on- or off-balance sheet securitization. Investors in these securitization or whole loan sale transactions require a yield that is commensurate with prevailing market interest rates. The prices offered by investors in these transactions reflect prevailing market interest rates at the time of these transactions, which creates interest rate risk for us during the period BVAC warehouses, or owns, these fixed-rate auto contracts. Accordingly, our earnings are affected by changes in prevailing market interest rates. Rising market interest rates generally reduce the value of BVAC’s fixed-rate auto contracts.

     Net Interest Income

     BVAC funds purchases of fixed-rate auto contracts with its floating-rate warehouse credit facility. While we own these contracts, we earn net interest income, which is defined as the amount by which interest income earned on the contracts exceeds the interest paid on BVAC’s warehouse credit facility. Changes in prevailing market interest rates produce corresponding changes in the cost of BVAC’s floating-rate warehouse credit facility thereby creating interest rate risk. Rising market interest rates increase the interest expense we incur on BVAC’s warehouse credit facility, thereby reducing the net interest income we earn.

     To protect us from interest rate risk, we may use various derivative financial instruments, including interest rate swap contracts, to protect the market value of BVAC’s warehouse inventory of auto contracts and the related net interest income. We anticipate the market value of our derivative instruments to be generally inversely correlated to the market value of BVAC’s warehouse inventory. Changes in prevailing market interest rates will generally produce offsetting changes in market values. We may enter into these derivative agreements as BVAC purchases auto contracts and the agreements may be closed out at the time the underlying auto contracts are securitized or sold.

     At March 31, 2005, we had outstanding swap contracts with a total notional amount of $145.0 million under which we pay a fixed interest rate of 3.16% and receive a floating interest rate of 2.56%. These contracts mature from May 2005 to May 2008. At March 31, 2005, we had an unrealized gain of $1.8 million in our swap contracts and estimate that an increase in market interest rates of 100 and 200 basis points would have resulted in an approximate unrealized gain of $2.0 million and $4.0 million; respectively; while a decrease in interest rates of 100 basis points would have resulted in an approximate unrealized loss of $2.1 million.

     Warehouse Credit Facility

     As discussed above, auto contracts pledged to secure borrowings under BVAC’s warehouse credit facility bear fixed interest rates while amounts borrowed under BVAC’s warehouse credit facility bear a floating interest rate. To provide protection to the note purchasers from interest rate risk embedded in the fixed-rate auto contracts that have been transferred to the trust, the trust enters into out-of-the-money, interest rate cap contracts, containing the terms and conditions required by the note purchasers.

     Derivative financial instruments involve, to varying degrees, elements of credit risk. Credit risk is defined as the possibility of sustaining a loss because a counterparty to a financial instrument failed to perform in accordance with the terms of the contract. Refer to “Critical Accounting Policies, Derivatives” for comments about the accounting for our derivative instruments.

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Item 4. Controls and Procedures

     (a) Evaluation of Disclosure Controls and Procedures

     Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2005. Our disclosure controls and procedures are designed to ensure that information we are required to disclose in the reports we file under the Exchange Act is recorded, processed, summarized and reported on a timely basis in accordance with generally accepted accounting principles in the United States (“GAAP”) and without material misstatement.

     Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of March 31, 2005, because of the material weaknesses in our internal control over financial reporting described in this Item 4, our disclosure controls and procedures were not effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports we file under the Exchange Act. A material weakness is a control deficiency, or a combination of control deficiencies, that results in a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

     As of December 31, 2004, we had three material weaknesses in our internal control over financial reporting. A description of the three material weaknesses is as follows:

•

Our internal controls intended to ensure the proper accounting for derivatives (interest rate cap contracts) maintained by a special purpose trust in connection with a $350 million warehouse credit facility provided to the Company’s wholly owned subsidiary, Bay View Acceptance Corporation (“BVAC”), were not operating effectively. We determined that we should account for the derivatives in accordance with Statement of Financial Accounting Standards No. 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities.” Under SFAS 133, we are now recognizing the value of the derivatives as an asset and record them at fair value, with any changes in fair value recognized in earnings. We previously accounted for the derivatives as a debt issuance cost of BVAC’s warehouse credit facility, which was amortized into the results of operations.

