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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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, and the implementation of a process of partial liquidation approved by the Board of Directors on October 23, 2003. 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 to its stockholders in the future 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:

	•		Delays in the disposition of the assets and the liquidation process of the Company may occur;
	•		The realization of the Company’s deferred tax assets could be less than the Company currently projects;
	•		The Company may encounter difficulty in selling some of its assets, and certain assets may not be able to be sold for the prices the Company currently anticipates;
	•		The Company may not be able to discharge certain liabilities for the amounts the Company currently estimates;
	•		The Company may incur or discover presently unanticipated claims, liabilities or expenses;
	•		The amounts the Company is able to distribute to its stockholders could be adversely affected by the results of the Company’s remaining operations, particularly in the case of Bay View Acceptance Corporation (“BVAC”);
	•		These estimates of the distribution amounts include projections of future events and performance, 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 Company to stockholders are needed to provide for the payment of expenses and liabilities of the Company; or, if the amounts ultimately required to discharge the expenses and liabilities of the Company in full exceeds the value of the remaining assets of the Company.

•

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 Income
(Unaudited)

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Bay View Capital Corporation and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (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
		Loss 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			—				—				—				570
Distribution of director’s retirement plan shares			—				—				—				165
Exercise of stock warrants			—				—				—				212
Expense recognized on stock options with below market strike price			—				—				—				4,033
Change in debt of ESOP			—				—				1,071				1,071
Net income			—				—				—				71,661
Other			—				—				—				5
Liquidation adjustment on securities available-for-sale, net of tax			(523	)			—				—				(523	)
Liquidation adjustment on pension liability			—				294				—				294
Transfer of stockholders’ equity to net assets in liquidation			—				—				—				(413,675	)
Balance at September 30, 2002		$	—			$	—			$	—			$	—

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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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
September 30, 2003
(Unaudited)

Note 1. Basis of Presentation

     The information provided in the consolidated financial statements as of and for the three- and nine-month periods ended September 30, 2003 is presented on the liquidation basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In October 2002, the stockholders of Bay View Capital Corporation (the “Company”) authorized a Plan of Dissolution and Stockholder Liquidity (the “Plan”) which is further discussed in Note 2. As a result of the stockholders’ authorization of this Plan and the sale of our retail banking assets to U.S. Bank, N.A. (“U.S. Bank”) in November 2002, we adopted the liquidation basis of accounting. 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. In accordance with liquidation basis accounting, our stockholders’ equity was transferred to net assets in liquidation. The consolidated statement of operations and comprehensive loss for the three- and nine-month periods ended September 30, 2002, the consolidated statement of stockholders’ equity for the nine months ended September 30, 2002, and the consolidated statement of cash flows for the nine months ended September 30, 2002 have been prepared using the historical cost (going concern) basis of accounting.

     The consolidated financial statements include the accounts of Bay View Capital Corporation, a Delaware corporation, and our 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 our subsidiaries, Bay View Securitization Corporation, a Delaware corporation; Bay View Capital I, a Delaware business trust; FMAC Insurance Services, a Delaware corporation; FMAC 2000-A Holding Company, a California corporation; FMAC Franchise Receivables Corporation, a California corporation; Bay View Commercial Finance Group, a California corporation; XBVBKRS, Inc., a California corporation; MoneyCare, Inc., a California corporation; Bay View Auxiliary Corporation, a California corporation; and Bay View Bank, N.A. (the “Bank”), a national bank which was dissolved on September 30, 2003. All significant intercompany accounts and transactions have been eliminated.

     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 September 30, 2003, the changes in net assets in liquidation for the three- and nine-month periods ended September 30, 2003, the results of our operations for the three- and nine-month periods ended September 30, 2002, and cash flows for the nine-month periods ended September 30, 2003 and 2002. These adjustments are primarily liquidation basis mark-to-market adjustments and expense accruals. We have not reflected any future revenues and expenses of an operating nature, as such revenues and expenses will be recognized when realized. 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 as they apply to the annual consolidated financial statements.

