United States
SECURITIES AND EXCHANGE COMMISSION

For the fiscal year ended December 31, 2004

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 þ NO o

     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. o

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

     The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2004 was $131,940,439, based upon the price at which the common equity was last sold on the New York Stock Exchange as of such date.

     There were 6,595,886 shares of Common Stock, $0.01 par value, outstanding as of February 28, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

     Part III of Form 10-K – Portions of the definitive Proxy Statement for Registrant’s 2005 Annual Meeting of Stockholders to be filed not later than April 30, 2005 with the Securities and Exchange Commission are incorporated by reference in Items 10, 11, 12, 13 and 14.

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”), our strategy to maximize stockholder value through use of our net operating loss carryforwards, and the continuing disposition of assets and satisfaction of liabilities we acquired when Bay View Bank, N.A. (the “Bank”) dissolved 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, our actual results from the ongoing operations of BVAC and the continuing disposition of assets and satisfaction of liabilities we assumed from the Bank may differ materially from those that we currently anticipate.

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

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

Cash Distributions

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

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

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Part I

Item 1. Business

General and Business Overview

     We are 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 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 liquidation basis accounting effective September 30, 2002.

     During the fourth quarter of 2003, our Board amended the Plan to become a plan of partial liquidation (the “Amended Plan”) under which we are completing the liquidation of the assets and satisfaction of the liabilities of the Bank remaining after the Bank’s September 30, 2003 dissolution, distributed a major portion of the proceeds to our stockholders through a series of cash distributions, and continue to operate BVAC, our wholly-owned automobile finance subsidiary. When we adopted the Amended Plan, we discontinued our use of liquidation basis accounting and re-adopted going concern basis accounting effective October 1, 2003.

     Among the factors considered by our Board in deciding to engage in a partial liquidation rather than a complete liquidation were:

	•	Adverse market conditions in the auto finance sector, which caused our Board to conclude that the near-term sale of BVAC to a third party, or distribution of the stock of BVAC to our stockholders, as contemplated by the Plan, 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 we would have if we were operating as a dissolving corporation.

     In accordance with the Amended Plan, we redeemed $63.5 million of our 9.76% Cumulative Capital Securities (the “Capital Securities”) on December 31, 2003, and redeemed the remaining $22.0 million of these Capital Securities on June 30, 2004 and, between December 31, 2003 and December 31, 2004, distributed $311.0 million in cash to our stockholders, or $47.25 per share after adjustments to reflect the retroactive effect of the 1-for-10 reverse stock split of our common stock effective June 30, 2004.

     At December 31, 2004, we had assets of $423.3 million, liabilities of $319.1 million and stockholders’ equity of $104.2 million. Refer to “Forward-Looking Statements - Cash Distributions” for comments about future cash distributions.

Auto Finance

     BVAC is a Southern California-based auto finance company engaged in the indirect financing of automobile purchases by individuals. Of the auto contracts BVAC purchased in 2004, 93% were originated by manufacturer-franchised dealerships and the remaining 7% were originated by independent dealerships; 52% were contracts on new vehicles and 48% were contracts on used vehicles. BVAC purchases auto contracts from approximately 7,000 automobile dealers in 33 states with limited recourse to the dealer.

     BVAC has historically positioned itself in the market as a premium priced lender for well-qualified borrowers seeking extended-term financing and/or higher advance rates than those generally offered by traditional lenders. This

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strategy has enabled BVAC to establish a loyal dealership network by satisfying a unique niche within the indirect auto finance market that large commercial banks and captive finance companies have not served well. Recently, BVAC has begun leveraging this established reputation with its dealers to broaden its array of auto financing programs available to prime credit quality borrowers.

     BVAC places a strong emphasis on borrower stability, credit quality and debt serviceability. With Fair, Isaac & Co., or “FICO,” credit scores that averaged 739 in 2004, BVAC’s borrower base is largely comprised of prime credit quality borrowers. BVAC currently offers financing terms to 96 months and typically finances an amount in excess of a dealer’s wholesale value of a vehicle. During 2004, the term to maturity on auto contracts purchased by BVAC averaged 83 months and the loan-to-value ratio averaged 125%. The average loan amount financed by BVAC was $29,400.

     Since the liquidation of the Bank, BVAC has operated as an independent finance company, rather than a portfolio-lending unit of the Bank, purchasing auto contracts primarily for sale or securitization, and servicing these auto contracts. BVAC has a $350.0 million revolving warehouse credit facility to fund its purchases of contracts, and periodically sells or securitizes auto contracts in order to pay down the facility and maintain available borrowing capacity. BVAC retains the servicing obligation on the contracts that it sells or securitizes, which provides us with a source of fee income over the life of the contracts. At December 31, 2004, BVAC had $298.8 million outstanding under this credit facility to purchase auto contracts. On February 17, 2005, BVAC issued $232.1 million of auto receivable backed notes and repaid $217.8 million of borrowings on the credit facility.

     BVAC’s headquarters and operations center is located in Covina, California. The operations center manages the underwriting of contracts and supports its dealer relationships. It also houses BVAC’s servicing and collections activities involving more than 28,000 accounts representing $571 million of managed contracts as of December 31, 2004. BVAC also administers lease customer re-marketing and asset disposition activities in its operations center for the auto lease portfolio that we assumed from the Bank and are liquidating. In 2004, BVAC completed a geographical expansion that was initiated in late 2002, expanding into a total of 33 states from its established presence in 17 states, primarily in the West, Midwest and Florida. In 2003, BVAC entered seven Mid-Atlantic states including Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee and Virginia. In 2004, BVAC entered nine additional states including Alabama, Connecticut, Delaware, Kansas, Kentucky, Maine, Massachusetts, New Hampshire and Oklahoma.

Liquidating Portfolio

     As of December 31, 2004, our ongoing business consisted solely of the indirect automobile financing conducted by BVAC. Our only other activity is the continuing liquidation of the assets we assumed from the Bank. The following descriptions are provided to reflect the outstanding balances of these assets at December 31, 2004. All outstanding balances at December 31, 2004 are classified as held-for-sale.