	•	The above weakness reflects that a continuing weakness exists, as reported in a Form 8-K Current Report dated July 26, 2004, relating to insufficient qualified accounting personnel to identify and resolve complex accounting issues on a timely basis and lack of appropriate resources resulting in insufficient supervision and review of our financial reporting process.
	•	The Company was unable to assess the effectiveness of the internal controls of two of BVAC’s third-party service organizations. The service organizations’ processes are an integral part of BVAC’s auto installment loan process, which is part of our internal control over financial reporting, specifically as to the existence and valuation of auto installment contracts, interest and fee income. The control deficiency did not result in a misstatement in our historical consolidated financial statements; however, it could result in a misstatement of auto installment contracts, interest and fee income that would result in a material misstatement to our annual or interim financial statements that might not be prevented or detected in a timely manner.

     Limitations on the Effectiveness of Controls

     Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that

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breakdowns can occur because of simple errors or mistakes. In addition, controls can be circumvented by the individual acts of some persons, by the collusion of two or more persons or by management override of the controls.

     Remediation Efforts Related to the Material Weaknesses in Internal Controls

     At December 31, 2004, we had a material weakness relating to our accounting for interest rate caps. After further analysis we determined that the appropriate accounting application should have been in accordance with SFAS 133. During the first quarter of 2005, we announced the restatement of our financial statements for the first three quarters of 2004 and publicly released the effect of these corrections on our financial statements for each of the first three quarters of 2004. This Form 10-Q includes a restatement of our financial statements for the quarter ended March 31, 2004, and we have simultaneously filed amendments to our Form 10-Q Quarterly Reports for the quarters ended June 30, 2004 and September 30, 2004 that include a restatement of our financial statements for those quarters.

     At the direction and under the supervision of our Audit Committee, we are undertaking the following actions to remediate the two remaining material weaknesses:

	•	We are continuing to work with two of BVAC’s third party service organizations to obtain SAS 70 Type II reports that will allow us to assess the effectiveness of the internal controls of these organizations. We anticipate receipt of one of the reports by second quarter of 2005 and the other report by the third quarter of 2005.
	•	We have retained an interim controller to assist in day-to-day accounting management and financial reporting. We are continuing our interview process to identify qualified and experienced candidates to supplement our accounting staff.
	•	We are continuing ongoing reviews of all loan arrangements that involve derivative instruments.
	•	We are in the process of retaining a qualified independent advisory firm to provide guidance as it relates to the application of complex accounting principles.

     Our Audit Committee has also directed KPMG LLP, our internal auditors, to assist the Audit Committee in its oversight of the corrective actions.

     (b) Changes in Internal Controls

     As discussed above, as of March 31, 2005, we remediated the material weakness attributable to our accounting for derivatives (interest rate cap contracts) maintained by a special purpose trust in connection with a $350 million warehouse credit facility. We are now accounting for the derivatives in accordance with SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.” Henceforth, any transaction that involves a derivative will be analyzed for appropriate accounting treatment prior to the execution of the transaction. For the remaining two material weaknesses noted above, we are undertaking the actions described above during 2005.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     On August 29, 2003, Financial Security Assurance Inc. (“FSA”) filed a complaint against us and the Bank in the United States District Court for the Southern District of New York. The complaint, as amended, alleges breaches of representations and warranties or indemnity obligations with regard to a number of loans that served as collateral for two securitizations involving us and/or a former subsidiary, Bay View Franchise Mortgage Acceptance Company, that were effected in 1998 and 2000. FSA guaranteed certain payments in connection with these securitizations. We vigorously deny any liability to FSA and have asserted numerous defenses to each of FSA’s claims. We have also filed counterclaims against FSA.

     We are also a party to various other legal actions arising in the normal course of our business.

     After consultation with counsel, we do not currently expect that the resolution of these legal actions will have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

     None.

Item 3. Defaults Upon Senior Securities

     None.

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

     None.

Item 5. Other Information

     None.

Item 6. Exhibits

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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.

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