     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 September 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
September 30, 2003
(Unaudited)

Recent Accounting Pronouncements

     In January 2003, the Financial Accounting Standard Board (FASB) issued Financial Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” This interpretation provides guidance on identifying a variable interest entity (VIE) and determining when the assets, liabilities, noncontrolling interests, and results of operations of a VIE need to be included in a company’s consolidated financial statements. A company that holds variable interests in an entity will be required to consolidate that entity if the company’s interest in the VIE is such that the company will absorb a majority of the VIE’s expected losses and /or receive a majority of the VIE’s expected residual returns, if they occur. New disclosure requirements are also prescribed by FIN 46. Originally, FIN 46 became effective upon its issuance. The FASB recently deferred the effective date of the interpretation until the first reporting period ending after December 15, 2003. We do not expect this interpretation to have a significant impact on the Company’s net assets in liquidation.

     On July 1, 2003, we adopted Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” which clarifies how certain instruments or securities should be classified on an issuer’s balance sheet and their related impact on income and results of operations. Implementation of Statement No. 150 resulted in the reclassification of our Capital Securities from their prior classification as a “mezzanine” item to liabilities. Consequently, the dividend expense on these Capital Securities during 2003, totaling $2.2 million and $6.7 million during the three- and nine-month periods ended September 30, 2003, is now reflected as interest expense. Statement No. 150 does not allow restatement of prior year results.

Note 2. Plan of Dissolution and Stockholder Liquidity

     As discussed in Note 1, the Company’s stockholders approved the Plan in 2002. The Plan outlined the steps necessary to fully liquidate the Company and authorized our Board of Directors to determine the most efficient means of liquidation, and the timing of the process. We originally contemplated that we would sell all of our assets, pay all of our liabilities and then distribute the proceeds, including the stock of BVAC, our automobile finance subsidiary, to our stockholders. On October 23, 2003, our Board of Directors approved a process of partial liquidation which is further discussed in Note 9.

     The Bank completed its plan of dissolution and liquidation as of September 30, 2003. Under the plan, the Bank satisfied or discharged all of its known and currently due and payable liabilities, and transferred its remaining assets and liabilities to the Company, the Bank’s sole stockholder. We received final regulatory confirmation of the Bank’s dissolution from the Office of the Comptroller of the Currency on October 27, 2003. As a result, the Company and its subsidiaries are no longer subject to supervision, examination and regulation by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency or the Federal Deposit Insurance Corporation.

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

Note 3. Earnings Per Share

     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 nine-month periods ended September 30, 2002. 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.

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

Note 4. Stock Options

     As of September 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.

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

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

     At September 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 net assets in liquidation.

     Our stock options generally cancel automatically 90 days after termination of employment, notwithstanding any other provisions of our stock option plans. 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 partial liquidation and downsizing. 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.

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

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 nine-month periods ended September 30, 2003, as these consolidated financial statements are prepared based on the liquidation basis of accounting, and no earnings per share information is required.

     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:

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

Note 5. 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 $7.0 million for the third quarter of 2003 compared to $12.9 million for the third quarter of 2002. Leasing expenses were $24.4 million for the first nine months of 2003 compared to $44.0 million for the first nine 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 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 nine months of 2003, we recorded $8.5 million of additional mark-to-market writedowns on the auto lease portfolio.

Note 6. Income Taxes

     The Company recorded tax benefits of $4.7 million and $6.3 million for the third quarter and the first nine months of 2003, respectively. The tax benefit for the first nine months of 2003 was $6.3 million, which was recorded at an effective tax rate of 59%, and included a $2.4 million tax benefit for reductions in the prior year’s state tax liability. The 2003 effective tax rate is higher than the federal statutory rate primarily due to state income and franchise taxes.

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

     For the third quarter and the first nine months of 2002, the Company recorded tax expense of $187.4 million and $181.8 million, respectively. The Company also recorded a deferred tax benefit of $2.3 million on the cumulative effect of a change in accounting principle, which was presented net of this tax benefit. The effective tax rate used in computing the $181.4 million tax expense for the first nine months of 2002 was 71.5%. This expected 2002 effective tax rate was higher than the federal statutory rate primarily due to state income taxes, the valuation allowance on deferred tax assets, disposition of nondeductible goodwill and nondeductible compensation associated with the Company’s plan of dissolution and stockholder liquidity.

