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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended June 30, 2003

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) 312-7200

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

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

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

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FORM 10-Q
INDEX

BAY VIEW CAPITAL CORPORATION

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Forward-Looking Statements

     This Form 10-Q contains forward-looking statements that describe the implementation and timing of the Plan of Dissolution and Stockholder Liquidity (the “Plan”) adopted by the stockholders of Bay View Capital Corporation (the “Company”) on October 3, 2002. These forward-looking statements are based on assumptions as of the date of this Form 10-Q and involve risks and uncertainties. Accordingly, the results of the Company’s dissolution and the timing and amounts of stockholder distributions may differ materially from those that the Company currently anticipates. The factors that may affect these forward-looking statements include the following:

•

The distributions the Company proposes to make in the future to its stockholders are subject to a number of contingencies. The factors that could reduce the amounts ultimately distributed or that could cause a delay in making the distributions include the following:

	¨		Until the dissolution of Bay View Bank, N.A. (the “Bank”) is completed later this year, a number of actions the Company and the Bank intend to take, including distributions to the Company’s stockholders, cannot be taken unless approvals are obtained from the Board of Governors of the Federal Reserve System (the “FRB”) in the case of the Company and the Office of the Comptroller of the Currency (the “OCC”) in the case of the Bank;
	¨		Unforeseen delays in the disposition of the assets of the Company and the Bank and their formal dissolution may occur;
	¨		The realization of the Company’s deferred tax assets could be less than the Company currently projects;
	¨		The Company and the Bank may encounter difficulty in selling some of their assets, and certain assets may not be able to be sold for the prices the Company and the Bank currently anticipate;
	¨		The Company and the Bank may not be able to discharge certain liabilities for the amounts the Company and the Bank currently estimate;
	¨		The Company and the Bank may incur or discover presently unanticipated claims, liabilities or expenses;
	¨		The amounts the Bank is able to distribute to the Company and the amounts the Company is able to distribute to its stockholders could be adversely affected by the results of operations of the Company’s and the Bank’s remaining operations, particularly in the case of Bay View Acceptance Corporation (“BVAC”) while the dissolution process is being implemented;
	¨		These estimates of the distribution amounts include projections of future events and performance as distant as 2006 and, accordingly, are inherently subject to many uncertainties;
	¨		The expenses of the disposition of assets and the dissolution proceeds may exceed the amounts currently estimated; and
	¨		Court proceedings could restrict or delay distributions to stockholders if claimants or creditors satisfy the court that the amounts to be distributed by the Bank or the Company to stockholders are needed to provide for the payment of expenses and liabilities of the Company or the Bank; or, if the amounts ultimately required to discharge the expenses and liabilities of the Company or the Bank in full exceeds the value of the remaining assets of the Company or the Bank, respectively.

•

The Company’s stockholders could be liable to the extent they receive distributions in the event the Company does not make adequate provision for all of its expenses and liabilities, including its contingent liabilities, as part of its dissolution.

     As a result of the foregoing factors, there can be no assurance that the anticipated stockholder distributions from the implementation of the Plan will be consistent with those described in any forward-looking statements. Accordingly, 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
Consolidated Statements of Net Assets (Liquidation Basis)
(Unaudited)

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

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Bay View Capital Corporation and Subsidiaries
Consolidated Statements of Changes in Net Assets in Liquidation (Liquidation Basis)
(Unaudited)

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

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Bay View Capital Corporation and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)

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Bay View Capital Corporation and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss (continued)
(Unaudited)

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

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Bay View Capital Corporation and Subsidiaries
Consolidated Statement of Stockholders’ Equity (Going Concern Basis)
(Unaudited)

[Additional columns below]

[Continued from above table, first column(s) repeated]

