United States
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended December 31, 2003

OR

Commission file number 0-14879

BAY VIEW CAPITAL CORPORATION

Registrant’s telephone number, including area code: (650) 312-7300
Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

     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 requirements for the past 90 days. YES [X] NO [  ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in a definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

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

     The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2003 was $364,280,153, based upon the price at which the common equity was last sold on the New York Stock Exchange as of such date.

     There were 65,780,293 shares of Common Stock, $0.01 par value, outstanding as of February 27, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

     Part III of Form 10-K – Portions of the definitive Proxy Statement for Registrant’s 2004 Annual Meeting of Stockholders to be filed not later than April 29, 2004 with the Securities and Exchange Commission are incorporated by reference in Items 10, 11, 12, 13 and 14.

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Table of Contents

FORM 10-K

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Forward-Looking Statements

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

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

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

     The Company proposes to make approximately $1.45 per share in cash distributions to our stockholders from the proceeds of the disposition of assets from discontinued banking activities. The factors that could reduce the amounts ultimately distributed or that could cause a delay in making the distributions include the following:

•		Unforeseen delays in the disposition of the assets;
•		The realization of the Company’s deferred tax assets could be less than the Company currently projects;
•		The Company may encounter difficulty in selling some of its assets, and certain assets may not be able to be sold for the prices the Company currently anticipates;
•		The Company may not be able to discharge certain liabilities for the amounts the Company currently estimates;
•		The Company may incur or discover presently unanticipated claims, liabilities or expenses;
•		Our current estimates of the cash distribution amounts include projections of future events and performance as distant as 2006 and, accordingly, are inherently subject to many uncertainties;
•		The expenses of the disposition of assets may exceed the amounts currently estimated;
•		Our Board could determine to expand the Company’s and BVAC’s operations if it decides greater stockholder value would be realized by doing so.

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

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Part I

Item 1. Business

General and Business Overview

     Bay View Capital Corporation, a Delaware corporation organized in 1989 (the “Company,” “we,” “us,” or “our”), is a financial services company headquartered in San Mateo, California. On October 3, 2002, we adopted a Plan of Dissolution and Stockholder Liquidity (the “Plan”). The Plan contemplated that we, under applicable provisions of the Delaware General Corporation Law, would:

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

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

     During the fourth quarter of 2003, our Board of Directors amended the Plan to become a plan of partial liquidation (the “Amended Plan”) under which we will complete the liquidation of the assets and satisfaction of the liabilities of the Bank remaining after the Bank’s September 30, 2003 dissolution, distribute the proceeds to our stockholders through a series of cash distributions, and continue to operate our wholly-owned automobile finance subsidiary, Bay View Acceptance Corporation (“BVAC”), on an ongoing basis. In connection with adopting the Amended Plan, we discontinued our use of liquidation basis accounting and re-adopted going concern basis accounting effective October 1, 2003.

     The background of the Plan and our Board’s decision to adopt the Amended Plan is as follows:

•		As previously reported, the substantial losses we suffered in 2000 materially adversely affected our regulatory capital levels as well as those of the Bank. The adverse effect on our regulatory capital level and that of the Bank resulted in the imposition of written regulatory agreements pursuant to 12 U.S.C. 1818(b) by the Board of Governors of the Federal Reserve System (the “FRB”) with respect to us and by the Office of the Comptroller of the Currency (the “OCC”) with respect to the Bank.
•		In March 2001, in light of the critical financial condition and our uncertain future of us and that of the Bank, we and the Bank retained new management to develop and implement a strategic plan to restore the financial stability of us and the Bank. The principal elements of the strategic plan were the sale of the Bank’s higher risk assets, including the sale of its franchise loan servicing operations and franchise loans, and a renewed focus on the Bank’s commercial and retail banking platforms.
•		Following the significant and successful turnaround actions undertaken and completed in 2001 under the strategic plan, we began active consideration of various alternatives to maximize our value to our stockholders. We retained Credit Suisse First Boston Corporation to assist us in evaluating a variety of transactions. Through this evaluation process, we determined that greater stockholder value could be obtained by adopting the Plan and selling our and the Bank’s assets to a series of purchasers rather than by an alternative approach such as selling or merging us or the Bank as a whole.
•		As a result of the decision to proceed with the Plan, we and the Bank engaged in asset disposition activities. The two principal asset disposition transactions effected were the sale of approximately $1.0 billion of multifamily and commercial real estate loans to Washington Mutual Bank, FSA in August 2002 and the sale of the Bank’s retail banking assets (including 57 branch offices; MoneyCare; service center operations; approximately $327.7 million of single family residential mortgages, home equity and commercial loans) and

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		the assumption of $3.3 billion of deposit liabilities, to U.S. Bank National Association (“U.S. Bank”) on November 1, 2002.
•		The dissolution and liquidation of the Bank was completed on September 30, 2003. On that date, the Bank transferred its remaining assets and liabilities to us, as the Bank’s sole stockholder. From November 1, 2002 until its dissolution, the Bank did not operate any branches, did not accept any deposits, and did not otherwise conduct traditional banking activities. During the period from November 1, 2002 through September 30, 2003, our principal business activity has been the ongoing disposition of the Bank’s remaining assets, and the satisfaction of its liabilities. Net interest income, the difference between interest received and interest paid, comprised the majority of our operating earnings in 2003. As we continue to sell assets and discharge liabilities, these operating earnings will continue to contract.
•		In October 2003, our Board of Directors adopted the Amended Plan. Among the factors considered by our Board of Directors in deciding to engage in a partial liquidation rather than a complete liquidation were; adverse market conditions in the auto sector, which caused our Board to conclude that the near-term sale or distribution of the stock of BVAC to our stockholders would not be the best method of maximizing stockholder value; a determination that our remaining tax net operating loss carryforwards could be more fully utilized by continuing to operate BVAC beyond the third quarter of 2005; and, the opportunity to obtain greater corporate and financial flexibility than if we were limited to operating as a dissolving corporation. In accordance with the Amended Plan, we made an initial cash distribution of $263.2 million, or $4.00 per share, to our stockholders on December 30, 2003 and redeemed $63.5 million of the 9.76% Cumulative Capital Securities on December 31, 2003.

     In the course of resolving the remaining assets and liabilities from discontinued banking activities during 2004 and 2005, we currently anticipate making additional cash distributions of approximately $1.45 per share to our common stockholders through a series of six quarterly distributions beginning in the second quarter of 2004 and continuing through the third quarter of 2005. We believe that each of the first five of these distributions will be approximately $0.25 per share with the sixth distribution approximating $0.20 per share. The timing and amount of these distributions will vary depending on our Board’s future decisions about BVAC and how to maximize stockholder value.

Automobile Finance

     BVAC is a Southern California-based auto finance company engaged in the indirect financing of automobile purchases by individuals. BVAC is our only remaining operating subsidiary. As an indirect lender, BVAC markets to automobile dealerships, both manufacturer-franchised dealerships and independent dealerships, and purchases installment contracts on new and used vehicles from over 7,000 auto dealers in 24 states. Of the contracts BVAC purchased in 2003, approximately 90% were originated by manufacturer-franchised dealerships and approximately 10% were originated by independent dealerships; 49% were contracts on new vehicles and 51% were contracts on used vehicles. BVAC purchases installment contracts with limited recourse to the dealer.

     BVAC has positioned itself in the market as a premium priced lender for well-qualified borrowers seeking extended financing terms and higher advances than those generally offered by traditional lenders. BVAC places a strong emphasis on borrower stability, credit quality, and debt serviceability. With Fair, Isaac & Co. “FICO” credit scores that averaged 733 in 2003, BVAC’s borrower base is largely comprised of prime borrowers. BVAC currently offers financing terms to 96 months and typically finances an amount in excess of a dealer’s wholesale value of a vehicle. BVAC will finance vehicles without restrictions on the model year. During 2003, the average loan amount BVAC financed was $28,600 with an average term of 81 months. We believe that this strategy has enabled BVAC to establish a loyal dealership network by satisfying consumer demand within the indirect auto finance market that is inadequately served by commercial banks and finance companies. BVAC utilizes a proprietary credit scoring system in connection with its underwriting and credit approvals. The credit scoring system captures data from consumers’ credit bureau reports, consumers’ loan applications and the terms of proposed loans.

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     We entered the auto finance business in 1996 through our acquisition of CTL, Inc., the parent company of California Thrift & Loan. California Thrift & Loan began its auto finance operations in 1973, and through a series of mergers and name changes, became BVAC. Since the liquidation of the Bank, BVAC has operated as an independent finance company, rather than a portfolio-lending unit of the Bank, purchasing installment contracts for sale or securitization. BVAC has a $250 million revolving warehouse credit facility for funding its purchases of contracts prior to securitization or sale. At December 31, 2003, BVAC had $138.2 million outstanding under this credit facility. BVAC intends to periodically securitize and sell its production of installment contracts in order to repay the line of credit. BVAC retains the servicing obligation on the contracts that it securitizes or sells which provides the Company with a source of fee income over the life of the contracts.

     BVAC is continuing a geographic expansion plan that it initiated in late 2002. From its established presence in 17 states, primarily in the West, Midwest and Florida, BVAC entered seven Mid-Atlantic states in 2003. In 2004, BVAC plans to enter nine additional states primarily in New England, as well as Oklahoma. Historically, BVAC has aligned itself with smaller franchised and independent dealers. In recent years, the industry has experienced intense merger and acquisition activity that has led to the emergence of large, regional and national automobile dealership organizations, causing BVAC to lose production volume from its existing dealer base. In response, during 2003 BVAC began a campaign to establish relationships with these regional and national dealer organizations and has now signed agreements with five of these organizations representing 370 dealerships. During 2004, BVAC intends to continue to pursue this strategy.