     Auto Leases - Auto leases totaled $10.0 million, net of accumulated depreciation, impairment charges and valuation allowances at December 31, 2004, and represented 2.4% of our consolidated assets. We ceased purchasing auto leases in June 2000. The auto leases are accounted for as operating leases and the lease assets are capitalized and depreciated to their estimated residual value over the term of the leases. At December 31, 2003, auto leases totaled $66.7 million.

     Other Loans - At December 31, 2004, our other loans consisted of asset-based and franchise loans. During 2004, sales, as well as loan payoffs and amortization, reduced our other loans to $0.9 million at December 31, 2004 from $12.1 million at December 31, 2003.

     Real Estate Owned - At December 31, 2004, our real estate owned totaled $3.4 million and consisted of foreclosed commercial properties.

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Funding Activities

     In addition to BVAC’s warehouse credit facility, we have one other borrowing, representing the remaining balance of a structured financing secured by the contractual cash flows from our auto lease portfolio. This borrowing totaled $1.9 million at December 31, 2004.

Debt

     As of December 31, 2004, we had no other outstanding debt beyond the aforementioned warehouse credit facility and the structured financing. At December 31, 2003, we had $24.8 million of outstanding debt represented by 9.76% Junior Subordinated Deferrable Interest Debentures (the “Junior Debentures”) that we issued to Bay View Capital I, a Delaware business trust we sponsored. The Junior Debentures supported the $22.0 million of outstanding 9.76% Capital Securities that were issued by Bay View Capital I. Effective December 31, 2003, in accordance with the requirements of Financial Accounting Standards Board Financial Interpretation No. 46, “Consolidation of Variable Interest Entities, as revised,” we deconsolidated Bay View Capital I and the Capital Securities. As a result of this deconsolidation, the debt reflected in our consolidated financial statements as of December 31, 2003 reflected the Junior Debentures instead of the Capital Securities.

     During the second quarter of 2004, we redeemed the remaining $22.0 million of outstanding Capital Securities and the underlying $24.8 million of outstanding Junior Debentures.

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 BVAC’s competitors have greater financial resources and capitalization, greater access to existing and newly emerging capital markets, better economies of scale and more favorable cost of funds than BVAC does. 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 BVAC does not provide. We believe that BVAC competes primarily on the basis of the relative uniqueness of the extended term and over-advance features of its products. Accordingly, BVAC may not 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 occur during periods of economic slowdown. Decreased demand for automobiles may also depress values of used automobiles, which weakens the collateral values of BVAC’s auto contracts. Depressed values of used automobiles during periods of economic slowdown may reduce the value of repossessed and off-lease vehicles and may require greater reserves and could result in greater losses for us. Sustained periods of increased delinquencies and losses from defaults and repossessions could adversely affect BVAC’s financial position, results of operations and liquidity by limiting its ability to enter into future securitizations or sales of its auto contracts.

     BVAC’s profitability is also dependent on the interest rate spread it earns on auto contracts, the difference between the interest earned on its fixed rate auto contracts and the rate it pays on its floating rate borrowings, and the price it receives for the fixed rate contracts that are securitized or sold. BVAC monitors interest rates and utilizes derivative instruments to economically hedge interest rate volatility, however, market interest rates are highly sensitive to many factors that are beyond BVAC’s control, such as inflation, recession and unemployment and the impact of future changes in domestic and foreign economic conditions that BVAC cannot predict.

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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 USA 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 in all material respects with these laws and regulations.

     Our common stock is 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.”

     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. Upon 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, such as BVAC. 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, Board of Governors of the Federal Reserve System’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 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 BVAC’s ability to enforce the contracts it purchases.

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Employees

     At December 31, 2004, we had a total of 125 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. Catalano has submitted his resignation effective April 8, 2005.

     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 us 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. Chatterjee has served as President and Chief Executive Officer of BVAC and as Executive Vice President and Director of Retail Operations of Bay View Capital Corporation since September 2004. Prior to joining us, he served as Executive Vice President, Head of Consumer Lending, at AmSouth Bancorp from 1997 to 2002 and U.S. Bancorp from 1995 to 1997. Mr. Chatterjee has over 17 years of consumer lending experience and has served as a member of the Automobile Finance Committee of the Consumer Bankers Association for more than 10 years.

     Mr. Catalano, Senior Vice President, became our General Counsel and Corporate Secretary 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. Okubo, Executive Vice President, has served as our Chief Financial Officer since November 2002. Mr. Okubo joined us 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.

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     Ms. Soukiassian, Senior Vice President, was promoted to General Auditor in November 2002. Previously, she served as our Director of Corporate Projects 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, 2004, we occupied three offices including our corporate headquarters office and had an additional two 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

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

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

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

Item 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, 2004.

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Part II

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

     Our common stock is traded on the NYSE under the stock symbol “BVC.” On June 24, 2004, our stockholders approved a 1-for-10 reverse stock split of the issued and outstanding shares of our common stock. The reverse stock split became effective on June 30, 2004. Accordingly, all shares outstanding and per share amounts are presented on a post-reverse stock split basis for all periods reported. At December 31, 2004, 6,593,860 shares of our common stock were outstanding, and held by 1,516 stockholders of record. During 2004, we distributed $7.25 per share in cash to our common stockholders - $2.50 per share on June 30, 2004, $2.50 per share on September 30, 2004 and $2.25 per share on December 31, 2004. On December 31, 2003, we distributed $40.00 per share in cash to our common stockholders. The effect of these distributions is reflected in the following tables that set forth quarterly closing stock price activity for 2004 and 2003:

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

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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”), is an automobile finance company engaged in indirect purchases of retail automobile installment contracts originated by manufacturer-franchised and independent dealers in connection with the sale of new and used automobiles. BVAC generates revenue through its investment in auto contracts, and the subsequent securitization or sale and servicing of these auto contracts.