		Unrealized
		Gain on				Minimum				Debt of
		Securities				Pension				Employee
		Available-for-				Liability				Stock				Total
		Sale,				Adjustment,				Ownership				Stockholders’
		Net of Tax				Net of Tax				Plan				Equity
		(Amounts in thousands, except per share amounts)
Balance at December 31, 2001		$	523			$	(294	)		$	(1,071	)		$	336,187
Exercise of stock options, including tax benefits			—				—				—				418
Distribution of director’s retirement plan shares			—				—				—				45
Exercise of stock warrants			—				—				—				165
Expense recognized on stock options with below market strike price			—				—				—				1,343
Change in unrealized gain on securities available-for-sale, net of tax			5				—				—				5
Change in debt of ESOP			—				—				1,071				1,071
Net loss			—				—				—				(16,088	)
Other			—				—				—				5
Balance at June 30, 2002		$	528			$	(294	)		$	—			$	323,151

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

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Bay View Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

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Bay View Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Unaudited)

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

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Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)

Note 1. Basis of Presentation

     The information provided in the consolidated financial statements as of and for the three- and six-month periods ended June 30, 2003 reflects our adoption of liquidation basis accounting effective September 30, 2002 in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Liquidation basis accounting requires us to value our assets at their estimated net realizable values and our liabilities to include accruals for estimated costs associated with carrying out the Plan of Dissolution and Stockholder Liquidity (the “Plan”). The consolidated statement of operations and comprehensive loss for the three- and six-month periods ended June 30, 2002, the consolidated statement of stockholders’ equity for the six months ended June 30, 2002, and the consolidated statement of cash flows for the six months ended June 30, 2002 have been prepared using the historical cost (going concern) basis of accounting on which the Company had previously reported its financial position and results of operations.

     The consolidated financial statements include the accounts of Bay View Capital Corporation (the “Company”), a bank holding company incorporated under the laws of the state of Delaware, and our wholly-owned subsidiaries: Bay View Bank, N.A. (the “Bank”), a national bank; 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; and FMAC Franchise Receivables Corporation, a California corporation. The Bank includes its wholly-owned subsidiaries: Bay View Acceptance Corporation (“BVAC”), a Nevada 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 significant intercompany accounts and transactions have been eliminated.

     Through BVAC, the Bank continues to operate its auto finance business in 24 states. In 2003, we intend to transfer BVAC from the Bank to the Company, subject to regulatory approval. The Company believes this will allow for a full liquidation of the Bank while BVAC continues to originate new loans and expand geographically during the Company’s liquidation period, which is anticipated to be completed by September 2005. The Company intends to spin off BVAC to stockholders or sell it at the end of the liquidation period.

     The information provided in these interim financial statements reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of our net assets in liquidation as of June 30, 2003, the changes in net assets in liquidation for the three- and six-month periods ended June 30, 2003, the results of our operations for the three- and six-month periods ended June 30, 2002, and cash flows for the six-month periods ended June 30, 2003 and 2002. These adjustments are primarily liquidation basis mark-to-market adjustments and expense accruals. As necessary, reclassifications have been made to prior period amounts to conform to the current period presentation. These reclassifications had no effect on our financial position and results of operations. These interim financial statements have been prepared in accordance with the instructions to Form 10-Q, and therefore do not include all of the necessary information and footnotes for a presentation in conformity with GAAP.

     The information included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” was written assuming that you have read or have access to our 2002 Annual Report on Form 10-K, which contains the latest audited consolidated financial statements and notes, along with Management’s Discussion and Analysis of Financial Condition as of December 31, 2002 and 2001 and Results of Operations for the years ended December 31, 2002, 2001 and 2000. 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-month period ended June 30, 2003 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.

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Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)

Recent Accounting Pronouncements

     In April 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under Statement No. 133. This statement is effective for contracts entered into or modified after June 30, 2003. The Company believes that Statement No. 149 will not have a significant impact on its financial statements.

     In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Based on Statement No. 150, the liability associated with the Company’s Guaranteed Preferred Beneficial Interest in the Company’s Junior Subordinated Debentures has been classified as a liability in the consolidated financial statements effective July 1, 2003.