     BVAC uses a vertically integrated combination of regional marketing representatives and national supervision to develop and maintain relationships with the majority of its dealer base and market its indirect financing programs. Account development managers develop and maintain relationships with BVAC’s larger regional and national dealership organizations. Retail contracts are centrally underwritten, approved, funded, and serviced from BVAC’s Covina, California corporate office.

Liquidating Portfolio

     As of December 31, 2003, our ongoing business consisted solely of automobile financing. All other types of lending were discontinued beginning in 2002 and remaining loans from these other types of lending and other assets continue to be liquidated. The following descriptions are provided as a reference to these assets with outstanding balances at December 31, 2003. All outstanding balances at December 31, 2003 are classified as held-for-sale.

     Automobile Leases - Automobile leases, which are not included in the balance of our loan portfolio, totaled $66.7 million net of accumulated depreciation and valuation allowances at December 31, 2003, and represent 18.3% of our consolidated assets. We ceased purchasing auto leases in June 2000. The auto leases are accounted for as operating leases and the lease asset is capitalized and depreciated to its estimated residual value over the term of the lease.

     Asset-Based Loans - At December 31, 2003, our asset-based loans totaled $0.8 million. Our asset-based loans are primarily adjustable-rate loans based on the prime rate index. Coincident with the sale of the Bank’s retail banking assets, we ceased originating asset-based loans.

     Business Loans and Lines of Credit - At December 31, 2003, our business loans totaled $4.8 million. We also ceased originating business loans and lines of credit in November 2002.

     Franchise Loans - At December 31, 2003, our commercial franchise loans totaled $6.4 million. We ceased the purchase and origination of franchise loans in September 2000. Since then, we have focused on disposing of our franchise loans through loan sales and negotiated payoffs. During 2003, franchise loan sales, as well as loan payoffs and amortization, reduced our franchise loans to $6.4 million at December 31, 2003 from $46.9 million at December 31, 2002. At December 31, 2003, franchise loans included $5.4 million of loans to gas station/convenience store and truckstop operators and $1.0 million of loans to restaurant operators.

     Mortgage-backed and Other Securities - At December 31, 2003, our mortgage-backed and other securities portfolio totaled $6.1 million and consisted of $5.9 million of high-quality mortgage-backed securities issued by

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Fannie Mae and Freddie Mac and senior tranches of private issue collateralized mortgage obligations and $0.2 million of other securities. During 2003, we sold $15.3 million of mortgage- and asset-backed securities.

     Real Estate Owned - At December 31, 2003, our real estate owned totaled $5.0 million and consisted entirely of foreclosed franchise properties.

Funding Activities

     On November 1, 2002, U.S. Bank acquired the Bank’s retail deposits in connection with our sale of the Bank’s retail banking assets. All of the Bank’s brokered deposits matured by March 31, 2003.

     In addition to our warehouse credit facility, we have other borrowings, representing the remaining balance of a structured financing secured by the contractual cash flows from our auto lease portfolio, which totaled $16.1 million at December 31, 2003.

Debt

     As of December 31, 2003, we had $24.8 million of outstanding debt represented by 9.76% Junior Subordinated Deferrable Interest Debentures (the “Junior Debentures”) that were issued by the Company to Bay View Capital I, a Delaware business trust we sponsor. The Junior Debentures support the $22.0 million of outstanding 9.76% Cumulative Capital Securities (the “Capital Securities”) that were issued by Bay View Capital I and trade on the New York Stock Exchange under the symbol (“BVS”). Effective December 31, 2003, in accordance with the requirements of Financial Accounting Standards Board Financial Interpretation No. 46, “Consolidation of Variable Interest Entities,” we deconsolidated Bay View Capital I and the Capital Securities. As a result of this deconsolidation, as of December 31, 2003, the debt reflected in our consolidated financial statements now reflects the Junior Debentures while no longer reflecting the Capital Securities.

     During the third quarter of 2003, we completed an offer of optional redemption for our Capital Securities. Holders of the Capital Securities elected to redeem approximately $4.6 million of the Capital Securities, or approximately 5% of the then outstanding Capital Securities. On December 31, 2003, we redeemed $63.5 million, or approximately 74%, of the Capital Securities outstanding at that time.

     The Junior Debentures and the Capital Securities are both callable at par. We currently anticipate redeeming these remaining securities during 2004.

Competition

     Automobile financing is provided by a number of competing entities including captive finance affiliates of automobile manufacturers, commercial banks, independent finance companies, thrifts, and credit unions. Many of our competitors have greater financial resources, capitalization, greater access to existing and newly emerging capital markets, better economies of scale, and more favorable costs of funds than we do. Our competitors often provide more favorable financing terms to automobile purchasers or dealers than we do. The captive finance affiliates of the automobile manufacturers have historically offered varying amounts of below-market financing to automobile purchasers to increase automobile sales volume. A number of our competitors also offer automobile purchasers and dealerships with additional forms of financing, including auto leasing and dealer inventory floor plan financing, which are not provided by the Company. We believe that we compete primarily on the basis of the relative uniqueness of the extended term and over-advance features of our product, and the quality of service we provide to dealers. Accordingly, there can be no assurances that we will be able to compete successfully against these competitors.

Economic Conditions, Government Policies and Legislation

     During periods of economic slowdown, delinquencies and losses from defaults and repossessions may increase. Decreased demand for automobiles and, therefore, BVAC’s automobile financing volumes may also accompany periods of economic slowdown. Decreased demand for automobiles may also depress values of used automobiles,

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which weakens the collateral values of BVAC’s auto installment contracts. Depressed values of used automobiles during periods of economic slowdown may also reduce the value of repossessed and off-lease vehicles and may require greater reserves and could result in greater losses for the Company. Sustained periods of increased delinquencies and losses from defaults and repossessions could adversely affect our financial position, results of operations, and our liquidity by limiting our ability to enter into future securitizations or sales of our production of installment contracts.

     Our profitability is also dependent on the interest rate spread we earn on our installment contracts, the difference between the interest earned on our fixed rate installment contracts and the rate we pay on our floating rate borrowings, and the price we receive for these fixed rate contracts that are securitized or sold. We monitor interest rates and utilize derivative instruments to hedge interest rate volatility, however, market interest rates are highly sensitive to many factors that are beyond our control, such as inflation, recession and unemployment and the impact of future changes in domestic and foreign economic conditions that we cannot predict.

Supervision and Regulation

General

     We are subject to regulation, supervision and licensing under various federal, state and local statutes, ordinances and regulations, including the Sarbanes-Oxley Act of 2002, the Office of Foreign Assets Control and the United States Patriot Act. We are required to comply with the laws of those states in which we conduct operations. We believe that we are in compliance with these laws and regulations.

     Our securities are registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, we are subject to the information, proxy solicitation, insider trading and other requirements and restrictions of the Exchange Act. Our common stock trades on the New York Stock Exchange (“NYSE”) under the ticker symbol “BVC” and our Capital Securities trade on the NYSE under the ticker symbol “BVS.”

     Until the Bank’s dissolution, we and the Bank were subject to extensive regulation intended primarily for the protection of depositors and the federal deposit insurance fund and not for the benefit of our stockholders. In connection with the Bank’s dissolution, we ceased to be a registered bank holding company and are no longer subject to such regulation.

Consumer Protection Laws

     Numerous federal and state consumer protection laws and related regulations impose substantial requirements upon lenders and servicers involved in consumer finance. These laws include the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, the Magnuson-Moss Warranty Act, the FRB’s Regulations B and Z, states’ adaptations of the Uniform Consumer Credit Code and of the Uniform Commercial Code, state and federal privacy laws and state motor vehicle retail installment sales acts and other similar laws. These laws, among other things, require us to provide certain disclosures to applicants, prohibit misleading advertising and protect against discriminatory financing or unfair credit and collection practices. The Truth-in-Lending Act and Regulation Z promulgated thereunder require disclosure of, among other things, the payment schedule, the finance charge, the amount financed, the total of payments and the annual percentage rate charged on each retail installment contract. The Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants (including retail installment contract obligors) on the basis of specific enumerated criteria. Creditors are also required to make certain disclosures regarding consumer rights and advise consumers whose credit applications are not approved. The holder in due course rules of the Federal Trade Commission (the “FTC”) provide for the preservation of the consumer’s claims and defenses when a consumer obligation is assigned to a holder. Some state laws impose finance charge ceilings and other restrictions on consumer transactions and require contract disclosures in addition to those required under federal law. These requirements impose specific statutory liabilities upon creditors who fail to comply with their provisions. In some cases these provisions, if violated, could affect our ability to enforce the contracts we purchase.

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Employees

     At December 31, 2003, we had a total of 143 employees on a full-time equivalent basis, consisting of both full-time and permanent part-time employees, as follows:

     Our employees are not represented by any unions or covered by any collective bargaining agreements. We consider our relations with our employees to be satisfactory.

Executive Officers of the Registrant

     The following table sets forth certain information regarding our executive officers:

⁽¹⁾ Mr. Badame has submitted his resignation effective March 19, 2004.

     The business experience of each of our executive officers is as follows:

     Mr. Cooper has served as a Director, President and Chief Executive Officer of Bay View Capital Corporation since October 2002. He joined the Bank in May 2001, initially serving as Executive Vice President and Chief Credit Officer. Previously, he served as Executive Vice President and Chief Credit Officer at Lone Star Bank of Dallas. Prior to joining Lone Star Bank, he was Senior Vice President of Loan Administration at Compass Bank in Dallas from 1996 to 2000. Mr. Cooper has more than 30 years of experience in the banking industry, including 13 years experience as a bank examiner with the FDIC.

     Mr. Badame has served as President of BVAC since 1998. Prior to joining us, he served as Director of Operations for Triad Financial Corporation, a non-prime indirect automobile loan originator. He has over 25 years of experience in the indirect retail and wholesale automobile dealer financing business in a commercial bank environment, including management and executive positions with Bank of America, Marine Midland Bank and Imperial Thrift. Mr. Badame has also held sales, business and general management positions with General Motors, Chrysler and Honda franchisees in the retail automobile industry.

