UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

OR

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from______to_____
Commission file number 001-14879

BAY VIEW CAPITAL CORPORATION

Registrant’s telephone number, including area code (650) 312-7300

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

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

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

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FORM 10-Q
INDEX

BAY VIEW CAPITAL CORPORATION

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Forward-Looking Statements

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

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

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

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

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

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

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Bay View Capital Corporation and Subsidiaries

See notes to consolidated financial statements.

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Bay View Capital Corporation and Subsidiaries

See notes to consolidated financial statements.

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Bay View Capital Corporation and Subsidiaries

See notes to consolidated financial statements.

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Bay View Capital Corporation and Subsidiaries

See notes to consolidated financial statements.

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Bay View Capital Corporation and Subsidiaries

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

See notes to consolidated financial statements.

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Bay View Capital Corporation and Subsidiaries

Note 1. Basis of Presentation

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

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

     The consolidated financial statements as of March 31, 2004 and December 31, 2003 and for the three months ended March 31, 2004 have been prepared on a going concern basis. The consolidated financial statements for the three months ended March 31, 2003 have been prepared under the liquidation basis of accounting.

     The information provided in these interim financial statements reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the Company’s financial condition as of March 31, 2004, the results of its operations for the three months ended March 31, 2004, the changes in net assets in liquidation for the three months ended March 31, 2003, and cash flows for the three-month periods ended March 31, 2004 and 2003. These adjustments are of a normal, recurring nature unless otherwise disclosed in this Form 10-Q. As necessary, reclassifications have been made to prior period amounts to conform to the current period presentation. These reclassifications had no effect on the Company’s financial position and results of operations. These interim financial statements have been prepared in accordance with the instructions to Form 10-Q.

     The information included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” was written assuming that you have read or have access to the Company’s 2003 Annual Report on Form 10-K, which contains the latest audited consolidated financial statements and notes, along with Management’s Discussion and Analysis of Financial Condition as of December 31, 2003 and 2002 and Results of Operations for the years ended December 31, 2003, 2002 and 2001. Accordingly, only certain changes in financial condition and results of operations are discussed in this Form 10-Q. Furthermore, the interim financial results for the three-month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.

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Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2004
(Unaudited)

     The Company accounts for its stock-based awards to employees and directors using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25. Under the intrinsic value method, compensation cost is generally the excess, if any, of the quoted market price of the stock at the grant or other measurement date over the exercise price. There were no stock option awards and therefore, no compensation expense recorded under APB 25 for the three months ended March 31, 2004. Had compensation cost related to stock option awards to employees and directors been determined under the fair value method prescribed under Statement No. 123, the Company’s net loss and loss per share on a going-concern basis would have been the pro forma amounts illustrated in the table below for the period indicated:

     Prior to September 30, 2003, we reported our results using the liquidation basis of accounting under which earnings per share information is not presented.

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Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2004
(Unaudited)

Note 2. Earnings Per Share

     From September 30, 2002 through September 30, 2003, the Company reported its results using the liquidation basis of accounting, under which earnings per share information is not presented. Accordingly, earnings per share information are not presented for the reporting period ended March 31, 2003.

     Basic earnings per share are calculated by dividing net earnings or loss for the period by the weighted-average common shares outstanding for that period. There is no adjustment to the number of outstanding shares for potential dilutive instruments, such as stock options. Diluted earnings per share takes into account the potential dilutive impact of such instruments and uses the average share price for the period in determining the number of incremental shares to add to the weighted-average number of shares outstanding. For the three months ended March 31, 2004, average dilutive potential common shares of 26,998 related to shares issuable upon the exercise of options and warrants were not included in the computation because they were anti-dilutive.

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

Note 3. Investment in Operating Lease Assets

     Leasing expense represents expenses related to the Company’s auto leasing activities. Because the leases are accounted for as operating leases, the corresponding assets are capitalized and depreciated to their estimated residual values over their lease terms. This depreciation expense is included in leasing expenses, along with the amortization of capitalized initial direct lease costs and impairment charges. Leasing expenses were $4.7 million for the first quarter of 2004 compared to $9.5 million for the first quarter of 2003.