Note 2. Plan of Dissolution and Stockholder Liquidity

     On October 3, 2002, a majority of the Company’s common stockholders approved the Company’s Plan and the sale of the Bank’s retail banking assets to U.S. Bank, N.A. (“U.S. Bank”). As a result of these approvals and the close of the U.S. Bank transaction on November 1, 2002, we adopted liquidation basis accounting effective September 30, 2002 in accordance with GAAP. Accordingly, assets have been valued at their estimated net realizable values and liabilities include accruals for estimated costs associated with carrying out the Plan. In accordance with liquidation basis accounting, our stockholders’ equity was transferred to net assets in liquidation. Our net assets in liquidation totaled $409.9 million at June 30, 2003 or $6.37 in net assets in liquidation per outstanding share based on 64,351,924 diluted common shares in liquidation.

     The Plan outlines the steps necessary to fully liquidate the Company. We completed the sale of the Bank’s retail banking assets to U.S. Bank on November 1, 2002. Our remaining assets are being disposed of in an orderly manner; remaining liabilities, including our outstanding debt, the Capital Securities and other liabilities will be repaid.

     On June 30, 2003, the Bank commenced a plan of dissolution and liquidation under which the Bank will sell all of its assets, satisfy or discharge all of its known and currently due and payable liabilities and distribute the remaining proceeds to the Company, the Bank’s sole shareholder. Under this plan, persons that may have claims that are not currently due and payable or are otherwise contingent will have such claims satisfied or discharged by the Bank or such claims will be assigned to and assumed by the Company. The dissolution and liquidation of the Bank is contemplated by the Company’s Plan. The Company currently anticipates completing the dissolution of the Bank during the fourth quarter of 2003.

     We recorded net charges of $0.9 million and $2.6 million for additional liquidation valuation adjustments during the three- and six-month periods ended June 30, 2003, respectively, due to the declining net realizable values of our assets in liquidation, primarily the residual values of our auto lease portfolio.

     Under liquidation basis accounting, we have estimated future liabilities associated with carrying out the Plan. We have not reflected any future revenues and expenses of an operating nature, as such revenues and expenses will be recognized when realized.

Note 3. Earnings Per Share

     Basic earnings per share are calculated by dividing net earnings or loss for the period by the weighted-average common shares outstanding for that period. There is no adjustment to the number of outstanding shares for potential dilutive instruments, such as stock options. Diluted earnings per share takes into account the potential dilutive impact of such instruments and uses the average share price for the period in determining the number of incremental shares to add to the weighted-average number of shares outstanding. Under liquidation basis accounting, earnings per share information is not presented. Accordingly, the earnings per share information set forth below is only for the three- and six-month periods ended June 30, 2002.

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Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)

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

Note 4. Stock Options

     As of June 30, 2003, we had five employee stock option plans and three non-employee director stock option plans. The employee stock option plans include the “Amended and Restated 1986 Stock Option and Incentive Plan,” the “Amended and Restated 1995 Stock Option and Incentive Plan,” the “1998-2000 Performance Stock Plan,” the “1999 FMAC Stock Option, Deferred Stock and Restricted Stock Plan,” and the “2001 Stock Option and Incentive Plan,” which authorize the issuance of 1,759,430, 2,500,000, 400,000, 270,576 and 3,200,000 shares of common stock, respectively. The non-employee director stock option plans include the “Amended and Restated 1989 Non-Employee Director Stock Option and Incentive Plan,” the “1998 Non-Employee Director Stock Option and Incentive Plan,” and the “2001 Non-Employee Director Stock Option Plan,” which authorize the issuance of up to 550,000, 200,000, and 500,000 shares of common stock, respectively.

