CFNB 10-Q Quarterly Report Sept. 30, 2010

CFNB 10-Q Quarter ended Sept. 30, 2010

CALIFORNIA FIRST NATIONAL BANCORP

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10-Q 1 cfnb10qq111.htm FORM 10-Q SEPTEMBER 30, 2010 CFNB Form 10-Q September 30, 2010

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[Mark One]

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

September 30, 2010

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File No.: 0-15641

California First National Bancorp

(Exact name of registrant as specified in charter)

California		33-0964185
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

18201 Von Karman, Suite 800
Irvine, California		92612
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code:

(949) 255-0500

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 and 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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller Reporting Company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The number of shares outstanding of the Registrant’s Common Stock, par value $.01 per share, as of November 5, 2010 was 10,261,745.

CALIFORNIA FIRST NATIONAL BANCORP

INDEX

PART I. FINANCIAL INFORMATION		PAGE NUMBER


Item 1.	Financial Statements

	Consolidated Balance Sheets - September 30,
	2010 and June 30, 2010		3

	Consolidated Statements of Earnings - Three months
	ended September 30, 2010 and 2009		4

	Consolidated Statements of Cash Flows – Three months
	ended September 30, 2010 and 2009		5

	Consolidated Statement of Stockholders’ Equity – Three months
	ended September 30, 2010 and 2009		6

	Notes to Consolidated Financial Statements		7-13

Item 2.	Management's Discussion and Analysis of Financial
	Condition and Results of Operations		14-21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		21-22
Item 4.	Controls and Procedures		22


PART II. OTHER INFORMATION

Item 1A.	Risk Factors		23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		23
Item 6.	Exhibits		23
Signature			24

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements. Forward-looking statements include, among other things, the information concerning our possible future consolidated results of operations, business and growth strategies, financing plans, our competitive position and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by forward-looking words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “plan”, “may”, “should”, “will”, “would”, “project” and similar expressions. These forward-looking statements are based on information currently available to us and are subject to inherent risks and uncertainties, and certain factors could cause actual results to differ materially from those anticipated. Particular uncertainties arise from the behavior of financial markets, including fluctuations in interest rates and securities prices, from unanticipated changes in the risk characteristics of the lease and loan portfolios, the level of defaults and a change in the provision for credit losses, and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. Forward-looking statements speak only as of the date made. The Company undertakes no obligations to update any forward-looking statements. Management does not undertake to update our forward-looking statements to reflect events or circumstances arising after the date on which they are made.

CALIFORNIA FIRST NATIONAL BANCORP

CONSOLIDATED BALANCE SHEETS

(in thousands, except for share amounts)


	September 30,			June 30,
	2010			2010
	(Unaudited)
ASSETS

Cash and due from banks	$	71,021		$	73,988
Available-for-sale investment securities		61,235			67,954
Investment securities		3,803			4,020
Net receivables		2,480			2,302
Property acquired for transactions in process		34,503			26,845
Leases and loans:
Leases		189,725			195,067
Commercial loans		95,862			66,931
Allowance for credit losses		(4,494	)		(4,204	)
Net investment in leases and loans		281,093			257,794

Net property on operating leases		1,071			1,242
Income taxes receivable		5,055			3,816
Other assets		1,260			1,304
Discounted lease rentals assigned to lenders		12,517			14,337
	$	474,038		$	453,602

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Accounts payable	$	1,785		$	905
Accrued liabilities		3,113			2,657
Demand and money market deposits		70,892			65,934
Time certificates of deposit		150,479			139,988
Long-term borrowings		10,000			10,000
Lease deposits		4,847			4,000
Non-recourse debt		12,517			14,337
Deferred income taxes – including income taxes payable, net		19,677			17,233
		273,310			255,054

Commitments and contingencies

Stockholders' equity:
Preferred stock; 2,500,000 shares authorized; none issued		-			-
Common stock; $.01 par value; 20,000,000 shares authorized; 10,261,745 (September 2010) and 10,240,202 (June 2010) issued and outstanding		103			102
Additional paid in capital		1,404			1,224
Retained earnings		196,204			194,543
Other comprehensive income, net of tax		3,017			2,679
		200,728			198,548
	$	474,038		$	453,602

The accompanying notes are an integral part of these consolidated financial statements.

CALIFORNIA FIRST NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

(in thousands, except for per share amounts)

	Three Months Ended
	September 30,
	2010		2009

Direct finance and loan income	$	5,067	$	5,943
Investment interest income		838		1,579
Total direct finance, loan and interest income		5,905		7,522

Interest expense
Deposits		869		1,460
Borrowings		53		84
Net direct finance, loan and interest income		4,983		5,978
Provision for credit losses		275		250
Net direct finance, loan and interest income after provision for credit losses		4,708		5,728

Non-interest income
Operating and sales-type lease income		409		506
Gain on sale of leases and leased property		146		253
Realized gain on sale of investment securities		208		1,673
Other fee income		204		257
Total non-interest income		967		2,689

Gross profit		5,675		8,417

Non-interest expenses
Compensation and employee benefits		2,089		1,943
Occupancy		236		233
Professional services		123		128
Other general and administrative		537		521
Total non-interest expenses		2,985		2,825

Earnings before income taxes		2,690		5,592

Income taxes		1,029		2,139

Net earnings	$	1,661	$	3,453

Basic earnings per common share	$	0.16	$	0.34

Diluted earnings per common share	$	0.16	$	0.34

Dividends declared per common share outstanding	$	-	$	0.12

Average common shares outstanding – basic		10,250,234		10,172,559

Average common shares outstanding – diluted		10,331,355		10,273,058

The accompanying notes are an integral part of these consolidated financial statements.