     As a result of the Company’s Plan, the Company had recorded a valuation allowance of $21.5 million as of December 31, 2002 based on the realizability of deferred tax assets in years after 2002. The computation of deferred tax assets, net of the valuation allowance, was based on the projection of future operating income through September 30, 2005, which was the projected final liquidation of the Company. With the Company’s adoption of a plan of partial liquidation (see Note 9), the computation of deferred tax assets are no longer limited to future operating income through September 30, 2005. This has allowed the Company to fully benefit from its operating losses through the first nine months of 2003. The amount of the valuation allowance remained unchanged at September 30, 2003.

Note 7. 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 net assets in liquidation.

Note 8. 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 September 30, 2003, the reserve for estimated costs during the period of liquidation was $14.1 million, including accruals totaling $10.7 million for facilities and severance.

Note 9. Subsequent Event

     In October 2003, our Board of Directors approved a process of partial liquidation under which we anticipate making a series of cash distributions to stockholders, but will continue to operate the Company and BVAC on an ongoing basis. The process of partial liquidation currently supplants earlier provisions for fully liquidating the Company. The Company’s adoption of a plan of partial liquidation responds to changing market conditions in the auto sector which have made the near-term sale or distribution of the stock of BVAC to stockholders a less viable method of achieving maximum stockholder value, and creates greater flexibility for the Company to realize this value.

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

Strategic Overview

     Prior to September 30, 2003, Bay View Capital Corporation (the “Company”) was a bank holding company headquartered in San Mateo, California. Our principal subsidiary, Bay View Bank (“the Bank”), was dissolved as of September 30, 2003. As a result, we now operate as a financial services company.

Plan of Dissolution and Stockholder Liquidity

     On October 3, 2002, our stockholders authorized a plan of dissolution and stockholder liquidity (the “Plan”) and the sale of the Bank’s retail banking assets to U.S. Bank, N.A. (“U.S. Bank”). Under the Plan, our Board of Directors is authorized to determine the most efficient means of liquidation, and the timing of the process. We originally contemplated that we would sell all of our assets, pay all of our liabilities and then distribute the proceeds, including the stock of Bay View Acceptance Corporation (“BVAC”), our automobile finance subsidiary, to our stockholders. In the year that has elapsed since the adoption of the Plan, we have sold substantially all of our assets with the exception of our auto lease portfolio and BVAC.

     As a result of stockholders’ authorization 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”).

     Because of changing market conditions in the auto sector, as discussed elsewhere herein, we believe that the near-term sale or distribution of the stock of BVAC to stockholders is no longer the best method of achieving maximum stockholder value. Accordingly, on October 23, 2003, our Board of Directors approved a process of partial liquidation under which we anticipate making an initial cash distribution in the fourth quarter as previously intended, but will continue to operate the Company and BVAC on an ongoing basis.

     As previously indicated, we anticipate distributing $5.45 per share in cash to stockholders, including a year-end distribution of approximately $4.00 per share and then a series of six quarterly distributions beginning in June 2004. However, the exact amount of the distributions we intend to make to our stockholders may differ from the anticipated amounts for a number of reasons, including: 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, liabilities and other obligations prior to liquidation could be greater than we currently anticipate. As a result, no assurance can be given as to the exact amount or timing of the distributions that will be made to our stockholders, either in cash or in the stock of operating companies.