     The following table illustrates the stock options available for grant as of June 30, 2003:

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Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)

     At June 30, 2003, we had outstanding options under the plans with expiration dates ranging from the year 2003 through 2014, as illustrated in the following table:

     All of our stock option plans define a change in control as including a sale of all or substantially all of our assets, and all of our stock option plans provide for the automatic acceleration of the exercisability of stock options in the event of a change in control with the exception of our 2001 Stock Option and Incentive Plan (the “2001 Plan”). The 2001 Plan provides for the acceleration of the exercisability of stock options in such circumstances as the stock option committee of our Board of Directors determines to be appropriate. On October 3, 2002, the Board of Directors authorized such acceleration. The acceleration of the exercisability of stock options resulting from the change in control for all other plans had an insignificant impact on our consolidated financial statements.

     Our stock options generally cancel automatically 90 days after termination of employment and, notwithstanding any other provisions of our stock option plans, all outstanding stock options will automatically cancel on the final record date. The Stock Option Agreement of all holders of options under the 2001 Plan whose employment with the Company terminated or terminates on or after November 15, 2002 were amended to provide that the optionee shall have the right to exercise options under the 2001 Plan within a period of 18 months following termination.

     A substantial number of our employees have terminated their employment with us to become employees of U.S. Bank and a number of other employees have and will be terminated as part of our downsizing and cost reduction program. To prevent our employees from losing the value in their stock options as a result of the termination of their employment and to motivate our remaining employees throughout the dissolution process, our Board of Directors has amended our stock option plans, to the extent necessary, to permit the exercise of the options on a net issuance basis. This right entitles the holder to elect to receive from us, in exchange for the shares subject to the stock option, that number of shares of our common stock that has a value equal to the total amount by which the market price of the shares on the date the option is exercised exceeds the total exercise price of the shares subject to the option.

Stock-Based Compensation

     We adopted the disclosure requirements of Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” which amends Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.” Management believes that adoption of this statement has no impact on the disclosures for the consolidated financial statements as of and for the three- and six-month periods ended June 30, 2003, as these consolidated financial statements are prepared based on the liquidation basis of accounting, and no earnings per share information is required.

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Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)

     Statement No. 123 establishes financial accounting and reporting standards for stock-based compensation plans, including employee stock purchase plans, stock options and restricted stock. Statement No. 123 encourages all entities to adopt a fair value method of accounting for stock-based compensation plans, whereby compensation cost is measured at the grant date based upon the fair value of the award and is realized as an expense over the service or vesting period. However, Statement No. 123 also allows an entity to continue to measure compensation cost for these plans using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”

     We account for our 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.

     Had compensation cost related to our stock option awards to employees and directors been determined under the fair value method prescribed under Statement No. 123, our 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 periods indicated:

Note 5. Agreements with Regulatory Agencies

     During the third quarter of 2000, we entered into formal agreements with the Office of the Comptroller of the Currency (“OCC”) and the Federal Reserve Bank of San Francisco.

     The agreement between the Bank and the OCC was dated September 6, 2000. A provision of the agreement states that the Bank may not declare or distribute any dividends without the prior written approval of the OCC.

     The agreement between the Company and the Federal Reserve Bank of San Francisco was dated September 28, 2000. The agreement states that we may not declare or pay any cash or stock dividends or make any interest payments on our Capital Securities without the prior written approval of the Federal Reserve Bank of San Francisco. The agreement further requires the prior written approval of the Federal Reserve Bank of San Francisco to increase the principal balance of any category of debt above the levels outstanding as of June 30,

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Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)

2000. Finally, we may not repurchase any stock without the prior written approval of the Federal Reserve Bank of San Francisco.

     At June 30, 2003, the Company’s regulatory capital levels exceeded minimum regulatory capital requirements while the Bank’s regulatory capital levels exceeded the requirements necessary to be considered well-capitalized.

Note 6. Investment in Operating Lease Assets

     Leasing expense represents expenses related to our auto leasing activities. Because the leases are accounted for as operating leases, the corresponding assets are capitalized and depreciated to their estimated residual values over their lease terms. This depreciation expense is included in leasing expenses, along with the amortization of capitalized initial direct lease costs and impairment charges. Leasing expenses were $8.0 million for the second quarter of 2003 as compared to $16.1 million for the second quarter of 2002. Leasing expenses were $17.4 million for the first six months of 2003 as compared to $31.1 million for the first six months of 2002.