Restatement

     During the Company’s year-end audit and Sarbanes-Oxley Section 404 review, the Company determined that it should have recognized a total of $0.4 million of unrealized after-tax losses on certain derivative instruments. As described in Note 21 to the consolidated financial statements, “Selected Quarterly Results of Operations (Unaudited),” at Item 8, such restatements increased our reported net losses for the first, second, third and fourth quarters of 2004.

Liquidation of the Bank

     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 liquidation basis accounting effective September 30, 2002.

     During the fourth quarter of 2003, our Board amended the Plan to become a plan of partial liquidation (the “Amended Plan”) under which we are completing the liquidation of the assets and the satisfaction of the liabilities of the Bank remaining after the Bank’s September 30, 2003 dissolution, distributed a major portion of the proceeds to our stockholders through a series of cash distributions, and continue to operate BVAC. When we adopted the Amended Plan, we discontinued our use of liquidation basis accounting and re-adopted going concern basis accounting effective October 1, 2003. With the Bank’s dissolution on September 30, 2003, its remaining assets and liabilities were transferred to us, as the Bank’s sole stockholder, and we ceased to be a bank holding company and, along with our subsidiaries, were 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 and the Federal Deposit Insurance Corporation.

     Among the factors considered by our Board in deciding to engage in a partial liquidation rather than a complete liquidation were:

	•	Adverse market conditions in the auto finance sector, which caused our Board to conclude that the near-term sale of BVAC to a third party, or distribution of the stock of BVAC to our stockholders, as contemplated by the Plan, 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 we would have if we were operating as a dissolving corporation.

     In accordance with the Amended Plan, we redeemed $63.5 million of our 9.76% Cumulative Capital Securities (the “Capital Securities”) on December 31, 2003, and redeemed the remaining $22.0 million of these Capital Securities on June 30, 2004 and, between December 31, 2003 and December 31, 2004, have distributed $311.0 million in cash to our stockholders, or $47.25 per share after the adjustments to reflect the retroactive effect of the 1-for-10 reverse stock split of our common stock effective June 30, 2004.

     At December 31, 2004, we had assets of $423.3 million, liabilities of $319.1 million and stockholders’ equity of $104.2 million. Refer to “Forward-Looking Statements – Cash Distributions” for comments about future cash distributions.

Auto Finance

     BVAC is a Southern California-based auto finance company engaged in the indirect financing of automobile purchases by individuals. Of the auto contracts BVAC purchased in 2004, 93% were originated by manufacturer-

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franchised dealerships and the remaining 7% were originated by independent dealerships; 52% were contracts on new vehicles and 48% were contracts on used vehicles. BVAC purchases auto contracts from approximately 7,000 automobile dealers in 33 states with limited recourse to the dealer.

     BVAC has historically positioned itself in the market as a premium priced lender for well-qualified borrowers seeking extended-term financing and/or higher advance rates than those generally offered by traditional lenders. This strategy has enabled BVAC to establish a loyal dealership network by satisfying a unique niche within the indirect auto finance market that large commercial banks and captive finance companies have not served well. Recently, BVAC has begun leveraging this established reputation with its dealers to broaden its array of auto financing programs available to prime credit quality borrowers.

     BVAC places a strong emphasis on borrower stability, credit quality and debt serviceability. With Fair, Isaac & Co., or “FICO,” credit scores that averaged 739 in 2004, BVAC’s borrower base is largely comprised of prime credit quality borrowers. BVAC currently offers financing terms to 96 months and typically finances an amount in excess of a dealer’s wholesale value of a vehicle. During 2004, the term to maturity on auto contracts purchased by BVAC averaged 83 months and the loan-to-value ratio averaged 125%. The average loan amount financed by BVAC was $29,400.

     Since the liquidation of the Bank, BVAC has operated as an independent finance company, rather than a portfolio-lending unit of the Bank, purchasing auto contracts for sale or securitization, and servicing these auto contracts. BVAC has a $350.0 million revolving warehouse credit facility to fund its purchases of contracts, and periodically sells or securitizes auto contracts in order to pay down the facility and maintain available borrowing capacity. BVAC retains the servicing obligation on the contracts that it sells or securitizes, which provides us with a source of fee income over the life of the contracts. At December 31, 2004, BVAC had $298.8 million outstanding under this credit facility to purchase auto contracts. On February 17, 2005, BVAC issued $232.1 million of auto receivable backed notes and repaid $217.8 million of borrowings on the credit facility.

     BVAC’s headquarters and operations center is located in Covina, California. The operations center manages the underwriting of contracts and supports its dealer relationships. It also houses BVAC’s servicing and collections activities involving more than 28,000 accounts representing $571 million of managed contracts as of December 31, 2004. BVAC also administers lease customer re-marketing and asset disposition activities in its operations center for the auto lease portfolio that we assumed from the Bank and are liquidating. In 2004, BVAC completed a geographical expansion that was initiated in late 2002, expanding into a total of 33 states from its established presence in 17 states, primarily in the West, Midwest and Florida. In 2003, BVAC entered seven Mid-Atlantic states including Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee and Virginia. In 2004, BVAC entered nine additional states including Alabama, Connecticut, Delaware, Kansas, Kentucky, Maine, Massachusetts, New Hampshire and Oklahoma.

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 loan sales and retained interests in securitizations, allowance for credit losses, investment in operating lease assets, income taxes, and derivative instruments.

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Going Concern vs. Liquidation Basis Accounting

     For the period September 30, 2002 through September 30, 2003, we used liquidation basis accounting under which 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.