     Mr. Catalano, Senior Vice President, became our General Counsel and Corporate Secretary of Bay View Capital Corporation in December 2002. Mr. Catalano joined us in 1993 and served as Assistant General Counsel from 2000 to 2002. Previously, he served as Senior Vice President and Assistant General Counsel of American Savings and Loan, Stockton California.

     Mr. Culley, Senior Vice President, has served as our Director of Risk Management since August 2001. Previously he served as Vice President, Asset Quality for BancFirst in Oklahoma City from July 2000 to July 2001. Mr. Culley was self-employed as a bank consultant from April 1998 to July 2000. Mr. Culley has more than 30 years of experience in the banking industry including 10 years as a bank examiner for the Texas Department of Banking.

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     Mr. Okubo, Executive Vice President, became our Chief Financial Officer in November 2002. Mr. Okubo joined Bay View in 1996 and has held various financial management positions, including Treasurer from June 2001 and as Controller of the Bank from 1998 to 2001. Previously, he served as Executive Vice President and Chief Financial Officer of Home Federal Savings of San Francisco from 1993 to 1996.

     Ms. Soukiassian, Senior Vice President, was promoted to General Auditor in November 2002. Previously, she served as Director of Corporate Projects of Bay View Capital Corporation from 1998 to 2002. Prior to joining us, she held management positions with KPMG Peat Marwick, LLP in Los Angeles from 1996 to 1998.

     There is no family relationship among the above officers. All executive officers serve at the discretion of the Board of Directors.

Item 2. Properties

     At December 31, 2003, we occupied three offices including our corporate headquarters office and had an additional eleven offices that we have vacated, and are subleasing, under operating lease agreements expiring at various dates through the year 2012. In most instances, these lease arrangements include options to renew or extend the lease at market rates. We also own leasehold improvements, furniture and equipment at our offices, all of which are used in our business activities.

Item 3. Legal Proceedings

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

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

     There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the three months ended December 31, 2003.

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Part II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

     At December 31, 2003, our common stock was traded on the NYSE under the stock symbol “BVC.” At December 31, 2003, 65,758,898 shares of our common stock were outstanding, and held by 1,334 stockholders of record. The following tables illustrate quarterly closing stock price activity for 2003 and 2002:

     On December 30, 2003, we distributed $4.00 per share in cash, to common stockholders of record as of December 19, 2003. No dividends or distributions were declared in 2002.

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Item 6. Selected Financial Data - Five-Year Financial Information

(1)

The financial statements for the periods from September 30, 2002 through September 30, 2003 have been prepared using liquidation basis accounting.

(2)

Effective December 31, 2003, the Company adopted FASB Financial Interpretation No. 46, “Consolidation of Variable Interest Entities,” and accordingly, deconsolidated Bay View Capital I Trust. As a result, as of December 31, 2003, the 9.76% Capital Securities of Bay View Capital I Trust are no longer reflected on the Company’s Consolidated Statement of Financial Condition while the Company’s underlying 9.76% Junior Subordinated Deferrable Interest Debentures, which were acquired by Bay View Capital I Trust, are reflected as borrowings of the Company.

(3)

Effective July 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” Year-to-date dividend expense on the Capital Securities is now reflected in interest on borrowings. Statement No. 150 does not allow for prior year restatements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INDEX

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Strategic Overview

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

Our Strategy

     On October 3, 2002, our stockholders authorized a plan of dissolution and stockholder liquidity (the “Plan”) and the sale of the retail banking assets of Bay View Bank, N.A. (the “Bank”) 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 BVAC, to our stockholders. In the year following the adoption of the Plan, we sold substantially all of our assets with the exception of our auto lease portfolio and BVAC.

     As a result of our stockholders’ authorization of the Plan and the closing 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 finance sector, as discussed elsewhere herein, we believed that the near-term sale or distribution of the stock of BVAC to stockholders was no longer the best method of achieving maximum stockholder value. Accordingly, during the fourth quarter of 2003, our Board of Directors adopted a plan of partial liquidation (the “Amended Plan”) under which we will complete the liquidation of the assets and satisfaction of the liabilities of the Bank remaining after the Bank’s September 30, 2003 dissolution, distribute the proceeds to our stockholders through a series of cash distributions, and continue to operate BVAC on an ongoing basis. In accordance with the Amended Plan, we distributed $4.00 per share in cash to our stockholders on December 30, 2003. We intend to make further distributions of the proceeds to our stockholders through a series of cash distributions.

     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. Stockholders should consult with their tax advisors to determine their individual tax situations. For non-corporate stockholders, the distribution of $4.00 per share on December 30, 2003 should be treated as an exchange that generates capital gain or loss. The capital gain or loss is the difference between the $4.00 per share distribution and the allocated cost basis per share. Such allocated cost basis is equal to the stockholder’s cost basis multiplied by 64.78%, which is the ratio of the $4.00 distribution to the average per share price on the distribution date of $6.175. Any such basis allocated to the exchange would reduce the stockholder’s remaining cost basis. These rules are described in I.R.S. Revenue Ruling 77-245. For corporate stockholders, the $4.00 distribution should be taxable as a dividend. 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 first as a return of capital to the extent of any remaining cost basis in the stock, then as a capital gain.

     Our decision to partially liquidate and to continue to operate BVAC on an ongoing basis, warranted the termination of our use of the liquidation basis of accounting. We re-adopted the going concern basis of accounting and re-established our stockholders’ equity effective October 1, 2003. At December 31, 2003, we had stockholders equity of $155.8 million.

     Effective September 30, 2003, we completed the dissolution of the Bank. As a result, the Company ceased to be a bank holding company and we and our 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.

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Auto Finance

     BVAC is a Southern California-based auto finance company engaged in the indirect financing of automobile purchases by individuals. BVAC is our primary remaining subsidiary. As an indirect lender, BVAC markets to automobile dealerships, both manufacturer franchised dealerships and independent dealerships, and purchases installment contracts on new and used vehicles from over 7,000 auto dealers in 24 states. Of the contracts purchased in 2003, approximately 90% were originated by manufacturer franchised dealerships and approximately 10% were originated by independent dealerships; 49% were contracts on new vehicles and 51% were contracts on used vehicles. BVAC purchases installment contracts with limited recourse to the dealer.

     BVAC has positioned itself in the market as a premium priced lender for well-qualified borrowers seeking extended financing terms and higher advances than those generally offered by traditional lenders. BVAC places a strong emphasis on borrower stability, credit quality, and debt serviceability. With Fair, Isaac & Co. “FICO” credit scores that averaged 733 in 2003, BVAC’s borrower base is largely comprised of prime borrowers. BVAC offers loan terms to 96 months and typically finances an amount in excess of a dealer’s wholesale value of a vehicle. BVAC will finance vehicles without restrictions on the model year. During 2003, the average loan amount BVAC financed was $28,600 and had an average term of 81 months. We believe that this strategy has enabled BVAC to establish a loyal dealership network by satisfying consumer demand within the indirect auto finance market that is inadequately served by commercial banks and finance companies. BVAC utilizes a proprietary credit scoring system in connection with its underwriting and credit approvals. The credit scoring system captures data from consumers’ credit bureau reports, consumers’ loan applications and the terms of proposed loans.

     We entered the auto finance business in 1996 through our acquisition of CTL, Inc., the parent company of California Thrift & Loan. California Thrift & Loan began its auto finance operations in 1973, and through a series of mergers and name changes, became BVAC. Since the liquidation of the Bank, BVAC has operated as an independent finance company, rather than a portfolio-lending unit of the Bank, purchasing installment contracts for sale or securitization. BVAC has a $250 million revolving warehouse credit facility for funding its purchases of contracts prior to securitization or sale. At December 31, 2003, BVAC had $138.2 million outstanding under this credit facility. BVAC intends to periodically securitize and sell its production of installment contracts in order to repay the line of credit.

     BVAC periodically transfers installment contracts to securitization trusts. The trusts then issue asset-backed securities. BVAC has structured these transactions as sales of the installment contracts. BVAC retains the servicing obligation on the contracts that it securitizes or sells. In order to enhance the credit rating of these asset-backed securities, BVAC has a financial guaranty insurance policy and deposits cash into a restricted cash account established within the securitization trusts. Excess cash flow from the trusts is utilized to build the restricted cash account to pre-designated levels and provide further credit enhancement. Once these pre-designated levels are attained, excess cash flow is distributed to BVAC. In addition to this excess cash flow, BVAC earns monthly fee income for servicing outstanding installment contracts that have been securitized and collects late payment charges and other fees.

     BVAC is continuing a geographic expansion plan that it initiated in late 2002. From its established presence in 17 states, primarily in the West and Midwest, as well as Florida, BVAC entered seven Mid-Atlantic states in 2003. In 2004, BVAC plans to enter nine additional states primarily in New England, as well as Oklahoma. Historically, BVAC has aligned itself with smaller, franchised and independent dealers. In recent years, the industry has experienced intense merger and acquisition activity which has led to the emergence of large, regional and national automobile dealership organizations, causing BVAC to lose production volume from its existing dealer base. In response, during 2003 BVAC began a campaign to establish relationships with these regional and national dealer organizations and has now signed agreements with five of these organizations representing 370 dealership stores. During 2004, BVAC will continue to pursue this strategy.

     BVAC uses a combination of regional marketing representatives and telemarketing to develop and maintain relationships with the majority of its dealer base and market its indirect financing programs. Account development managers develop and maintain relationships with BVAC’s larger regional and national dealership organizations.

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Contracts are centrally underwritten, approved, funded, and serviced from BVAC’s Covina California corporate office.

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 re-adoption of the going concern basis of accounting effective October 1, 2003, investment in operating lease assets, retained interests in securitizations, and income taxes.