     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

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Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)

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 2003, we recorded $4.8 million of additional mark-to-market writedowns on the auto lease portfolio.

Note 7. Income Taxes

     The Company 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 expected 2003 effective tax rate is lower than the federal statutory rate primarily due to tax benefits from state income and franchise taxes.

     For the second quarter and the first six months of 2002, the Company recorded tax benefits of $3.7 million and $5.6 million, respectively. The tax benefit for the first six months of 2002 included a tax benefit of $1.6 million on a pre-tax loss of $2.8 million and a tax benefit of $4.0 million related to the impact of a change in U.S. Treasury regulations in 2002 with respect to a loss on the sale of a subsidiary in 2001. The effective tax rate used in computing the $1.6 million tax benefit for the first six months of 2002 was 57.7%.

     As a result of the Company’s Plan, as of December 31, 2002, the Company had recorded a valuation allowance of $21.5 million, which remained unchanged at June 30, 2003. The computation of deferred tax assets, net of the valuation allowance, is based on the projection of future operating income, primarily from the Company’s auto finance business, available to absorb existing deferred tax benefits.

Note 8. Commitments and Contingencies

     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 consolidated financial condition or results of operations.

Note 9. Reserve for Estimated Costs during the Period of Liquidation

     The reserve for estimated costs during the period of liquidation includes accruals for severance payments and costs related to facility closures, investment banking and other professional fees and estimated litigation expense and settlements. These expense accruals are reviewed for adequacy on a quarterly basis. Changes to the accruals, if necessary, are recorded as adjustments in liquidation basis in future periods.

     At June 30, 2003, the reserve for estimated costs during the period of liquidation was $15.3 million, including accruals for facilities and severance of $8.3 million and $3.4 million, respectively.

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

Strategic Overview

     Bay View Capital Corporation (the “Company”) is a commercial bank holding company headquartered in San Mateo, California. Our principal subsidiary is Bay View Bank, N.A. (the “Bank”).

Plan of Dissolution and Stockholder Liquidity

     On August 6, 2002, our Board of Directors approved a plan of dissolution and stockholder liquidity (the “Plan”). Under the Plan, we intend to dispose of our remaining assets in an orderly manner and to collect all additional monies owed to us. We have made and will continue to make adequate reserves for the payment of all of our liabilities and obligations, including all expenses related to the sale of our assets and the Plan. Our Board of Directors, at its discretion, may also set aside a contingency reserve to pay any claims that may arise against us, whether known or unknown. We anticipate making seven liquidating distributions to our stockholders, representing the net proceeds of our asset sales. Any liquidating distributions will be made to our stockholders based on their pro rata ownership of our common stock as of the record date to be established for each distribution.

     It is not possible at this time to indicate an exact amount for the distributions we intend to make to our stockholders for a number of reasons, including: the need to obtain the Board of Governors of the Federal Reserve System (“FRB”) and Office of the Comptroller of the Currency (“OCC”) approval to make any distributions; the proceeds that we in fact receive from the disposition of other assets that are not yet subject to purchase commitments could be less than we currently anticipate; and our expenses and other obligations prior to liquidation could be greater than we currently anticipate. As a result, no assurance can be given as to the amount of the distributions that will be made to our stockholders, either in cash or in the stock of operating companies.

     On October 3, 2002, our stockholders approved the Plan and the sale of the Bank’s retail banking assets to U.S. Bank, N.A. (“U.S. Bank”). Also on October 3, 2002, holders of the Capital Securities of Bay View Capital I approved a waiver of those provisions of the legal instruments governing the Capital Securities and the Company’s 9.76% Junior Subordinated Deferrable Interest Debentures that would, absent the waiver, prevent us from disposing of all of our assets pursuant to the Plan.