     With our adoption of the Amended Plan, we discontinued our use of liquidation basis accounting and re-adopted going concern basis accounting, and re-established our stockholders’ equity effective October 1, 2003. In connection with our re-adoption of 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 related to our acquisition of BVAC’s predecessor entity, CTL, Inc., that existed prior to our adoption of liquidation basis accounting;
	•	Premium on investment in BVAC: Reversed $10.0 million of premium over the book value of BVAC, which was recorded as deferred gain under liquidation basis accounting, and restored the historical cost basis in our equity investment in BVAC;
	•	Auto contracts: Reversed unrealized gains that were recorded under liquidation basis accounting and restored the lower of cost or market valuation;
	•	Mortgage-backed securities: Restored fair value accounting for these available-for-sale securities;
	•	Accrued liabilities: Reversed $1.7 million of accruals related to certain severance and occupancy costs that were recorded under liquidation basis accounting and adopted Statement No. 146 accounting for costs associated with disposal activities; and
	•	Stockholders’ equity: Restored stockholders’ equity as of October 1, 2003

     See Note 2 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies – Liquidation Basis,” under Item 8. “Financial Statements and Supplementary Data” for further discussion of the significant accounting policies that were applicable, under liquidation basis accounting, during the period September 30, 2002 through September 30, 2003.

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Loan Sales and Retained Interests in Securitizations

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

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

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

     The following table sets forth the significant assumptions used in the valuation of our retained interests as of December 31, 2004:

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

Allowance for Credit Losses

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

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

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payment status through 30-, 60- and 90-day delinquent status to charge-off and correlates this projection with loss reserve factors.

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

Investment in Operating Lease Assets

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

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

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

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

     For those leases considered impaired, we then estimate the fair value of the lease. The fair value is determined by calculating the present value of the future estimated cash flows again assuming the probabilities of each of the three disposition scenarios. The present value is calculated using current market interest rates, which are similar to the original contract lease rates. For those impaired leases where the estimated fair value is less than the net book value, an impairment charge is recorded for the difference. Annual depreciation expense associated with those leases that have reduced residual values is recomputed over the remaining term of the lease.

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Income Taxes

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

     At December 31, 2004, we had deferred tax assets of $21.2 million, consisting of net deferred tax assets of $42.7 million less a valuation allowance of $21.5 million. This valuation allowance was established in consideration of our projected future net income available to realize the deferred tax assets under the Amended Plan in years after 2004. The realization of deferred tax assets is dependent upon our ability to generate future taxable income.

Derivative Instruments

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

     Refer to “Balance Sheet Analysis” - “Borrowings, Warehouse Credit Facility” for additional comments about the derivative instruments maintained under the terms of our warehouse credit facility.

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

     Our derivative instruments outstanding at December 31, 2004 were comprised of interest rate swap contracts and interest rate caps. In accordance with Statement No. 133, these derivative instruments are accounted for as assets or liabilities and recorded at fair value. Because these derivatives do not meet specific high correlation tests required to use hedge accounting, changes in fair values are charged or credited to earnings.

     Prior to our re-adoption of going concern basis accounting, we accounted for changes in the market value of derivative instruments using liquidation basis accounting. Changes in the market value of these derivative instruments were reflected in our consolidated statements of net assets in liquidation under pre-tax loss from operations, while offsetting changes in the market value of underlying auto contracts were included in changes in estimated values of assets and liabilities. Refer to Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” - “Asset/Liability Management” for further comments about our use of derivative instruments.

Accounting Changes and Recent Accounting Pronouncements

     In March 2004, the FASB Emerging Issues Task Force (EITF) released Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” EITF 03-1 provides guidance for determining whether impairment for certain debt and equity investments is other-than-temporary and the measurement of an impaired loss. Certain disclosure requirements of EITF 03-1 were adopted in 2003 and the Company has complied with the new disclosure requirements in its consolidated financial statements. The recognition and measurement requirements of EITF 03-1 were initially effective for reporting periods beginning after June 15, 2004. In September 2004, the FASB Staff issued FASB Staff Position (“FSP”) EITF 03-1-1 that delayed the effective date for certain measurement and recognition guidance contained in EITF 03-1. The FSP requires that entities continue to apply previously existing “other-than-temporary” guidance until a final consensus is reached. We do not anticipate that issuance of a final consensus will materially impact our financial condition or results of operations.

     In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123-R, “Share-Based Payments,” a revision to Statement No. 123. Statement No. 123-R requires that a public entity measure the cost of equity based service awards based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award – the requisite service period, usually the vesting period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. A public entity will initially measure the cost of liability based service awards based on its current fair value; the fair value of that award will be re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. Statement No. 123-R eliminates the alternative to use the intrinsic value method of accounting under APB Opinion No. 25, “Accounting for Stock Issued to Employees,” that was provided in Statement No. 123 as originally issued. Adoption of Statement No. 123-R is required for fiscal periods beginning after June 15, 2005. We are evaluating Statement No. 123-R but do not expect adoption to have a material impact on our financial condition, results of operations or cash flows.

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Results of Operations

     From September 30, 2002 through September 30, 2003, we reported our results under liquidation basis 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. As discussed above, we discontinued the use of liquidation basis accounting and re-adopted going concern basis accounting effective October 1, 2003. Accordingly, our financial statements as of December 31, 2004 and 2003 and for the year ended December 31, 2004 and the quarter ended December 31, 2003 have been prepared under going concern basis accounting while reporting periods from September 30, 2002 through September 30, 2003 have been prepared under liquidation basis accounting. For reporting periods prior to September 30, 2002, our financial statements are also presented on a going concern basis of accounting. Accordingly, the following discussion of our results of operations for reporting periods for which our financial statements have been prepared under going concern basis accounting are presented independently from the discussion of our results of operations for which our financial statements have been prepared under liquidation basis accounting.

     Under liquidation basis accounting, the Consolidated Statement of Operations and Comprehensive Income was replaced with the Consolidated Statement of Changes in Net Assets in Liquidation. As a result, we are providing, in Item 8. Financial Statements and Supplementary Data,

	•	Consolidated Statements of Financial Condition as of December 31, 2004 and 2003,
	•	Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2004, the three months ended December 31, 2003 and the nine months ended September 30, 2002, and
	•	Consolidated Statements 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.

Going Concern Basis

Results of Operations – Year ended December 31, 2004

     Our consolidated net loss for the year ended December 31, 2004 was $3.9 million, or $0.59 per diluted share.