Going Concern vs. Liquidation Basis Accounting

     Effective October 1, 2003, the Company discontinued its use of the liquidation basis of accounting and re-adopted the going concern basis of accounting. Our decision to engage in a partial liquidation, and continue to operate BVAC on an ongoing basis, warranted the termination of our use of the liquidation basis of accounting. We re-established our stockholders’ equity effective October 1, 2003. For the period September 30, 2002 through September 30, 2003, the Company used the liquidation basis of accounting.

     In connection with our re-adoption of the going concern basis of accounting, we recognized $0.7 million of pre-tax expense and $1.1 million of additions to stockholders’ equity, and recorded the following adjustments –

•		Goodwill: Re-established the $1.8 million of goodwill that existed prior to our adoption of the liquidation basis of accounting; this goodwill related to our acquisition of BVAC’s predecessor entity, California Thrift & Loan
•		Premium on investment in BVAC: Reversed $10.0 million of premium over the book value of BVAC, which was recorded as deferred gain under the liquidation basis of accounting, and restored the historical cost basis in our equity investment in BVAC
•		Installment contracts: Reversed unrealized gains which were recorded under the liquidation basis of accounting and restored the lower of cost or market valuation
•		Mortgage-backed securities: Restored Statement No. 115 available-for-sale accounting
•		Accrued liabilities: Reversed $1.7 million of accruals related to certain severance and occupancy costs which were recorded under the liquidation basis of accounting and adopted Statement No. 146 accounting for costs associated with disposal activities
•		Stockholders’ equity: Restored stockholders’ equity as of October 1, 2003

     Under the liquidation basis of accounting, assets were carried at estimated net realizable values and all estimated future liabilities associated with carrying out the Plan were accrued. Future revenues and expenses of an operating nature were recognized in income and expense when realized.

     See Note 2 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” at Item 8, “Financial Statements and Supplementary Data” for further discussion of the liquidation basis accounting policies used from September 30, 2002 to September 30, 2003.

Investment in Operating Lease Assets

     In accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company performs a quarterly impairment analysis of its long-lived assets including its automobile leases, which are accounted for as operating leases. Statement No. 144 addresses the recognition and measurement of the impairment of long-lived assets and defines impairment as the condition that exists when the carrying amount of long-lived assets exceeds fair value. When identified, Statement No. 144 requires the recognition of an impairment loss. Under Statement No. 144, the Company considers an auto lease to be impaired if its gross future undiscounted cash flows are less than the net book value of the lease. The net book value of the lease is

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

     For those leases considered impaired, 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. Under the going concern basis of accounting, annual depreciation expense associated with those leases that have reduced residual values is recomputed over the remaining term of the lease.

Retained Interests in Securitizations

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

     The Company incorporates various assumptions in calculating the present value of the cash deposit and excess cash flow. The following table illustrates the significant assumptions utilized in the valuation of retained interests in securitizations as of December 31, 2003:

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

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Income Taxes

     At December 31, 2003, net deferred tax assets were $16.2 million after a valuation allowance of $21.5 million. This valuation allowance was established in consideration of the Company’s projected future net income available to realize the deferred tax assets under the Amended Plan in years after 2003. The realization of deferred tax assets is dependent upon our ability to generate future taxable income.

Accounting Changes and Recent Accounting Pronouncements

     In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This Statement replaced the accounting and reporting provisions of Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” It requires that costs associated with an exit or disposal activity be recognized when a liability is incurred rather than at the date an entity commits to an exit plan. The Company adopted Statement No. 146 upon its re-adoption of going concern basis accounting effective October 1, 2003. Accordingly, the Company reversed certain accruals related to severance and facilities costs totaling $1.7 million as required by Statement No. 146. Such accruals were initially recorded under the liquidation basis of accounting.

     In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 expands on the accounting guidance of Statement Nos. 5, 57, and 107 and incorporates without change the provisions of FASB Interpretation No. 34 which was superseded. FIN 45 elaborates on the existing disclosure requirements for most guarantees and requires that guarantors recognize a liability for the fair value of guarantees at inception. The disclosure requirements of this Interpretation were effective for financial statement periods ending after December 15, 2002. The initial recognition and measurement provisions of FIN 45 were applied on a prospective basis to guarantees issued or modified after December 31, 2002. Significant guarantees that have been entered into by the Company are disclosed in Note 18. The adoption of this Interpretation did not have a material impact on the Company’s financial position or results of operations.

     In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities”. FIN 46 sets forth criteria for the identification of a variable interest entity (VIE), and the consolidation of the assets, liabilities, noncontrolling interests, and results of operations of a VIE in a company’s consolidated financial statements. A variable interest entity exists when either the total equity investment at risk is not sufficient to permit the entity to finance its activities by itself, or the equity investors lack a controlling financial interest or they have voting rights that are not proportionate to their economic interest. A company that holds variable interests in an entity is 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. FIN 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders. In December 2003, the FASB issued FIN 46R, a revision of FIN 46. FIN 46R delayed the effective date of FIN 46 for all entities created subsequent to January 31, 2003 and non-SPE’s (special-purpose entities) created prior to February 1, 2003 to reporting periods ending after March 15. 2004. Entities created prior to February 1, 2004 and defined as SPE’s must apply either the provisions of FIN 46 or early adopt the provisions of FIN 46R by the first reporting period ending after December 15, 2003. As of December 31, 2003, the Company does not have VIE’s which would be consolidated under the provisions of FIN 46R. Based on FIN 46, the Company deconsolidated its wholly-owned subsidiary, Bay View Capital I Trust, effective December 31, 2003. As a result, the 9.76% Cumulative Capital Securities (“Capital Securities”) of Bay View Capital I Trust are no longer reflected on the Company’s Consolidated Statement of Financial Condition at December 31, 2003 while the Company’s underlying 9.76% Junior Subordinated Deferrable Interest Debentures (“Junior Debentures”), which were acquired by Bay View Capital I Trust, are reflected as borrowings of the Company.

     In April 2003, the 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

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contracts (collectively referred to as derivatives) and for hedging activities under Statement No. 133. Statement No. 149 was effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The provisions of this Statement, with certain exceptions, were required to be applied prospectively. Adoption of Statement No. 149 did not have a significant impact on the Company’s financial position or results of operations.

     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 was otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted Statement No. 150 effective July 1, 2003. Implementation of Statement No. 150 resulted in the reclassification of the Company’s Capital Securities from their prior classification as a “mezzanine” item to liabilities. Consequently, the dividend expense on these Capital Securities during 2003, totaling $8.8 million, is now reflected as interest expense. Statement No. 150 does not allow restatement of prior year results.

     In December 2003, the FASB issued Statement of Financial Accounting Standards No. 132R, a revision of Statement No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements Nos. 87, 88, and 106.” Statement No. 132R expands disclosure requirements to include information describing types of plan assets, investment strategy, measurement date(s), plan obligations, cash flows, and components of net period benefit costs of defined pension plans and other defined benefit postretirement plans. Statement No. 132R is effective for financial statements with fiscal years ending after December 15, 2003. The expanded disclosures required by Statement No. 132R do not apply to the Company’s benefit plans which were terminated prior to year-end.

     In December 2003, under clearance of the FASB, the Accounting Standards Executive Committee (AcSEC) of the AICPA issued Statement of Position (“SOP”) 03-2, “ Accounting for Certain Loans or Debt Securities Acquired in a Transfer.” This SOP establishes accounting standards for discounts on purchased loans when the discount is attributable to credit quality. The SOP requires that the loan discount, rather than contractual amounts, establishes the investor’s estimate of undiscounted expected future principal and interest cash flows as a benchmark for yield and impairment measurements. The SOP prohibits the carryover or creation of a valuation allowance in the initial accounting for these loans. This SOP is effective for loans acquired in years ending after December 15, 2004. The Company believes that adopting this Statement will not have a material impact on the Company’s financial position or results of operations.

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Results of Operations

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

     Under the liquidation basis of accounting, the Consolidated Statement of Operations and Comprehensive Income was replaced with the Consolidated Statement of Changes in Net Assets in Liquidation. For reporting periods prior to September 30, 2002, our financial statements are presented on a going concern basis of accounting. As a result, we are providing, in Item 8. Financial Statements and Supplementary Data, (1) a Consolidated Statement of Financial Condition as of December 31, 2003 and a Consolidated Statement of Net Assets (Liquidation Basis) as of December 31, 2002, (2) a Consolidated Statement of Operations and Comprehensive Income (Loss) for the three months ended December 31, 2003, (3) a Consolidated Statement of Changes in Net Assets in Liquidation (Liquidation Basis) for the nine months ended September 30, 2003 and the three months ended December 31, 2002, and (4) Consolidated Statements of Operations and Comprehensive Income (Loss) for the nine months ended September 30, 2002 (Liquidation Basis) and the year ended December 31, 2001 (Going Concern Basis).

Going Concern Basis

Results of Operations – Three Months ended December 31, 2003

     Our net loss for the quarter ended December 31, 2003, including net adjustments required to re-adopt the going concern basis of accounting effective October 1, 2003, totaled $0.9 million, or $0.01 per diluted share. Our net loss for the quarter ended December 31, 2003 consisted of income from ongoing operations of BVAC totaling $0.6 million offset by a net loss of $1.5 million from our liquidating activities. As discussed under “Critical Accounting Policies, Going Concern vs. Liquidation Basis Accounting,” in connection with our re-adoption of the going concern basis of accounting, we recognized $0.7 million of pre-tax expense and $1.1 million of additions to stockholders’ equity in the three-month period ended December 31, 2003.