     Following, in general terms, is a description of the federal income taxation of distributions as a result of the Company’s change from a plan of complete liquidation to a plan of partial liquidation. Investors should consult with their tax advisors to determine their individual tax situations. For noncorporate stockholders, the distribution in 2003 should be treated as an exchange, and generate capital gain or loss depending on the relationship of the market price of the stock on the distribution date, the distribution amount, and the stockholder’s cost basis in the stock. Any such capital gain could be a long-term capital gain to the extent that shares have been held for twelve months. Such long-term capital gain is taxed at a federal tax rate of 15%. For corporate stockholders, the distribution in 2003 will be taxed as a dividend to the extent of the Company’s current or accumulated earnings and profits for tax purposes; we currently anticipate that the entire distribution in 2003 will be taxable as a dividend. Any distributions beyond the amount taxable as dividends are a return of capital to the extent of any remaining cost basis in the stock, and then taxed as capital gain. For all stockholders, distributions after 2003 will be taxed as dividends to the extent of the Company’s current or accumulated earnings and profits, with any excess being treated as first a return of capital to the extent of any remaining cost basis in the stock, then taxed as capital gain.

     The Bank completed its plan of dissolution and liquidation as of September 30, 2003. Under the plan, the Bank satisfied or discharged all of its known and currently due and payable liabilities, and transferred its remaining assets and liabilities to the Company, the Bank’s sole stockholder. We received final regulatory confirmation of the

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Bank’s dissolution from the Office of the Comptroller of the Currency on October 27, 2003. As a result of the Bank’s dissolution, the Company ceased to be a bank holding company and the Company and its subsidiaries are no longer subject to supervision, examination and regulation by the Board of Governors of the Federal Reserve System (the “FRB”), the Office of the Comptroller of the Currency or the Federal Deposit Insurance Corporation.

Segments

     We operated two distinct business platforms through September 30, 2002, 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.

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.

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 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.

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),

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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 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, the valuation allowance was $21.5 million as of December 31, 2002 based on the realizability of deferred tax assets in years after 2002. The computation of deferred tax assets, net of the valuation allowance, was based on the projection of future operating income through September 30, 2005, which was the projected final liquidation of the company. With the Company’s adoption of a plan of partial liquidation, the computation of deferred tax assets are no longer limited to future operating income through September 30, 2005. This has allowed the Company to fully benefit its operating losses through the first nine months of 2003. The amount of the valuation allowance remained unchanged at September 30, 2003

Recent Accounting Pronouncements

     In January 2003, the Financial Accounting Standard Board (FASB) issued Financial Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” This interpretation provides guidance on identifying a variable interest entity (VIE) and determining when the assets, liabilities, noncontrolling interests, and results of operations of a VIE need to be included in a company’s consolidated financial statements. A company that holds variable interests in an entity will be required to consolidate that entity if the company’s interest in the VIE is such that the company will absorb a majority of the VIE’s expected losses and /or receive a majority of the VIE’s expected residual returns, if they occur. New disclosure requirements are also prescribed by FIN 46. Originally, FIN 46 became effective upon its issuance. The FASB recently deferred the effective date of the interpretation until the first reporting period ending after December 15, 2003. We do not expect this interpretation to have a significant impact on the Company’s net assets in liquidation.

     On July 1, 2003, we adopted Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” which clarifies how some instruments or securities should be classified on an issuer’s balance sheet and their related impact on income and results of operations. Implementation of Statement No. 150 resulted in the reclassification of our Capital Securities from their prior classification as a “mezzanine” item to liabilities. Consequently, the dividend expense on these Capital Securities during 2003, totaling $2.2 million and $6.7 million during the three- and nine-month periods ended September 30, 2003, is now reflected as interest expense. Statement No. 150 does not allow restatement of prior year results.

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 September 30, 2003 and December 31, 2002 and for the three- and nine-month periods ended September 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 nine-month periods ended

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September 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 September 30, 2003 and December 31, 2002, (2) Consolidated Statements of Changes in Net Assets in Liquidation (Liquidation Basis) for the three- and nine-month periods ended September 30, 2003 and (3) Consolidated Statements of Operations and Comprehensive Loss for the three- and nine-month periods ended September 30, 2002 (Going Concern Basis).

Liquidation Basis

Changes in Net Assets in Liquidation – Three- and Nine-Month Periods Ended September 30, 2003

     Our net assets in liquidation totaled $409.8 million, or $6.36 in net assets in liquidation per outstanding diluted share at September 30, 2003 compared to $409.9 million, or $6.37 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 June 30, 2003 and December 31, 2002, respectively.

