Fitch Upgr S-T Rtgs For Bay View Bank To 'B'; Outlook Stable.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 10, 2002

Fitch Ratings raises both the short-term deposits and short-term debt ratings for Bay View Bank to 'B' from 'C'. Concurrently, Fitch Ratings removes its Negative Rating Watch for both Bay View Bank and its parent holding company Bay View Capital Corporation and the Rating Outlook is Stable for both entities. All others ratings are affirmed at this time. A complete list of the ratings can be found below.

Fitch's rating action is the result of improving trends in some key financial performance measures, but reflects the still fragile financial profile of Bay View Capital Corporation (BVC) and its operating subsidiary Bay View Bank (bank). The most noticeable improvement has been a significant reduction in BVC's troubled franchise loan portfolio, which now represents less than 6% of the total loan portfolio. This reduction has helped credit costs somewhat stabilize and should result in less asset quality deterioration in the future. Additionally, the bank continues to operate a sound and improving deposit franchise, which is shifting increasingly toward low-cost transaction accounts, the primary contributor to improved profitability, as healthier margins have resulted from reduced funding costs. BVC's NIM expanded to 4.15% from 3.85% on a linked quarter basis, helping BVC report two consecutive quarters of net income following a string of losses. Further, a significant reduction in debt over the past two years should provide for better flexibility and aid in future financial performance.

Despite the aforementioned improvements, particularly at the bank, our current ratings reflect an institution whose recovery remains frail, as it grapples with still elevated credit costs, falling reserves and marginal profitability. Though BVC reported two consecutive quarters of earnings, those quarters may well have ended in the red had provision expenses kept pace with charge-offs, as asset quality continues to be problematic. NPAs represented 3.4% of loans and other real estate owned for 1Q02, which compares favorably on a linked quarter basis (3.8% for 4Q01), but remains well above the industry average. Though significantly reduced, the franchise loan portfolio still warrants heighten concerns, as that portfolio represented $56 mln or 68% of total NPAs ($82.8 mln) and $6.2 mln or 73% of total NCOs ($8.5 mln) for 1Q02. Exacerbating elevated NPAs and NCOs, are reserves that continue to decline. Reserve coverage of NPAs (55.7%) and provision coverage of NCOs (57.4%) reached close to 5-yr lows, despite imp rovements in both nominal NPA and NCO levels. Increased emphasis on auto leasing may put further pressure on asset quality should the leasing market continue to be weak.

BVC remains prohibited from drawing dividends from the bank, and likewise, is restricted from paying any dividends, including dividends on the trust preferred securities issued by Bay View Capital Trust 1. These prohibitions relate to a 2000 agreement with its primary regulators that required, among other things, BVC and the bank to achieve certain minimum regulatory capital requirements. The bank continues to meet well-capitalized minimums with Total and Tier I risk-based capital and Tier I leverage ratios of 10.2%, 7.2% and 5.6%, respectively at 12/31/01, compared to regulatory minimums of 10%, 6% and 5%. On a consolidated basis, BVC reported ratios of 8.4%, 4.8% and 4.2% for 1Q02, respectively, which are considered adequately capitalized, but are still in need of improvement given BVC's current risk profile. As mentioned, while BVC has taken reasonable strides to better its overall financial profile, Fitch incorporates the company's delicate recovery and potential for unexpected events into our current ra tings. Even so, Fitch expects to see BVC continue to make progress in a positive direction, by way of real profitability improvements, resolution of asset quality concerns and capital growth.

Bay View Capital Corporation
--Long-term debt affirmed at 'B-';

--Subordinated debt affirmed at 'CCC';

--Individual affirmed at 'D';

--Support affirmed at '5';

--Rating Outlook Stable.

Bay View Bank
--Long-term deposits affirmed at 'B+';

--Long-term debt affirmed at 'B-';

--Short-term deposits upgraded to 'B' from 'C';

--Short-term debt upgraded to 'B' from 'C';

--Subordinated debt affirmed at 'CCC';

--Individual affirmed at 'D';

--Support affirmed at '5';

--Rating Outlook Stable.

Bay View Capital Trust I
--Preferred Stock affirmed at 'CC'.