     For the quarter ended December 31, 2003, interest income was $4.6 million and the average yield on interest-earning assets was 4.28% while interest expense on our borrowings was $3.6 million and the average cost of borrowings, largely comprised of interest on our Junior Debentures, was 11.20%. The negative interest rate spread for the quarter, the difference between the yield on interest-earning assets and the cost of our borrowings, was attributable to large balances of cash and cash equivalents which were accumulated in the quarter in order to distribute $263.2 million, or $4.00 per share in cash, to common stockholders on December 30, 2003 and redeem $63.5 million, or approximately 74% of the Capital Securities issued by Bay View Capital I Trust on December 31, 2003. Money market yields earned on the cash and cash equivalent balances caused a significant decline in the overall yield of interest-earning assets in the quarter ended December 31, 2003.

     As previously discussed, implementation of Statement of Financial Accounting Standards No. 150 resulted in the reclassification of our Capital Securities from their prior classification as a “mezzanine” item to liabilities. Accordingly, the dividend expense on these Capital Securities during 2003, totaling $2.1 million and $8.8 million for the three months and the year ended December 31, 2003, respectively, is now included in interest expense on borrowings.

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     The following table illustrates average yields on our interest-earning assets and average rates on our interest-bearing liabilities for the period indicated:

     For the quarter ended December 31, 2003, noninterest income was $10.3 million and included leasing income of $6.9 million, loan servicing and other fee income of $1.3 million, gains related to recoveries of mark-to-market adjustments on franchise loans of $0.9 million, and other income of $1.2 million. Noninterest expense was $12.5 million and included leasing expenses of $5.9 million and operating expenses of $6.6 million.

Leasing Expenses

     Leasing expenses represent 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. We ceased purchasing auto leases in June 2000.

     At December 31, 2003, approximately 109 of the 5,341 vehicles in our automobile lease portfolio, or 2%, were considered impaired under Statement of Financial Accounting Standards No. 144 compared to 64% at September 30, 2003 and 42% at December 31, 2002. We perform impairment testing on our auto lease portfolio on a quarterly basis. Accordingly, the percentage of leases considered impaired is a measure of the quarterly change (normally a decline) in residual values versus our depreciation and writedown of the book value of our auto lease portfolio since the prior quarterly valuation. We believe the decline in the impairment percentage from September 30, 2003 and December 31, 2002 was attributable to more stable resale values for used vehicles in the fourth quarter of 2003, however, resale values for used vehicles are subject to many external market conditions and there can be no assurances about future rates of impairment. This percentage may vary significantly from quarter to quarter and,

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accordingly, the impairment percentage that existed at December 31, 2003 should not be considered to be indicative of future impairment. 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 7% of the leases would be deemed to be impaired and, therefore, potentially subject to an impairment charge. Additionally, the impairment charge could increase if the percentage of vehicles returned to us is greater than the percentage that was projected at year-end, because the proceeds realized when the Company must dispose of the vehicle are generally less than if the lessee purchases the automobile prior to the end of the lease term.

Income Taxes

     We recorded a tax benefit of $0.3 million for the fourth quarter of 2003. Our effective tax rate of 55.7% differed from the federal statutory rate due primarily to nondeductible compensation and reduced levels of state income and franchise taxes.

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Liquidation Basis

Changes in Net Assets in Liquidation – Nine Months 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 $410.1 million, or $6.43 in net assets in liquidation per outstanding diluted share at December 31, 2002.

     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 benefits 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 writedown 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 of Financial Accounting Standards 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 $6.7 million during the nine-month period ended September 30, 2003, is now included in interest expense on borrowings. Statement No. 150 did not allow restatement of prior year results.

Leasing Expenses

     Leasing expenses were $24.4 million for the first nine months of 2003. At September 30, 2003, approximately 4,275 of the 6,665 vehicles in our automobile lease portfolio, or 64%, were considered impaired under Statement of Financial Accounting Standards No. 144. If the market values of the individual vehicles declined by $250, an additional 7% of the leases would have been deemed to be impaired and, therefore, potentially subject to an impairment charge.

Income Taxes

     We recorded a tax benefit of $6.3 million for the first nine months of 2003, which was recorded at an effective tax rate of 59.0%. The 2003 effective tax rate differed from the federal statutory rate primarily due to reduced levels of state income and franchise taxes.

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Changes in Net Assets in Liquidation – Three Months ended December 31, 2002

     Our net assets in liquidation at December 31, 2002 totaled $410.1 million, or $6.43 in net assets in liquidation per outstanding share compared to $413.7 million, or $6.50 in net assets in liquidation per outstanding share at September 30, 2002. The decrease in net assets in liquidation and net assets in liquidation per outstanding share was primarily the result of a $6.1 million pre-tax loss from operations recorded during the fourth quarter of 2002 and $2.8 million of net charges for additional liquidation valuation adjustments partially offset by a tax benefit of $4.9 million.

     The loss from operations for the quarter was primarily a result of an operating loss caused by a delay in closing the sale of our retail banking assets to U.S. Bank from October 1, 2002 to November 1, 2002. Our liquidation of earning assets in advance of the anticipated October 1, 2002 sale date resulted in sharply lower interest revenues during October. The $2.8 million charge for additional liquidation valuation adjustments was primarily due to a decrease in the market value of the loan portfolio.

     As discussed above, on November 1, 2002, we completed the U.S. Bank transaction. U.S. Bank, N.A. assumed the Bank’s retail deposits totaling $3.3 billion, its branches and service center operations, and purchased $327.7 million of loans. On November 29, 2002, we prepaid the entire $100.0 million of our 9.125% Subordinated Notes due 2007 at a premium of 4.563%. Additionally, on December 9, 2002, the Bank redeemed the entire $50.0 million of its outstanding 10% Subordinated Notes due 2009.

     In December of 2002, we received approval from the FRB to pay the cumulative distributions on our Capital Securities. On December 31, 2002, we paid the cumulative deferred distributions, interest on the deferred distributions and the current quarterly distribution. The total amount paid per share as of December 31, 2002 was $6.10 for the 10 quarterly distributions plus $0.715 in accrued interest. The scheduled quarterly distributions remained subject to FRB approval until the dissolution of the Bank as of September 2003.

Leasing Expenses

     Leasing expenses were $10.9 million for the fourth quarter of 2002. At December 31, 2002, approximately 4,839 of the 11,428 vehicles in our automobile lease portfolio, or 42%, were considered impaired under Statement of Financial Accounting Standards No. 144. If the market values of the individual vehicles declined by $250, an additional 2% of the leases would have been deemed to be impaired and, therefore, potentially subject to an impairment charge.

Income Taxes

     We recorded a tax benefit of $4.9 million for the fourth quarter of 2002. During the fourth quarter of 2002, we reduced our valuation allowance for deferred tax assets from $24.0 million to $21.5 million in recognition of additional future operating income from BVAC available to absorb existing deferred tax benefits.

     Our 2002 effective tax rate of 72% differed from the federal statutory rate due primarily to state income taxes, the valuation allowance on deferred tax assets, disposition of nondeductible goodwill and nondeductible compensation associated with the Plan.

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Going Concern Basis

Results of Operations – Nine Months ended September 30, 2002

     Our net income for the first nine months of 2002, including net adjustments required to convert from the going concern basis of accounting to the liquidation basis of accounting effective September 30, 2002, totaled $71.7 million, or $1.13 per diluted share. Excluding the liquidation adjustments, our operating income before taxes totaled $5.9 million for the first nine months of 2002.

     Under the liquidation basis of accounting, our assets were valued at their estimated net realizable values and liabilities included accruals for estimated costs associated with carrying out the Plan. We recorded pre-tax income totaling $266.5 million related to the mark-to-market valuation of our assets and liabilities in connection with our adoption of the liquidation basis of accounting.

     Also during the third quarter of 2002, we recorded $18.9 million of impairment charges, net of taxes, to write-off 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,” which we adopted as of January 1, 2002, 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 first nine months of 2002 reflected the impact of asset sales consummated to generate the funds necessary to close the U.S. Bank transaction. Through September 30, 2002, we completed the sale of approximately $1.0 billion of multi-family mortgage and commercial real estate loans to Washington Mutual. Additionally, we securitized and sold approximately $450.0 million of our auto installment contracts, $56.5 million of franchise loans, $25.3 million of factored receivables, $103.6 million of mortgage-backed securities and $59.0 million of other securities.

     Our results for the first nine months of 2002 included a charge of $13.1 million related to the settlement of litigation with JP Morgan Chase Bank relating to a complaint filed against Bay View Franchise Mortgage Acceptance Company, which we sold during 2001. The settlement resulted in the disposition of approximately $12.0 million of nonperforming franchise loans from our consolidated balance sheet.

     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 in June 2002. Through this transaction, we converted approximately $6.5 million of goodwill to tangible equity.

Net Interest Income and Net Interest Margin

     Net interest income represents the difference between interest earned on loans, leases and investments and interest paid on funding sources, including deposits and borrowings, and had historically been our principal source of revenue. Net interest margin is the amount of net interest income expressed as a percentage of average interest-earning assets.

     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. Average interest-earning assets, excluding our auto-related operating lease assets, for the first nine months of 2002 were $3.2 billion.

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Average Balance Sheet

     The following table illustrates average yields on our interest-earning assets and average rates on our interest-bearing liabilities for the period indicated. These average yields and rates are derived by dividing interest income by the average balances of interest-earning assets and by dividing interest expense by the average balances of interest-bearing liabilities for the year indicated. Average balances of interest-earning assets and interest-bearing liabilities were calculated by averaging the relevant month-end amounts for the period.

(1)

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

(2)

Interest expense for borrowings excludes expenses related to our Capital Securities.

(3)

Annualized net interest income divided by average interest-earning assets.

     Our net interest margin, calculated in accordance with GAAP, excludes the revenue from our auto leasing assets, but includes the associated funding costs. Because our auto leases are accounted for as operating leases, the rental income and related expenses, including depreciation expense, are reflected in noninterest income and noninterest expense in accordance with GAAP.