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

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Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2004
(Unaudited)

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

     Using the projected ALG residual values, the Company’s experience-to-date relative to the projected ALG residual values (for example, for vehicle classes where actual amounts realized were less than what ALG had projected, the Company reduced the projected ALG residual values to equal the Company’s experience-to-date), and the probabilities of each of the three disposition scenarios discussed above occurring, the Company determines a probability-weighted gross future undiscounted cash flow for each automobile lease. For those leases where the gross future undiscounted cash flows are less than net book value, the lease is considered impaired.

     For those leases considered impaired, the Company then estimates the fair value of the lease. The fair value is determined by calculating the present value of the future estimated cash flows, again assuming the probabilities of each of the three disposition scenarios. The present value is calculated using current market rates which are similar to the original contract lease rate. For those impaired leases where the estimated fair value is less than the net book value, an impairment charge is recorded for the difference. Since the inception of the lease portfolio in June 1998, the Company has recorded additional monthly depreciation charges, also included in leasing expense, to provide for losses that may be incurred at the end of the lease terms. During the first quarter of 2004, we recorded $0.7 million of additional depreciation.

Note 4. Income Taxes

     The Company recorded a tax benefit of $0.7 million for the three months ended March 31, 2004. The effective tax rate used in computing the tax benefit for the first three months of 2004 was 39.2%. This expected 2004 effective tax rate is higher than the federal statutory rate due primarily to state income and franchise taxes.

     For the first quarter of 2003, the Company recorded a tax benefit of $0.8 million. The effective tax rate for the first quarter of 2003 was 32.1%.

     As of December 31, 2003, the Company had a valuation allowance of $21.5 million based on the realizability of its deferred tax asset. The amount of the valuation allowance remained unchanged at March 31, 2004.

Note 5. Commitments and Contingencies

     The Company is involved as plaintiff or defendant in various legal actions and is occasionally exposed to unasserted claims arising in the normal course of business. In the opinion of management, after consultation with counsel, the resolution of these legal actions will not have a material adverse effect on its financial statements.

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Bay View Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2004
(Unaudited)

Note 6. Liquidation Reserve

     The liquidation reserve, recorded while the Company was using the liquidation basis of accounting, includes accruals for severance payments and costs related to facility closures, investment banking and other professional fees and estimated litigation expense and settlements. At March 31, 2004, the remaining balance of the liquidation reserve was $10.6 million, including accruals for severance and facilities of $1.6 million and $6.0 million, respectively.

Note 7. Subsequent Event

     In April 2004, the Company’s Board of Directors authorized the Company to seek stockholder approval to authorize an amendment to the Company’s Certificate of Incorporation to effect a 1-for-10 reverse stock split of the issued and outstanding shares of the Company’s common stock in the second quarter of 2004.

     A Special Meeting of the Stockholders of the Company will be held on June 24, 2004 for the purpose of voting on a proposal to amend the Company’s Certificate of Incorporation. Stockholders of record at the close of business on May 20, 2004 will be entitled to vote at the Special Meeting. If approved by the Company’s stockholders, a reverse stock split would affect all shares of common stock, including those shares underlying stock options and warrants, outstanding immediately prior to the effective time of the reverse stock split. The Company intends to file a preliminary proxy statement regarding the reverse stock split proposal with the Securities and Exchange Commission and mail a definitive proxy statement regarding this proposal to its stockholders on or about May 25, 2004.