Net Interest Income

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

     Net interest income and net interest margin for the year ended December 31, 2004 were $13.8 million and 4.41%, respectively, while our average interest earning assets, excluding auto-related operating lease assets, totaled $312.4 million. For the year ended December 31, 2004, interest income was $22.6 million and the average yield on interest-earning assets was 7.23%, while interest expense on our borrowings was $8.8 million and the average cost of borrowings was 3.84%.

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     The following table sets forth average outstanding balances of assets and liabilities, interest income and expense, and average yields on our interest-earning assets and the average cost of our borrowings for the year ended December 31, 2004:

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

Provision for Losses on Installment Contracts

     At December 31, 2004, BVAC had $252.9 million of auto contracts designated as held-for-investment. An allowance for credit losses on these contracts was established through the provision for credit losses. Our provision for credit losses totaled $1.6 million for the year ended December 31, 2004. Refer to “Balance Sheet Analysis - Auto Contracts and Other Loans Receivable – Auto Contracts” for related information on BVAC’s allowance for credit losses on auto contracts held-for-investment.

Noninterest Income

     For the year ended December 31, 2004, noninterest income was $17.0 million and included $12.9 million of leasing income, $4.3 million of loan servicing and other loan fee income, $1.4 million of unrealized gains on derivative instruments

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and $1.4 million of unrealized losses on auto contracts and other loans carried at the lower of cost or estimated fair value. Noninterest income for 2004 also included $1.9 million of other losses, including write-offs of premium on auto contracts held-for-sale due to borrower pay-offs and charge-offs of defaulted auto contracts, and $1.7 million of other income. Leasing income has declined through the year as we continue to reduce the balance of our portfolio of auto leases. We ceased purchasing auto leases in June 2000 and, since then, the balance of our lease portfolio has continued to decline as leases have reached their end-of-term.

     As discussed in additional detail in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk - Asset/Liability Management,” we employ derivative instruments primarily to protect the value of BVAC’s fixed-rate auto contracts from rising interest rates. Our strategy is to protect the economic value of these auto contracts rather than the accounting values. We account for changes in the market value of our derivative instruments as prescribed by Statement No. 133. Our derivative instruments are not treated as designated hedge instruments under Statement No. 133 and are, accordingly, carried at fair value, with changes in such fair value charged or credited to earnings. Our use of fair value accounting for our derivative instruments has resulted in certain fluctuations in noninterest income. During 2004, we recorded $1.4 million of net unrealized gains on our derivative instruments, reflecting the increase in intermediate-term rates that occurred during the year. Future changes in interest rates could continue to produce fluctuations in the fair value of our derivatives and, therefore, the level of our noninterest income.

Noninterest Expense

     For the year ended December 31, 2004, our noninterest expense totaled $35.6 million and included $25.2 million of general and administrative expense, $9.2 million of leasing expense and $1.2 million of expense from real estate owned. The following table sets forth the ratio of our general and administrative expense to average managed assets, including auto-related securitized assets, on an annualized basis for the year ended December 31, 2004:

     General and administrative expense remained at high levels in 2004 as we continued to incur significant expenses related to the liquidation of assets and resolution of liabilities remaining from the Bank’s September 30, 2003 dissolution. During 2004, we employed an average of approximately 23 full-time equivalent employees and incurred significant legal and consulting expenses in connection with this liquidation process. We anticipate completing the significant, remaining aspects of the liquidation during 2005. During 2004, we also incurred $1.0 million of costs in connection with our implementation of the Sarbanes-Oxley Act of 2002.

     Our leasing expense continues to decline in line with the runoff of the balance of the remaining portfolio. We ceased purchasing auto leases in June 2000. Because our auto leases are accounted for as operating leases, the corresponding leased vehicles are capitalized and depreciated to their estimated residual values over their lease terms. This depreciation expense is included in leasing expense, along with the amortization of capitalized initial direct lease costs and lease impairment charges.

     We test the residual value of our auto lease portfolio for impairment on a quarterly basis. The percentage of leases considered impaired is a measure of the quarterly rate of decline in the residual value of our auto lease

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portfolio versus our depreciation and writedown of the residual value of our auto lease portfolio since the prior quarterly valuation. At December 31, 2004, there were no vehicles in our auto lease portfolio that were considered impaired under Statement No. 144, compared to 2% that were considered impaired at December 31, 2003. Higher percentages of impaired leases are indicative of more rapidly declining resale values for used vehicles. Current rates of impairment are not necessarily indicative of future rates of impairment. Impairment of lease residual values is a function of a number of significant factors that could change in the near term, and adversely affect the valuation of the auto lease portfolio. These factors were previously described under “Critical Accounting Policies - Investment in Operating Lease Assets.” Two of these factors, including ALG’s projections of lease residual values and the relative probabilities of the three alternatives for disposing of vehicles, are particularly susceptible to changes in market conditions.

     As an illustration, at December 31, 2003, a $250 decline in the market value of individual vehicles in our lease portfolio would have resulted in an additional 7% of the vehicles being deemed impaired, and subject to an impairment charge. At December 31, 2004, however, there were no additional vehicles that would have been determined to have been impaired if their market values had declined by such an amount. Impairment charges could increase if the percentage of vehicles returned to us were greater than the percentage that was projected at the year-end, because the proceeds realized when we must dispose of vehicles at the end of lease terms are generally less than if lessees purchase vehicles prior to the end of lease terms.

Income Taxes

     We recorded a tax benefit of $2.5 million for the year ended December 31, 2004. Our effective tax rate of 39.2% differed from the federal statutory rate due primarily to the effect of state income and franchise taxes.

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 going concern basis accounting effective October 1, 2003, totaled $0.7 million, or $0.10 per diluted share, and consisted of income from ongoing operations of BVAC totaling $0.8 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 going concern basis 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.