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     For the first nine months of 2002, interest income was $145.2 million and the average yield on interest-earning assets was 6.08% while interest expense on our deposits was $44.5 million and the average cost of deposits was 1.89%. The following table summarizes our deposit costs by product for the period:

     For the first nine months of 2002, interest expense on our borrowings was $15.6 million and the average cost of borrowings was 7.67%. These amounts exclude the expense associated with our Capital Securities.

Provision for Losses on Loans and Leases

     The provision for losses on loans and leases for the first nine months of 2002 was $10.7 million. Our provision for the first nine months of 2002 reflects the impact of a $2.6 million recovery on the sale of charged-off high loan-to-value home equity loans. With our adoption of the liquidation basis of accounting, we reallocated the allowance for losses on loans and leases, effective September 30, 2002, to a mark-to-market allowance for loans and leases.

Noninterest Income

     For the first nine months of 2002, noninterest income was $91.6 million and included net gains on sales of assets totaling $18.6 million. The net gains consisted of an $11.8 million gain related to the securitization and sale of approximately $450.0 million of auto installment contracts, a $6.3 million gain on the sale of multi-family loans and commercial real estate to Washington Mutual and a $1.3 million gain on the sale of mortgage-backed and other securities. These gains were partially offset by a $0.4 million loss on the sale of Bay View Funding and a $0.4 million loss on sales of loans and other franchise-related assets.

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Noninterest Expense

General and Administrative Expenses

     General and administrative expenses were $93.0 million for the first nine months of 2002. The following table illustrates the ratio of general and administrative expenses to average total assets, including auto-related securitized assets, on an annualized basis for the nine months ended September 30, 2002:

Leasing Expenses

     Leasing expenses were $44.0 million for the first nine months of 2002. At September 30, 2002, approximately 5,934 of the 13,631 vehicles in our automobile lease portfolio, or 44%, were considered impaired under Statement of Financial Accounting Standards No. 144. As an illustration of the sensitivity of these assumptions - if the market values of the individual vehicles had declined by $250, an additional 3% of the leases would have been deemed to be impaired and, therefore, potentially subject to an impairment charge.

Real Estate Owned

     Net expense related to our real estate owned was $1.0 million for the first nine months of 2002. In addition, we recorded $266,000 of provision for losses on real estate owned during the first nine months of 2002.

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Amortization of Intangible Assets

     As of January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” which requires that certain goodwill and intangible assets with indefinite useful lives no longer be amortized but instead be tested for impairment at least annually. Subsequently, we only amortized identifiable assets with definite useful lives, including core deposit intangibles and certain goodwill. Amortization expense related to these intangible assets was $1.0 million for the first nine months of 2002.

     For the nine months ended September 30, 2002, we recorded $18.9 million of impairment charges, net of taxes, for goodwill not expected to be realized upon the disposition of our asset-based lending, factoring and commercial leasing businesses. As required by the provisions of Statement No. 142, 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.

Income Taxes

     We recorded tax expense of $181.8 million for the nine months ended September 30, 2002. We also recorded a deferred tax benefit of $2.3 million on the cumulative effect of a change in accounting principle, which is presented net of this tax benefit. As a result of the Plan, income tax expense included the effect of establishing a valuation allowance of $24.0 million at September 30, 2002 on the realizability of deferred tax assets in years after 2002. The realizability of deferred tax assets and the related valuation allowance were based on total projected future income through the estimated completion date of our liquidation, as contemplated by the Plan, of September 30, 2005.

     The effective tax rate used in computing the $181.8 million tax expense for the first nine months of 2002 was 71.5%. This effective tax rate was higher than the federal statutory rate due primarily to state income taxes, the valuation allowance for deferred tax assets, amortization and disposition of nondeductible goodwill and nondeductible compensation associated with the Plan.

     As of September 30, 2002, in anticipation of the close of the sale of the Bank’s retail banking assets to U.S. Bank and other 2002 asset sales transactions, we estimated that we would utilize approximately $143.6 million of our net deferred tax assets.

Capital Securities

     On December 21, 1998, we issued $90.0 million of 9.76% Capital Securities through Bay View Capital I, a business trust formed to issue the securities. The Capital Securities accrue quarterly cumulative distributions at an annual rate of 9.76% of the liquidation value of $25 per share. Dividend expense on the Capital Securities was $7.9 million for the first nine months of 2002.

     In September of 2000, we entered into an agreement with the Federal Reserve Bank of San Francisco (the “FRB”) which required that we obtain its approval prior to disbursing any dividends associated with our Capital Securities. Beginning with the third quarter of 2000, we began deferring distributions quarterly in accordance with the terms of the Capital Securities. During this deferral period, distributions to which holders are entitled continued to accrue at an annual rate of 9.76% of the liquidation amount of $25 per Capital Security, plus accumulated additional distributions at the same rate, compounded quarterly, on any unpaid distributions. Deferred distributions and interest, which were fully accrued, were $21.8 million at September 30, 2002.

     At a meeting held on October 3, 2002, holders of the Capital Securities approved a waiver of those provisions of the legal instruments governing the Capital Securities and the Company’s Junior Debentures that would have, absent the waiver, prevented us from disposing of our assets pursuant to our Plan. Capital Securities holders also approved the amendment of certain provisions of the legal instruments governing the Capital Securities and the Junior Debentures that allowed early redemption of the Capital Securities at the option of each holder of the Capital Securities.

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     In December of 2002, we received approval from the FRB to pay the cumulative deferred distributions on our Capital Securities, and on December 31, 2002, we paid the distributions and cumulative interest on the deferred distributions. The total amount paid per share as of December 31, 2002 was $6.10 for the 10 quarterly distributions plus $0.715 in accrued interest. As a result of the Bank’s dissolution, effective September 30, 2003, we ceased to be a bank holding company and are no longer subject to supervision, examination and regulation by the FRB.

Results of Operations – Year ended December 31, 2001

     For the year ended December 31, 2001, our consolidated net loss was $101.2 million, or $1.99 per diluted share. The net loss for 2001 was primarily due to charges incurred in connection with a strategic plan adopted during 2001. These charges included $70.1 million associated with the revaluation of franchise-related assets, $59.5 million of provision for loan and lease losses related to franchise loans, $18.7 million of additional provision for impairment primarily as a result of writing down residual values associated with the auto lease portfolio, $10.5 million in net losses on sales of assets, $8.2 million in FHLB prepayment penalties related to prepayments of high-cost borrowings, and $6.9 million of restructuring charges primarily related to a reduction of our workforce.

Net Interest Income and Net Interest Margin

     Our net interest income and net interest margin for the year ended December 31, 2001 were $122.2 million and 3.18%, respectively. Our interest-earning assets, excluding our auto-related operating lease assets, totaled $3.0 billion at December 31, 2001. Average interest-earning assets, excluding our auto-related operating lease assets, for the year ended December 31, 2003 were $3.8 billion.

Average Balance Sheet

     The following table illustrates average yields on our interest-earning assets and average rates on our interest-bearing liabilities for the year ended December 31, 2001. These average yields and rates are derived by dividing interest income by the average balances of interest-earning assets and by dividing interest expense by the average balances of interest-bearing liabilities for the year indicated. Average balances of interest-earning assets and interest-bearing liabilities were calculated by averaging the relevant month-end amounts.

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(1)

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

(2)

Interest expense for borrowings excludes expenses related to our Capital Securities.

(3)

Annualized net interest income divided by average interest-earning assets.

     For the year ended December 31, 2001, interest income was $302.7 million and the average yield on interest-earning assets was 7.87%.

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     For the year ended December 31, 2001, interest expense on our deposits was $135.7 million and the average cost of deposits was 3.88%. The following table summarizes our deposit costs by product for the year ended December 31, 2001:

     For the year ended December 31, 2001, interest expense on our borrowings was $44.8 million and the average cost of borrowings was 7.15%. Interest expense excludes dividends on our Capital Securities.

Provision For Losses on Loans and Leases

     The provision for losses on loans and leases was $71.9 million for the year ended December 31, 2001 and included $58.9 million of provision related to franchise loans, $6.9 million related to home equity loans and $6.1 million related to commercial and other loans.

Noninterest Income

     For the year ended December 31, 2001, noninterest income was $107.2 million and included net losses on sales of assets totaling $10.5 million. The losses were primarily due to a $22.9 million loss on the sale of BVFMAC, a $10.3 million loss on the sale of home equity loans in June 2001, $3.7 million in mark-to-market charges related to our hedges and $1.6 million of writedowns of our residual interests and other assets related to our auto loan securitizations. These losses were partially offset by $13.5 million in net gains on sales of mortgage-backed securities and other investments securities, $10.1 million of contingent gains received during the first quarter of 2001 related to December 2000 asset sales and $3.6 million net gains on franchise loan sales during 2001.

     We serviced a $2.2 billion off-balance sheet portfolio of franchise loans through June 22, 2001, the effective date of the sale of BVFMAC and its servicing portfolio. The related servicing fee income was $2.9 million for the year ended December 31, 2001.

Noninterest Expense

General and Administrative

     For the year ended December 31, 2001, general and administrative expenses were $155.3 million and included $8.2 million related to the prepayment of FHLB advances, $2.6 million related to our issuance of stock options during the second quarter with below market exercise prices, $2.4 million in legal and professional fees related to the implementation of our new strategic plan, a $1.0 million accrual related to postretirement health care benefits and $2.5 million in other non-recurring expenses.

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     The following table illustrates the ratio of our general and administrative expenses to average managed assets, including auto-related securitized assets, for the year:

     The following table illustrates our efficiency ratio for the year ended December 31, 2001:

Restructuring Charges

     During 2001, we recorded a total of $6.9 million in restructuring charges, primarily for employee severance costs related to a reduction in our workforce and facilities charges.