     The change in net assets in liquidation during the quarter included a pre-tax operating loss of $2.2 million and $3.4 million of charges for assets in liquidation partially offset by $4.7 million of income tax benefit. The $3.4 million of charges was largely attributable to a $3.7 million impairment in the auto lease portfolio as the residual value of the portfolio declined due to weakness in used car values.

     The change in net assets in liquidation for the first nine months of 2003 included a pre-tax operating loss of $4.6 million and $6.0 million of charges for assets in liquidation partially offset by $6.3 million of income tax benefit and $4.1 million of other changes in net assets in liquidation, primarily proceeds from stock options and warrants exercised during the first nine months of 2003.

     The net charges for changes in estimated values of assets and liabilities during the first nine months of 2003 consisted primarily of $8.5 million of additional mark-to-market writedowns on the auto lease portfolio. 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.

     Implementation of Statement No. 150 resulted in the reclassification of our Capital Securities from their prior classification as a “mezzanine” item to liabilities. Consequently, the dividend expense on these Capital Securities during 2003, totaling $2.2 million and $6.7 million during the three- and nine-month periods ended September 30, 2003, is now included in interest expense on borrowings. Statement No. 150 does not allow restatement of prior year results.

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 $7.0 million for the third quarter of 2003 compared to $12.9 million for the third quarter of 2002, and $24.4 million for the first nine months of 2003 compared to $44.0 million for the first nine months of 2002. The decreases in leasing expenses, 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 September 30, 2003, approximately 4,275 of the 6,665 vehicles in our automobile lease portfolio, or 64%, 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

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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 7% 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 $4.7 million and $6.3 million for the third quarter and the first nine months of 2003, respectively. The tax benefit for the first nine months of 2003 was $6.3 million, which was recorded at an effective tax rate of 59.0%, and included a $2.4 million tax benefit for reductions in the prior year’s state tax liability. The 2003 effective tax rate is higher than the federal statutory rate primarily due to the effect of state income and franchise taxes.

Going Concern Basis

Results of Operations – Three- and Nine-Month Periods Ended September 30, 2002

     Our net income for the third quarter and for the first nine months of 2002, including net adjustments required to convert from a going concern basis to a liquidation basis of accounting, totaled $87.7 million, or $1.39 per diluted share, and $71.7 million, or $1.13 per diluted share, respectively. Excluding the liquidation adjustments, our operating income before taxes totaled $8.6 million and $5.9 million for the third quarter and first nine months of 2002, respectively.

     We recorded pre-tax adjustments totaling $266.5 million related to the mark-to-market valuation of our assets and liabilities in connection with our adoption of liquidation basis accounting during the quarter. Also during the quarter, we recorded $18.9 million in impairment charges, net of taxes, for goodwill related to three of our commercial lending businesses which was not expected to be realized upon the disposition of these businesses. As required by Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” the impairment loss was measured and recorded as of the date of adoption and recognized as the cumulative effect of a change in accounting principle as of January 1, 2002.

     Our results for the third quarter of 2002 included net gains on sales of assets totaling $18.1 million consisting of $11.8 million gain on the securitization and sale of auto loans and $6.3 million net gain on the sale of multi-family and commercial real estate loans.

     Our results for the first nine months of 2002 included a special charge of $13.1 million, recorded during the second quarter of 2002, related to the settlement of litigation. The settlement agreement with JP Morgan Chase Bank relating to the complaint filed against Bay View Franchise Mortgage Acceptance Company which we sold during 2001, resulted in a $13.1 million pre-tax charge to second quarter earnings and included the removal of approximately $12 million of nonperforming franchise loans from our consolidated balance sheet.

     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.

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Net Interest Income and Net Interest Margin

     Our net interest income and net interest margin for the third quarter of 2002 were $18.6 million and 2.31%, respectively. Our net interest income and net interest margin for the first nine months of 2002 were $85.2 million and 3.56%, respectively. Our interest-earning assets, excluding our auto-related operating lease assets, totaled $3.4 billion at September 30, 2002. The average interest-earning assets, excluding our auto-related operating lease assets, totaled $3.2 billion for both the three- and nine-month periods ended September 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.