Net Interest Income

     For the quarter ended December 31, 2003, interest income was $4.9 million and the average yield on interest-earning assets was 4.56% while interest expense on our borrowings was $3.6 million and the average cost of borrowings, largely comprised of interest on our 9.76% Junior Subordinated Deferrable Interest Debentures (the “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 $40.00 per share in cash, to common stockholders on December 30, 2003 and redeem $63.5 million of the Capital Securities issued by Bay View Capital I 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.

     Implementation of Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” resulted in the reclassification of our Capital Securities from their prior classification as a “mezzanine” item to liabilities as of December 31, 2003. Accordingly, dividend expense on the Capital Securities, totaling $2.1 million and $8.8 million for the three- and twelve-months ended December 31, 2003, respectively, has been included in interest expense on borrowings.

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     The following table sets forth 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 period indicated. Average balances of interest-earning assets and interest-bearing liabilities were calculated by averaging the relevant month-end amounts for the period.

     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 Expense

     Leasing expense was $5.9 million for the three months ended December 31, 2003. At December 31, 2003, approximately 109 of the 5,341 vehicles in our automobile lease portfolio, or 2%, were considered impaired under Statement 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.

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Income Taxes

     We recorded a tax benefit of $0.2 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.

Liquidation Basis

Changes in Net Assets in Liquidation – Nine Months ended September 30, 2003

     Our net assets in liquidation totaled $409.8 million, or $63.60 in net assets in liquidation per outstanding diluted share at September 30, 2003 compared to $410.1 million, or $64.30 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 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 the Capital Securities, totaling $6.7 million during the nine-month period ended September 30, 2003, has been included in interest expense on borrowings.

     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 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.

     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 $64.30 in net assets in liquidation per outstanding share. Changes in net assets in liquidation included 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 payment totaled $6.10 per share for the 10 quarterly distributions plus $0.715 per share in accrued interest.

     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 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.

     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 going concern basis accounting to liquidation basis accounting effective September 30, 2002, totaled $71.7 million, or $11.35 per diluted share. Excluding the liquidation adjustments, our operating income before taxes totaled $5.9 million for the first nine months of 2002.

     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 liquidation basis 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 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

     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 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 sets forth average yields on our interest-earning assets and average rates on our interest-bearing liabilities for the period indicated:

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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 liquidation basis 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 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 sets forth 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 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.

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

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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.

Dividends on 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 accrued 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.

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Balance Sheet Analysis

     Our total assets were $423.3 million at December 31, 2004 compared to $364.1 million at December 31, 2003. This increase in total assets was attributable to asset growth by BVAC, which was offset, in part, by continued progress in liquidating the remaining assets of the Bank. During the year, BVAC’s purchases of auto contracts produced $162.0 million of growth in our warehouse inventory of auto contracts, net of repayments and loan sales. These purchases were largely funded by additional borrowings on our warehouse credit facility. The liquidation of the remaining Bank assets, including the monetization of $56.6 million of auto leases, funded our redemption of the $22.0 million of outstanding Capital Securities and distributions of $47.8 million, or $7.25 per share, in cash to our common stockholders during the year.

Cash and Cash Equivalents

     At December 31, 2004, our cash and cash equivalents totaled $4.4 million compared to $11.6 million at December 31, 2003. During 2004, we distributed $47.8 million of cash made available from the liquidation of the assets of the Bank to common stockholders — $16.5 million at June 30, 2004, $16.5 million at September 30, 2004 and $14.8 million at December 31, 2004.

Restricted Cash

     We held $26.8 million and $32.2 million of restricted cash at December 31, 2004 and 2003, respectively. Restricted cash attributable to BVAC’s auto finance business includes cash collateral provided to counterparties to BVAC’s hedging contracts to meet margin requirements, cash collateral provided to cure potential borrowing base deficiencies on BVAC’s warehouse credit facility and cash payments received from our customers that are in-transit to trust accounts for BVAC’s auto securitization trusts. The remaining assets from the Bank liquidation also include restricted cash that has been pledged to secure a letter of credit, cash collateral pledged in connection with financing secured by our auto lease portfolio contractual cash flow as well as cash collateral pledged in connection with the Company’s servicing of a multi-family loan pool and other contractual obligations.

Retained Interests in Securitizations

     The following table provides information on the balances of BVAC’s retained interests in its outstanding securitizations of auto contracts as of the dates indicated:

     During 2003 and 2002, we securitized and sold auto 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. At December 31, 2004, all retained interests in securitizations were classified as available-for-sale and reported at fair value. Unrealized losses of $279 thousand in these retained interests were included in our stockholders’ equity, net of taxes, at December 31, 2004. There were no unrealized gains or losses included in our stockholders’ equity at December 31, 2003.

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Auto Installment Contracts and Other Loans

     The following table sets forth the composition of our auto contracts and other loans as of the dates indicated:

     The increase in loans receivable from December 31, 2003 to December 31, 2004 was attributable to BVAC’s purchases of auto contracts partially offset by loan sales and repayments during 2004. During 2004, we sold $24.8 million of auto contracts, $4.8 million of business loans and $3.8 million of franchise loans, and received $112.8 million of loan repayments. With the exception of BVAC’s purchases of auto contracts, we ceased all other loan production activities during the fourth quarter of 2002.

Auto Contracts

     At December 31, 2004, $252.9 million of BVAC’s auto contracts were designated as held-for-investment in anticipation of securitizing such contracts in early 2005 in an asset-backed bond offering that is to be structured as a financing transaction. The remaining $75.0 million of BVAC’s warehouse inventory of auto contracts were designated as held-for-sale at December 31, 2004 and carried at the lower of cost or fair value. Prior to the second quarter of 2004, our entire warehouse inventory of auto contracts had been designated as held-for-sale.

     During 2004, BVAC purchased $295.3 million of auto contracts compared to $279.5 million during 2003, a 5.7% increase, year-over-year. During the fourth quarter of 2004, BVAC purchased $80.7 million of contracts, a 19.7% increase over its purchases of $67.4 million of contracts in the fourth quarter of 2003. We attribute this increase to the initial success of our efforts to broaden BVAC’s market for good credit quality customers and its focus on expanding its purchases of high quality loans. BVAC has increased its purchases of auto contracts every month since September 2004, and its December 2004 loan purchases were the highest achieved in any month in 2004.