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

Strategic Overview

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

Our Strategy

     On October 3, 2002, we adopted a Plan of Dissolution and Stockholder Liquidity (the “Plan”). The Plan contemplated that we, under applicable provisions of the Delaware General Corporation Law, would:

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

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

     During the fourth quarter of 2003, our Board of Directors amended the Plan to become a plan of partial liquidation (the “Amended Plan”) under which we will complete the liquidation of the assets and satisfaction of the liabilities of the Bank remaining after the Bank’s September 30, 2003 dissolution, distribute the proceeds to our stockholders through a series of cash distributions, and continue to operate BVAC on an ongoing basis. In accordance with the Amended Plan, we made an initial cash distribution of $263.2 million, or $4.00 per share, to our stockholders on December 30, 2003 and redeemed $63.5 million of the 9.76% Cumulative Capital Securities on December 31, 2003. In connection with the Amended Plan, we discontinued our use of liquidation basis accounting and re-adopted going concern basis accounting effective October 1, 2003.

     In connection with the liquidation of assets and satisfaction of the liabilities of the Bank, remaining after the Bank’s September 30, 2003 dissolution, we anticipate making a cash distribution of $0.25 per share to common stockholders at the end of the second quarter of 2004 as previously indicated. Additionally, we anticipate redeeming the remaining outstanding Capital Securities through a series of one or more additional partial redemptions beginning in June 2004.

Automobile Finance

     BVAC is a Southern California-based auto finance company engaged in the indirect financing of automobile purchases by individuals. BVAC currently acquires auto installment contracts from over 7,000 manufacturer-franchised and independent auto dealers in 24 states and has positioned itself in the market as a premium priced lender for well-qualified borrowers seeking extended financing terms and higher advances than those generally offered by traditional lenders. This strategy has enabled BVAC to establish a loyal dealership network by satisfying a unique niche within the indirect auto finance arena, which is not dominated by large commercial banks and captive finance companies. Of the contracts purchased during the first quarter of 2004, approximately 95% were originated by manufacturer franchised dealerships and approximately 5% were originated by independent dealerships; 55% were contracts on new vehicles and 45% were contracts on used vehicles. BVAC purchases installment contracts with limited recourse to the dealer.

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     BVAC places a strong emphasis on borrower stability, credit quality, and debt serviceability. With Fair, Isaac & Co. “FICO” credit scores that averaged 734 in the first quarter of 2004, BVAC’s borrower base is largely comprised of prime borrowers. BVAC offers loan terms to 96 months and typically finances an amount in excess of a dealer’s wholesale value of a vehicle. BVAC will finance vehicles without restrictions on the model year. During the quarter, the average loan amount BVAC financed was $30,200 and had an average term of 83 months. We believe that this strategy has enabled BVAC to establish a loyal dealership network by satisfying consumer demand within the indirect auto finance market that is inadequately served by commercial banks and finance companies. BVAC utilizes a proprietary credit scoring system in connection with its underwriting and credit approvals. The credit scoring system captures data from consumers’ credit bureau reports, consumers’ loan applications and the terms of proposed loans.

Critical Accounting Policies

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

Investment in Operating Lease Assets

     In accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we perform a quarterly impairment analysis of our long-lived assets including our automobile leases, which are accounted for as operating leases. Statement No. 144 addresses the recognition and measurement of the impairment of long-lived assets and defines impairment as the condition that exists when the carrying amount of long-lived assets exceeds fair value. When identified, Statement No. 144 requires the recognition of an impairment loss. Under Statement No. 144, we consider an auto lease to be impaired if its gross future undiscounted cash flows are less than the net book value of the lease. The net book value of the lease is defined as the original capitalized cost of the automobile, including initial direct capitalized costs, less the cumulative amount of depreciation recorded against the automobile and the cumulative amount of amortization of the initial direct capitalized costs recorded since the inception of the lease and less any impairment charges recorded-to-date on that lease.

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

     Using the projected ALG residual values combined with our experience-to-date relative to the 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 automobile lease. For those leases where the gross future undiscounted cash flows are less than net book value, the lease is considered impaired.

     For those leases considered impaired, 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 rates, which are similar to the original contract lease rate. For those impaired leases where the estimated fair value is less than the net book value, an impairment charge is recorded for the difference. Under the going concern basis of accounting, annual depreciation expense associated with those leases that have reduced residual values is recomputed over the remaining term of the lease.

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Retained Interests in Securitizations

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