Revaluation of Franchise-Related Assets

     For the year ended December 31, 2001, writedowns of certain franchise-related assets resulted in $70.1 million of pre-tax expense. These writedowns included a $31.7 million charge on a sale of $278 million of franchise loans, a $13.6 million writedown of franchise servicing assets, $12.6 million of writedowns of retained interests in franchise loan securitizations, $5.0 million of writedowns of equity investments, and $1.9 million of writedowns of servicer advances.

Leasing Expenses

     For the year ended December 31, 2001, leasing expenses were $86.1 million, and included $18.7 million of impairment charges. At December 31, 2001, approximately 9,000 of the 18,272 vehicles in our automobile lease portfolio, or 49%, were considered impaired under Statement of Financial Accounting Standards No. 121.

Real Estate Owned

     The net expense related to our real estate owned was $2.1 million for the year ended December 31, 2001. Additionally, we recorded $2.9 million of provision for losses on real estate owned during 2001.

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Amortization of Intangible Assets

     Amortization expense related to intangible assets was $11.3 million for the year ended December 31, 2001.

Income Taxes

     For the year ended December 31, 2001, the Company recorded an income tax benefit of $85.9 million; our effective tax rate was 45.9%. Our effective tax rate differed from the federal statutory rate of 35.0% due primarily to the impact of nondeductible goodwill, state income taxes, and the impact of a $26.0 million valuation allowance established against our gross deferred tax assets in 2000 that was eliminated in 2001.

Capital Securities

     Dividend expense on the Capital Securities was $9.8 million for the year ended December 31, 2001. Deferred dividends associated with our agreement with the FRB, as previously discussed, were $14.1 million at December 31, 2001.

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Balance Sheet Analysis

     Our total assets were $363.9 million at December 31, 2003 compared to $875.5 million at December 31, 2002. The decrease of $511.6 million was, in general, attributable to the liquidation of assets and the satisfaction of liabilities of the Bank completed under our Amended Plan. At year-end, we distributed $263.2 million, or $4.00 per share, in cash to our common stockholders and redeemed $63.5 million, or approximately 74%, of the outstanding Capital Securities issued by our Bay View Capital I Trust.

Cash and Cash Equivalents

     At December 31, 2003, our cash and cash equivalents totaled $11.6 million and consisted of $11.5 million of cash deposited at depository institutions and $0.1 million of money market funds. At December 31, 2002, our cash and cash equivalents totaled $207.8 million and consisted of $56.1 million of cash deposited at depository institutions, $95.7 million of Federal Funds and $56.0 million of commercial paper and money market funds.

Restricted Cash

     We held $32.2 million and $15.5 million of restricted cash at December 31, 2003 and 2002, respectively. Restricted cash was comprised of cash collateral pledged to secure letters of credit, cash retained in reserve accounts established by BVAC’s auto securitization trusts for purposes of providing credit enhancement for our asset-backed bond issuances, cash collateral to meet margin requirements of counterparties to BVAC’s hedging contracts, cash collateral pledged to secure the Company’s financing secured by our auto lease cash flows, and cash collateral retained to cure potential borrowing base deficiencies on BVAC’s warehouse line of credit.

Retained Interests in Securitizations

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

     During 2003 and 2002, we securitized and sold auto installment contracts of $193.3 million and $453.2 million, respectively. We retained interests in these securitizations with initial balances of $9.5 million and $23.2 million for 2003 and 2002, respectively. During 2003, BVAC exercised “clean-up” calls on its 1999-LJ-1 and 2000-LJ-1 automobile receivable backed notes and repurchased installment contracts from the asset-backed bond trusts with par values of $21.8 million and $33.8 million and average coupon rates of 12.52% and 10.25%, respectively.

     In connection with our acquisition of FMAC in 1999, we acquired retained interests in franchise loan and lease securitizations. We also retained interests in franchise loans that we securitized and sold during 1999 and 2000. During 2002, we wrote-off the remaining balance of these franchise securitization residual assets, totaling $4.9 million, primarily as a result of deterioration in the franchise loans underlying the securities.

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Mortgage-backed and Other Securities

     Prior to initiating our liquidation of the Bank, we purchased high-quality mortgage-backed and other securities including U.S. government agency notes and other short-term securities, to supplement our loan production. The following table provides information on the balance of mortgage-backed and other securities as of the dates indicated:

     The balance of this portfolio, totaling $6.1 million as of December 31, 2003, is held in our available-for-sale portfolio. During 2003, we sold $12.5 million of mortgage-backed securities and $2.7 million of asset-backed securities, realizing losses of $30 thousand. We did not purchase any mortgage-backed or other securities during 2003. During 2002, we sold $180.1 million of mortgage-backed securities and $74.8 million of other securities, primarily trust preferred and asset-backed securities, realizing gains of $1.2 million. We purchased $60.5 million of mortgage-backed securities and $55.9 million of asset-backed securities during the year.

     We do not maintain a trading portfolio. Unrealized losses of $54,000 on securities available-for-sale were recorded upon our re-adoption of the going concern basis of accounting on October 1, 2003, and were included in stockholders’ equity (net of taxes) at December 31, 2003.

     As previously discussed, we used the liquidation basis of accounting from September 30, 2002 through September 30, 2003. Under the liquidation basis of accounting, mortgage-backed and other securities were carried at market value and unrealized gains and losses were recognized in income as liquidation basis adjustments. Upon our adoption of the liquidation basis of accounting at September 30, 2002, we recognized $2.0 million of mark-to-market gains on our mortgage-backed and other securities. We subsequently recognized $253 thousand and $795 thousand of mark-to-market losses during the fourth quarter of 2002 and the first nine months of 2003, respectively.

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Loans and Leases

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

(1) Auto installment contracts exclude auto-related operating lease assets.

(2) Amounts at December 31, 2003 are related to auto installment contracts.

(3) All loans and leases are classified as held-for-sale at December 31, 2003 and December 31, 2002.

     The decrease in loans and leases receivable from December 31, 2002 to December 31, 2003 was attributable to loan sales pursuant to the Amended Plan and repayments. During 2003, we completed the sale and/or securitization of approximately $339.8 million of loans and received an additional $129.6 million of loan repayments. Other than BVAC’s purchases of auto installment contracts, we ceased all other loan production activities during the fourth quarter of 2002.

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     The following table illustrates the purchase and origination activity in our loan and lease portfolio for the periods indicated:

Auto Installment Contracts

     During 2003, BVAC purchased $279.5 million of installment contracts on new and used vehicles. The year-to-date volume consisted of 9,762 contracts with weighted-average contract rates of 8.35% and weighted-average FICO scores of 733. As previously mentioned, during 2003, BVAC also called its 1999-LJ-1 and 2000-LJ-1 automobile receivable backed notes and repurchased installment contracts from the asset-backed bond trusts with par values of $21.8 million and $33.8 million and average coupon rates of 12.52% and 10.25%, respectively. At December 31, 2003, BVAC was servicing 30,808 contracts representing $562.8 million of managed loans.

     We believe BVAC’s purchase volumes for 2003 were somewhat below our expectations for several reasons. During the year, incentive financing from auto manufacturers, including zero percent financing out to a term of 72 months, was widely available on new vehicles. These products encroached on BVAC’s traditional market in extended-term contracts, which appeal to monthly payment-oriented buyers of new vehicles. Incentive financing offered on new vehicles also drew a segment of BVAC’s used vehicle buyers/borrowers into new vehicle purchases. In the past year’s recessionary environment, BVAC chose to remain focused on credit quality rather than market share, and also reduced its purchases of installment contracts from certain independent dealers.

     In addition, BVAC has historically aligned itself with smaller, franchised and independent dealers. In recent years, however, the industry has experienced intense merger and acquisition activity that has led to the emergence of large, regional and national automobile dealership organizations, causing BVAC to lose production volume from its existing dealer base. In response, BVAC began a campaign to establish relationships with these regional and national dealer organizations during 2003 and, as of December 31, 2003, has signed agreements with five of these organizations representing 370 dealership stores. During 2004, BVAC will continue to pursue this strategy.

     BVAC is continuing a geographic expansion plan that it initiated in late 2002. From its established presence in 17 states, primarily in the West, Midwest and Florida, BVAC entered seven Mid-Atlantic states in 2003. In 2004, BVAC plans to enter nine additional states primarily in New England, as well as Oklahoma.

     BVAC securitized and/or sold approximately $240.5 million of automobile installment contracts during 2003. Gains of $0.9 million were realized on these transactions. Repayments of installment contracts totaled $79.0 million during 2003.

Other Loans and Leases

     During 2003, we liquidated $149.9 million from our portfolio of other loans and leases including $99.3 million of sales and $50.6 million of loan repayments. These loan sales and repayments were comprised of $91.5 million of asset-based loans, $33.4 million of franchise loans, $10.8 million of syndicated loans, $7.0 million of commercial real estate loans, $3.9 million of multi-family mortgage loans and $3.3 million of business loans, factored receivables and

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commercial leases. At December 31, 2003, the net carrying value of our remaining investment in loans to be liquidated was $12.1 million.

Credit Quality

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

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

     The decrease in total nonperforming assets at December 31, 2003, compared to December 31, 2002, was primarily due to a decrease in nonaccruing franchise, syndicated and commercial real estate loans, primarily resulting from loan sales and prepayments partially offset by an increase in real estate owned. We transferred $7.0 million of nonperforming franchise loans to real estate owned and recognized a loss of $0.5 million during 2003. Our nonperforming assets included valuation allowances of $1.4 million and $16.4 million at December 31, 2003 and 2002, respectively. Nonperforming assets excluding franchise-related assets were $1.4 million at December 31, 2003, compared to $6.3 million at December 31, 2002, while non-franchise nonaccrual loans and leases were $0.9 million at December 31, 2003 compared to $5.9 million at December 31, 2002.

     Interest on nonaccrual loans and leases that was not recorded in income was $1.6 million for the year ended December 31, 2003. Actual interest that we realized on these nonaccrual loans and leases during 2003 was immaterial.