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     BVAC’s unit purchase volume for 2004 totaled 10,043 contracts; the weighted-average contract rate on the 2004 purchases was 7.98% and the weighted-average FICO score was 739. At December 31, 2004, BVAC was servicing 28,300 contracts representing $570.9 million of managed loans.

     BVAC’s unit purchase volume for 2003 totaled 9,762 contracts; the weighted-average contract rate on the 2003 purchases was 8.35% and the weighted-average FICO score was 733. During 2003, BVAC called its 1999-LJ-1 and 2000-LJ-1 automobile receivable backed notes and repurchased auto 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.

     During 2004, BVAC sold $24.8 million of auto contracts on a “whole loan” basis with servicing retained. Gains of $0.1 million were realized on these sales. During 2003, BVAC securitized and/or sold $240.5 million of auto contracts. Gains of $0.9 million were realized on these transactions. Repayments of auto contracts totaled $110.5 million and $79.0 million during 2004 and 2003, respectively.

Other Loans

     At December 31, 2004, the net carrying value of other loans receivable, which we are in the process of liquidating, was $0.9 million compared to $12.1 million at December 31, 2003. These loans are designated as held-for-sale and carried at the lower of cost or fair value. During 2004, we sold or collected repayments of $10.9 million from our liquidating portfolio of business and franchise loans. During 2003, we liquidated a total of $149.9 million from this portfolio.

Credit Quality

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

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

     The decrease in total nonperforming assets at December 31, 2004, compared to December 31, 2003, was largely the result of progress made during 2004 in liquidating the commercial and franchise loan portfolio and real estate owned portfolio. During 2004, we also wrote down the value of our real estate owned portfolio by $875 thousand to reflect reduced property values.

     Our nonperforming assets included valuation allowances of $1.2 million and $1.4 million at December 31, 2004 and 2003, respectively. The following table sets forth nonperforming asset balances and nonperforming assets as a percentage of consolidated assets by their original loan type:

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     The following table sets forth loans delinquent 60 days or more as a percentage of gross loans by their original loan type:

Allowance for Credit Losses

     Under going concern basis accounting, we have maintained an allowance for credit losses for auto contracts and other loans held-for-investment. This allowance is established through a provision charged to expense and maintained at a level that we believe is sufficient to cover estimated probable losses in this loan portfolio. From September 30, 2002, when we adopted liquidation basis accounting, through the first quarter of 2004, all auto contracts and other loans receivable were designated as held-for-sale and, accordingly, a separate allowance for credit losses was not maintained. The following table sets forth the activity in the allowance for credit losses on loans held-for-investment as of and for the periods indicated:

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Deposits

     On November 1, 2002, we completed the 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, 2004, our borrowings totaled $300.7 million including $298.8 million on BVAC’s warehouse credit facility and $1.9 million on a financing secured by the contractual cash flows from the auto lease portfolio. The following table sets forth our outstanding borrowings as of the dates indicated:

     Warehouse credit facility - During the second quarter of 2004, BVAC secured a $350.0 million floating-rate, revolving warehouse credit facility to replace a maturing $250.0 million facility originally obtained in 2003. The facility is jointly provided by two lenders including a commercial paper conduit affiliated with one of the lenders (the “Note Purchasers”). The facility is for a term of 364 days and matures on June 25, 2005. The interest rate on a portion of the facility is indexed to asset-backed commercial paper rates; the balance of the facility is indexed to the 1 month Libor rate. BVAC draws on the facility to purchase and finance its existing inventory of auto contracts. Substantially all auto contracts retained by BVAC are pledged as collateral for the credit facility. We believe that the credit facility will continue to be renewed annually or that BVAC would be able to secure financing on satisfactory terms, however, there can be no assurance that it will be able to do so. Under the terms of the facility, BVAC draws on the facility by transferring auto contracts to a special purpose entity, a statutory trust, which issues notes to the Note Purchasers. BVAC periodically securitizes or sells auto contracts in order to pay down the line of credit and maintain borrowing capacity.

     At December 31, 2004, $298.8 million was outstanding under this facility with an all-in cost of 3.34%. These borrowings were secured by $314.5 million of auto contracts. The facility contains various performance triggers and default covenants requiring that BVAC maintain certain cumulative credit loss, delinquency and other financial ratios. As of December 31, 2004, all such financial and performance ratios were within required levels.

     Under the terms of the indenture, the trust enters into out-of-the-money, interest rate cap contracts, containing terms and conditions required by the Note Purchasers, to provide protection to the Note Purchasers from interest rate risk embedded in the fixed-rate auto contracts that have been transferred to the trust. BVAC incurs the cost of these interest rate caps. The notional balance of the amortizing caps is maintained by the trust to coincide with the outstanding balance of the underlying auto contracts. The interest rate caps are not designated as hedges for accounting purposes and, accordingly, changes in the fair value of the interest rate caps are recognized in earnings and recorded as unrealized gains or losses. The fair value of the interest rate caps is included in other assets. At December 31, 2004, the interest rate caps had a fair value of $0.7 million. For the year ended December 31, 2004, we recognized $0.7 million of unrealized losses based on a decline in the value of the interest rate caps.

     Financing secured by the contractual cash flows from the auto lease portfolio - On December 31, 2001, we completed a financing secured by the contractual cash flows from our liquidating 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%. With no new purchases of auto leases since June 2000, the outstanding balance of this borrowing has declined sharply since its inception. At December 31, 2004, the balance was $1.9 million.

     9.76% Junior Subordinated Deferrable Interest Debentures issued to Bay View Capital I - In December 1998, we issued $90.0 million of 9.76% Capital Securities through Bay View Capital I, a business trust formed to issue the securities. 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 2003, we redeemed $68.0 million of the Capital Securities leaving an outstanding balance of $22.0 million. On June 30, 2004, we redeemed the remaining $22.0 million.