     As a result of the stockholders’ approval of the Plan and the close of the U.S. Bank transaction on November 1, 2002, we adopted liquidation basis accounting, effective September 30, 2002, in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

     On June 30, 2003, the Bank commenced a plan of dissolution and liquidation under which the Bank will sell all of its assets, satisfy or discharge all of its known and currently due and payable liabilities and distribute the remaining proceeds to the Company, the Bank’s sole shareholder. Under this plan, persons that may have claims that are not currently due and payable or are otherwise contingent will have such claims satisfied or discharged by the Bank or such claims will be assigned to and assumed by the Company. The dissolution and liquidation of the Bank is contemplated by the Company’s Plan. The Company currently anticipates completing the dissolution of the Bank during the fourth quarter of 2003.

Segments

     Prior to September 30, 2002, we operated two distinct business platforms representing the two basic distribution channels of our primary businesses, retail and commercial banking. However, with our adoption of the Plan, we are now focused on the dissolution and liquidation of the Company’s assets and liabilities, and no longer operate the individual retail and commercial banking businesses or segments. Accordingly, the results for the three- and six-month periods ended June 30, 2002 have been reclassified to conform to the current period presentation.

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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 investment in operating lease assets, income taxes and the valuation of assets and liabilities in liquidation and the reserve for estimated costs during the period of liquidation.

Investment in Operating Lease Assets

     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.

Income Taxes

     As a result of the Company’s Plan, as of December 31, 2002, the Company had recorded a valuation allowance of $21.5 million, which remained unchanged at June 30, 2003. The computation of deferred tax assets, net of the valuation allowance, is based on the projection of future operating income, primarily from the Company’s auto finance business, available to absorb existing deferred tax benefits.

Liquidation Basis Accounting

     We adopted liquidation basis accounting effective September 30, 2002 in accordance with GAAP. Accordingly, assets have been valued at their estimated net realizable values and liabilities include accruals for estimated costs associated with carrying out the Plan. We have not reflected any future revenues and expenses of

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an operating nature; as such revenues and expenses will be recognized when realized. In accordance with liquidation basis accounting, our stockholders’ equity was transferred to net assets in liquidation.

     The reserve for estimated costs during the period of liquidation includes accruals for severance payments and facility closures, investment banking and other professional fees and estimated litigation expense. These expense accruals are reviewed for adequacy and adjusted, if necessary, on a quarterly basis.

Recent Accounting Pronouncements

     In April 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under Statement No. 133. This statement is effective for contracts entered into or modified after June 30, 2003. The Company believes that Statement No. 149 will not have a significant impact on its financial statements.

     In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company believes that Statement No. 150 will not have a significant impact on its financial statements.

Results of Operations

     Under the liquidation basis of accounting, we are reporting 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, the Company’s consolidated financial statements as of June 30, 2003 and December 31, 2002 and for the three- and six-month periods ended June 30, 2003 have been prepared under the liquidation basis of accounting; the Consolidated Statement of Operations and Comprehensive Loss have been replaced with the Consolidated Statement of Changes in Net Assets in Liquidation. The Company’s consolidated financial statements presented for periods prior to September 30, 2002, (i.e., for the three- and six-month periods ended June 30, 2002) are presented on a going concern basis of accounting. The Company is providing, herein, (1) Consolidated Statements of Net Assets (Liquidation Basis) as of June 30, 2003 and December 31, 2002, (2) Consolidated Statements of Changes in Net Assets in Liquidation (Liquidation Basis) for the three- and six-month periods ended June 30, 2003 and (3) Consolidated Statements of Operations and Comprehensive Loss for the three- and six-month periods ended June 30, 2002 (Going Concern Basis).

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 $6.37 in net assets in liquidation per outstanding diluted share as compared to $411.0 million, or $6.41 in net assets in liquidation per outstanding diluted share and $410.1 million, or $6.43 in net assets in liquidation per outstanding diluted share at March 31, 2003 and December 31, 2002, respectively. The decreases in net assets in liquidation were primarily the result of dividends paid on our Capital Securities that were in excess of income from operations.