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

     The following table illustrates loans and leases delinquent 60 days or more as a percentage of gross loans and leases by their original loan and lease type:

Allowance for Loan and Lease Losses (ALLL)

     Prior to September 30, 2002, the Company maintained an ALLL. Upon adoption of the liquidation basis of accounting, the Company ceased to have the ALLL because its loans were carried at their net realizable value. Upon re-adoption of the going concern basis of accounting on October 1, 2003, the Company carries its loans at the lower of cost or market since all of its loans are classified as available-for-sale. The following discussion relates to the periods from January 1, 2001 to September 30, 2002.

     Credit risk and potential loss are inherent in the lending process. The purpose of the ALLL is to absorb losses that are probable and estimable in our loan portfolio. The ALLL is augmented through charges to earnings called provisions. Known losses are charged to the ALLL. Management seeks to reduce credit risk and therefore potential loss by administering established lending policies and underwriting procedures combined with continuous monitoring of the portfolio.

     The adequacy of the ALLL was formally evaluated on a quarterly basis. As discussed in more detail below, specific credits and the portfolio in general are evaluated by several methods incorporating historical performance, collateral protection, cash flow and analysis of current economic conditions. This evaluation culminates with a judgment on the probability of collection based on existing and probable near-term events. Discontinued lending

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operations receive the same scrutiny as ongoing operations but do not have the additional risk inherent in accepting new business.

Deposits

     During the second quarter of 2002, we began acquiring brokered certificates of deposit to provide additional liquidity in anticipation of funding the U.S. Bank sale transaction. As previously discussed, on November 1, 2002, we completed a sale of the Bank’s retail banking assets to U.S. Bank. U.S. Bank assumed the Bank’s retail deposits totaling $3.3 billion, its branches and service center operations, and purchased $327.7 million of loans. At December 31, 2002, $224.2 million of brokered certificates of deposit were outstanding with a weighted-average rate of 2.35%; these deposits matured during the first quarter of 2003. The dissolution of the Bank was completed on September 30, 2003, and the last of the Bank’s deposits were repaid prior to the dissolution.

Borrowings

     At December 31, 2003, our borrowings totaled $179.1 million including $138.2 million on BVAC’s warehouse credit facility, $16.1 million on a financing secured by the auto lease portfolio contractual cash flows, and $24.8 million of Junior Debentures issued to the Bay View Capital I Trust.

     Warehouse credit facility - During the second quarter of 2003, BVAC obtained a $250.0 million revolving warehouse credit facility to finance BVAC’s current portfolio of auto installment contracts and its future originations of auto installment contracts. BVAC intends to periodically securitize and sell its production of automotive loans in order to repay the line of credit.

     Financing secured by auto lease portfolio contractual cash flows - On December 31, 2001, we completed a financing secured by the contractual cash flows of our auto operating lease portfolio. The transaction was recorded as a secured financing and resulted in an increase in other borrowings of $136.5 million at an initial imputed interest rate of 5.25%. There have been no new auto leases originated since June 2000 and therefore, the auto operating lease cash flows decrease monthly and are scheduled to conclude in November 2005.

     Junior Debentures issued to the Bay View Capital I Trust - In December 1998, we issued, through Bay View Capital I Trust, $90.0 million in Capital Securities yielding 9.76%, which mature on December 31, 2028. As previously mentioned, effective 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 resulted in the reclassification of our Capital Securities from their prior classification as a “mezzanine” item to liabilities. During the third quarter of 2003, we completed an offer of optional redemption of our Capital Securities and redeemed $4.5 million of the original balance. On December 31, 2003, we redeemed an additional $63.5 million, or approximately 74%, of the Capital Securities leaving an outstanding balance of $22.0 million. We currently anticipate redeeming the remaining Capital Securities during 2004.

     Effective December 31, 2003, we adopted FASB Financial Interpretation No. 46, “Consolidation of Variable Interest Entities,” and accordingly, deconsolidated Bay View Capital I Trust. As a result, as of December 31, 2003, the 9.76% Capital Securities of Bay View Capital I Trust are no longer reflected on our Consolidated Statement of Financial Condition while the underlying 9.76% Junior Subordinated Deferrable Interest Debentures, which were acquired by Bay View Capital I Trust, are reflected as borrowings.

     In August 1997, we issued $100.0 million of 9.125% Subordinated Notes, maturing on August 15, 2007 and on August 18, 1999, the Bank issued $50.0 million of 10% Subordinated Notes, maturing August 2009. On November 29, 2002, we called the $100.0 million of 9.125% Subordinated Notes at a premium of 4.563% and on December 9, 2002, the Bank called the $50.0 million of 10% Subordinated Notes at par.

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Liquidity and Capital Resources

     The objective of our liquidity management is currently twofold – to ensure that funds are available to finance BVAC’s purchases, warehousing and securitization/sale of installment contracts and to complete the liquidation of the Bank. At December 31, 2003, we had $43.8 million of cash and cash equivalents of which approximately $32.2 million was restricted. Restricted cash is largely comprised of the following – cash collateral pledged to secure letters of credit, cash retained in reserve accounts established by BVAC’s auto securitization trusts for purposes of providing credit enhancement for our asset-backed bond issuances, cash collateral to meet margin requirements of counterparties to BVAC’s hedging contracts, cash collateral pledged to secure the financing secured by our auto lease cash flows, and cash collateral retained to cure potential borrowing base deficiencies on BVAC’s warehouse line of credit.

     Since the U.S. Bank transaction, we have used the proceeds from our liquidation, and sales and a securitization of auto installment contracts to fund BVAC’s purchases of installment contracts, repay borrowings and maturing brokered certificates of deposit, pay a $4.00 per share distribution to our common stockholders and to meet other working capital needs. With our adoption of a process of partial liquidation, BVAC is the sole operating subsidiary that has ongoing operations. With the exception of BVAC’s assets and liabilities and our operating auto lease assets, we are proceeding with the remaining liquidation and anticipate that this process will be substantially completed during 2004. The liquidation of the auto leases, which will be funded from the proceeds from sales of the vehicles as they come off of expiring lease contracts, is anticipated to be completed by the end of the third quarter of 2005, consistent with the maturities of these leases. Our uses of liquidity are now largely limited to funding BVAC’s purchases of installment contracts and its other working capital needs.

     On December 31, 2002, following approval by the FRB of San Francisco, we paid cumulative deferred distributions, interest on the deferred distributions and the current quarterly distribution on our Capital Securities. During 2003, we paid the quarterly dividends as scheduled. On December 30, 2003, we distributed $263.2 million, or $4.00 per share in cash, to common stockholders and, on December 31, 2003, redeemed $63.5 million, or approximately 74%, of the outstanding Capital Securities of the Bay View Capital I Trust.

     We currently anticipate redeeming the remaining $22.0 million of the Bay View Capital I Trust, 9.76% Cumulative Capital Securities during 2004. We also anticipate making additional cash distributions of approximately $1.45 per share to common stockholders through a series of six quarterly distributions beginning in the second quarter of 2004 and continuing through the third quarter of 2005. The repayment of the Capital Securities and the cash distributions to stockholders will be funded with existing cash and cash equivalents as well as proceeds from the disposition of remaining assets during 2004 and 2005. During the fourth quarter, BVAC pledged the balance of its warehouse inventory of installment contracts and drew on its credit facility. Subsequently, BVAC will fund its purchases of installment contracts with its credit facility and will periodically securitize or sell these contracts in order to provide it with liquidity to continue its purchases.

     Our stockholders’ equity was re-established upon our re-adoption of a going concern basis of accounting effective October 1, 2003. Stockholders’ equity totaled $155.8 million at December 31, 2003.

     With the Bank’s dissolution on September 30, 2003, we ceased to be a bank holding company. Consequently, we are no longer subject to the regulatory capital guidelines administered by the FRB.

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Stock Repurchase Program

     In August 1998, our Board of Directors authorized the repurchase of up to $50.0 million in shares of our common stock. We have not repurchased any shares of our common stock since 1999. At December 31, 2003, we had approximately $17.6 million in remaining authorization available for future share repurchases.

Impact of Inflation and Changing Prices

     Our consolidated financial statements presented herein have been prepared in accordance with GAAP, which generally require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time. Due to the fact that most assets and liabilities of a consumer finance company are monetary in nature, interest rates have a more significant impact on a consumer finance company’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or magnitude as the prices of goods and services.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Asset/Liability Management

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

     Fixed-rate Auto Installment Contracts

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

     Net Interest Income

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

     To protect the Company from interest risk, we use various derivative financial instruments including interest rate swap contracts to protect the market value of our warehouse inventory of installment contracts and the net interest income produced by our warehouse inventory. The market value of these derivative instruments is designed to respond inversely to the market value of our warehouse inventory resulting from changes in prevailing market interest rates. These agreements are entered into as we purchase installment contracts; the agreements are closed out at the time installment contracts are securitized or sold. Our policy is to maintain a fully hedged position on our warehouse inventory. At December 31, 2003, we had entered into SWAP contracts with a total notional amount of $133.0 million and an unrealized loss of $1.6 million, under which we pay a fixed interest rate of 2.29% and receive a floating interest rate of 1.18%. These contracts mature in September 2004 and September 2006. An increase of 100 or 200 basis points will result in an approximate gain of $0.5 million and $2.5 million, respectively, on these contracts; while a decrease of 100 basis points will result in an approximate loss of $3.8 million.

     As a result of our re-adoption of the going concern basis of accounting effective October 1, 2003, we account for changes in the market value of derivative instruments as prescribed by Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Our swap agreements are not treated as hedge instruments under Statement No. 133 and are being carried at fair value, with changes in such fair value charged or credited to earnings.

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

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     The following table provides information about the Company’s interest rate-sensitive financial instruments by expected maturity date as of December 31, 2003 (dollars in thousands):