     Effective December 31, 2003, we adopted FASB Financial Interpretation No. 46, “Consolidation of Variable Interest Entities, as revised,” and accordingly, deconsolidated Bay View Capital I Trust. As a result, as of December 31, 2003, the Capital Securities of Bay View Capital I are no longer reflected on our Consolidated Statement of Financial Condition while the underlying 9.76% Junior Debentures, which were issued to Bay View Capital I, are reflected as borrowings. On June 30, 2004, we redeemed the remaining $22.0 million of the outstanding Capital Securities and the underlying $24.8 million of Junior Debentures.

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Liquidity and Capital Resources

     In addition to the immediate liquidity provided by cash and cash equivalents, our $350.0 million revolving warehouse credit facility allows us to purchase and warehouse auto contracts. Our ability to securitize or sell auto contracts on a whole loan basis allows us to pay down the warehouse facility in order to maintain available borrowing capacity to fund future purchases of auto contracts. Repayments from warehoused auto contracts also provide liquidity. During 2004, liquidation of the assets of the Bank remaining from its September 30, 2003 dissolution, primarily the auto lease portfolio, also produced significant liquidity. However, the liquidation of these assets was largely completed in 2004 and they will be a decreased source of liquidity in 2005 and beyond.

     At December 31, 2004, we had $4.4 million of cash and cash equivalents, and $51.2 million of available borrowing capacity on our revolving warehouse credit facility of which $6.8 million was immediately available based upon BVAC-owned auto contracts eligible for pledging.

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

     On December 30, 2003, we distributed $263.2 million, or $40.00 per share in cash, to common stockholders and, on December 31, 2003, redeemed $68.0 million of the outstanding 9.76% Capital Securities. During the first half of 2004, we paid the quarterly interest due on the 9.76% Junior Debentures and redeemed the remaining $24.8 million of these securities and the related 9.76% Capital Securities. We also paid cash distributions of $47.8 million, or $7.25 per share, to our common stockholders - $16.5 million, or $2.50 per share, on June 30, 2004; $16.5 million, or $2.50 per share, on September 30, 2004; and $14.8 million, or $2.25 per share, on December 31, 2004.

     Under the Amended Plan, we are completing the liquidation of the assets and the satisfaction of the liabilities of the Bank remaining after its September 30, 2003 dissolution and anticipate that this process will be substantially completed during 2005. Refer to “Forward-Looking Statements – Cash Distributions” for comments about future cash distributions.

     Our stockholders’ equity was re-established upon our re-adoption of going concern basis accounting effective October 1, 2003. Stockholders’ equity totaled $104.2 million and $155.9 million at December 31, 2004 and 2003, respectively.

Contractual Obligations

     Our obligations and commitments to make future payments under contracts include $298.8 million on BVAC’s warehouse credit facility, $1.9 million in other borrowings, $16.8 million of payments under various operating lease agreements and, as a result of a transaction completed subsequent to year-end, BVAC’s issuance of $232.1 million of auto receivable backed notes payable issued through an affiliate, Bay View 2005-LJ-1 Owner Trust. Refer to “Balance Sheet Analysis – Borrowings” for comments about the warehouse credit facility and the other borrowings, and “Liquidity and Capital Resources” for comments on the issuance of the $232.1 million of auto receivable backed notes payable.

     At December 31, 2004, we occupied three offices, including our corporate headquarters office, and had an additional two offices that have been 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.

     Our contractual obligations for future payments are set forth in the following table:

⁽¹⁾ These payments do not reflect $2.3 million in sublease rental income from existing sublease rental arrangements through the year 2008. Included in the table above are lease payments of $15.1 million related to the Company’s liquidating activities.

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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, however, we have not repurchased any shares of our common stock since 1999. At December 31, 2004, 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 requires 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 contracts. It also impacts the net interest income component of our earnings because BVAC funds the purchase of fixed-rate auto contracts with its warehouse credit facility, which is a floating-rate facility. The rate on the warehouse facility, a revolving purchase facility, is tied to the one-month Libor rate as well as commercial paper rates and subject to frequent adjustments.

     Fixed-rate Auto Contracts

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

     Net Interest Income

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

     To protect us from interest rate risk, we may use various derivative financial instruments, including interest rate swap contracts, to protect the market value of BVAC’s warehouse inventory of auto contracts and the net interest income produced by its warehouse inventory. The market value of these derivative instruments is designed to respond inversely to the market value of BVAC’s warehouse inventory resulting from changes in prevailing market interest rates. We may enter into these agreements as BVAC purchases auto contracts; and the agreements may be closed out at the time the underlying auto contracts are securitized or sold.

     At December 31, 2004, we had outstanding swap contracts with a total notional amount of $145.0 million under which we pay a fixed interest rate of 3.16% and receive a floating interest rate of 2.37%. These contracts mature from May 2005 to May 2008. At December 31, 2004, we had an unrealized gain of $0.4 million in our swap contracts and estimate that an increase in market interest rates of 100 and 200 basis points would have resulted in an approximate unrealized gain of $2.4 million and $4.6 million, respectively, while a decrease in interest rates of 100 basis points would have resulted in an approximate unrealized loss of $2.4 million.

     Warehouse Credit Facility

     As discussed above, auto contracts pledged to secure borrowings under BVAC’s warehouse credit facility bear fixed interest rates while amounts borrowed under BVAC’s warehouse credit facility bear a floating interest rate. To provide protection to the Note Purchasers from interest rate risk embedded in the fixed-rate auto contracts that have been transferred to the trust, the trust enters into out-of-the-money, interest rate cap contracts, containing the terms and conditions required by the Note Purchasers. Refer to “Balance Sheet Analysis” – “Borrowings, Warehouse Credit Facility” for additional comments about these interest rate cap contracts maintained under the terms of our warehouse line of credit.

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

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     The following table provides information about the Company’s interest rate-sensitive financial instruments by expected maturity date as of December 31, 2004 (dollars in thousands):