     Dividends paid on the Capital Securities totaled $2.3 million during the second quarter. 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.

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     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.

     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 decrease in net assets in liquidation per outstanding diluted share was primarily due to an increase of 605,000 diluted common shares outstanding resulting from exercises of stock options and warrants during the first six months of 2003.

     During the second quarter, Bay View Acceptance Corporation (“BVAC”), our auto finance company, 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 are being consolidated into the Covina, California office. In addition, BVAC is reducing the size of its loan servicing and collections staff while expanding its lending operations from five to seven days per week. Headcount, which was 141 full-time equivalent employees at June 30, 2003, is expected to be reduced to approximately 110 by September 30, 2003. Second quarter results include a pre-tax charge of $675 thousand for the costs of the restructuring.

Leasing Expenses

     Leasing expense represents expenses related to our auto lease portfolio. 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 $8.0 million for the second quarter of 2003 as compared to $16.1 million for the second quarter of 2002, and $17.4 million for the first six months of 2003 as compared to $31.1 million for the first six months of 2002. The decreases in leasing expenses, as compared to the prior periods, were primarily due to lower depreciation expense associated with the declining balance of our lease portfolio. We ceased purchasing auto leases in June 2000.

     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. 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 — if the market values of the individual vehicles declined by $250, an additional 5% of the leases would be deemed to be impaired and, therefore, potentially subject to an impairment charge. Furthermore, if the percentage of vehicles returned to the Company were greater than was projected at year-end, the impairment charge could increase because the proceeds realized under this disposition scenario is normally less than if the lessee purchased the automobile prior to the end of the lease term.

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 expected 2003 effective tax rate is lower than the federal statutory rate primarily due to the tax benefits from state income and franchise taxes.

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     For the second quarter and the first six months of 2002, we recorded tax benefits of $3.7 million and $5.6 million, respectively. The tax benefit for the first six months of 2002 included a tax benefit of $1.6 million on a pre-tax loss of $2.8 million and a tax benefit of $4.0 million related to the impact of a change in U.S. Treasury regulations in 2002 with respect to a loss on the sale of a subsidiary in 2001. The effective tax rate used in computing the $1.6 million tax benefit for the first six months of 2002 was 57.7%.

Going Concern Basis

Results of Operations – Three- and Six-Month Periods Ended June 30, 2002

     Our net loss for the second quarter of 2002 was $4.1 million, or $0.07 per diluted share. Our second quarter results include a special pre-tax charge of $13.1 million related to the settlement of litigation. On June 25, 2002, the Company entered into a settlement agreement with JP Morgan Chase Bank relating to a complaint filed against Bay View Franchise Mortgage Acceptance Company which the Company sold during 2001. The settlement resulted in this charge to second quarter earnings and included the removal of approximately $12 million of nonperforming franchise loans from our consolidated balance sheet.

     Net loss for the first six months of 2002 was $16.1 million, or $0.26 per diluted share. Year-to-date results were adjusted to include $18.9 million in goodwill impairment charges, net of taxes, that was recorded during the third quarter of 2002 but was recognized as the cumulative effect of a change in accounting principle as of January 1, 2002. Year-to-date earnings before this cumulative effect of a change in accounting principle were $2.8 million, or $0.04 per diluted share.

     On June 5, 2002, we completed the sale of our San Mateo-based factoring business, Bay View Funding, to a group of investors led by the factoring company’s management team. Through this transaction, we converted approximately $6.5 million of goodwill to tangible equity.

Net Interest Income and Net Interest Margin

     Our net interest income and net interest margin for the second quarter of 2002 were $33.4 million and 4.23%, respectively. Our net interest income and net interest margin for the first six months of 2002 were $66.6 million and 4.19%, respectively. Our interest-earning assets, excluding our auto-related operating lease assets, totaled $3.1 billion at June 30, 2002. The average interest-earning assets, excluding our auto-related operating lease assets, totaled $3.2 billion for both the three- and six-month periods ended June 30, 2002.

Average Balance Sheet

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

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