CALIFORNIA FIRST NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Three Months Ended
	September 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings	$	1,661		$	3,453
Adjustments to reconcile net earnings to cash flows provided by (used for) operating activities:
Provision for credit losses		275			250
Depreciation and net amortization (accretion)		(807	)		(583	)
Gain on sale of leased property and sales-type lease income		86			92
Net gain recognized on investment securities		(208	)		(1,673	)
Deferred income taxes, including income taxes payable		2,293			1,705
(Increase) decrease in income taxes receivable		(1,239	)		495
Net increase (decrease) in accounts payable and accrued liabilities		1,336			(2,347	)
Other, net		757			300
Net cash provided by operating activities		4,154			1,692

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in leases, loans and transactions in process		(74,411	)		(40,136	)
Payments received on lease receivables and loans		43,568			40,644
Proceeds from sales of leased property and sales-type leases		554			713
Purchase of investment securities		-			(21,060	)
Pay down on investment securities		216			571
Proceeds from sale of investment securities		7,296			18,104
Net decrease in other assets		26			321
Net cash used for investing activities		(22,751	)		(843	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in time certificates of deposit		10,491			3,436
Net increase in demand and money market deposits		4,958			3,385
Payments to repurchase common stock		-			(240	)
Dividends to stockholders		-			(1,222	)
Proceeds from exercise of stock options		181			617
Net cash provided by financing activities		15,630			5,976

NET CHANGE IN CASH AND CASH EQUIVALENTS		(2,967	)		6,825
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		73,988			55,217
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	71,021		$	62,042

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Decrease in lease rentals assigned to lenders and related non-recourse debt	$	(1,820	)	$	(454	)
Estimated residual values recorded on leases	$	(582	)	$	(692	)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the three month period for:
Interest	$	979		$	1,619
Income Taxes	$	29		$	35

The accompanying notes are an integral part of these consolidated financial statements.

CALIFORNIA FIRST NATIONAL BANCORP

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

(in thousands, except for share amounts)

						Additional						Other
						Paid in			Retained			Comprehensive
	Shares			Amount		Capital			Earnings			Income			Total

Three months ended September 30, 2009

Balance, June 30, 2009		10,145,785		$	101	$	395		$	189,528		$	1,352		$	191,376

Comprehensive income
Net earnings		-			-		-			3,453			-			3,453
Unrealized gain on investment securities, net of tax		-			-		-			-			2,432			2,432
Reclassification adjustment – realized gains on investment
securities included in
net income, net of tax		-			-		-			-			(1,034	)		(1,034	)
Total comprehensive income																4,851

Shares issued - Stock options exercised		59,285			1		616			-			-			617

Shares repurchased		(19,983	)		-		(240	)		-			-			(240	)

Dividends declared		-			-		-			(1,222	)		-			(1,222	)

Balance, September 30, 2009		10,185,087		$	102	$	771		$	191,759		$	2,750		$	195,382

Three months ended September 30, 2010

Balance, June 30, 2010	10,240,202	$	102	$	1,224	$	194,543	$	2,679		$	198,548

Comprehensive income
Net earnings	-		-		-		1,661		-			1,661
Unrealized gain on investment securities, net of tax	-		-		-		-		467			467
Reclassification adjustment – realized gains on investment
securities included in
net income, net of tax	-		-		-		-		(129	)		(129	)
Total comprehensive income												1,999

Shares issued - Stock options exercised	21,543		1		180		-		-			181

Balance, September 30, 2010	10,261,745	$	103	$	1,404	$	196,204	$	3,017		$	200,728

The accompanying notes are an integral part of these consolidated financial statements.

CALIFORNIA FIRST NATIONAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1- BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of California First National Bancorp (the “Company”) and its subsidiaries California First National Bank (“CalFirst Bank” or the “Bank”) and California First Leasing Corporation (“CalFirst Leasing”) have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended June 30, 2010. The material under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is written with the presumption that the readers have read or have access to the 2010 Annual Report on Form 10-K, which contains Management’s Discussion and Analysis of Financial Condition and Results of Operations as of June 30, 2010 and for the year then ended.

In the opinion of management, the unaudited financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the balance sheet as of September 30, 2010 and the statements of earnings, cash flows and stockholders’ equity for the three-month periods ended September 30, 2010 and 2009. The results of operations for the three-month period ended September 30, 2010 are not necessarily indicative of the results of operations to be expected for the entire fiscal year ending June 30, 2011.

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

In July 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2010-20, “Receivables (Topic 310): Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” an additional disclosure requirement regarding credit quality and the allowance for credit losses. The new disclosure will require significantly more information about the credit quality of the Company’s portfolio. Although this statement addresses only disclosure and does not seek to change recognition or measurement, the disclosure represents a meaningful change in practice. The new disclosure requirement will cover the Company’s commercial loans as well as direct finance, sales-type and operating leases. The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolios’ risk and performance and will be effective for interim and annual reporting periods ending after December 15, 2010.

NOTE 3 – STOCK-BASED COMPENSATION

At September 30, 2010, the Company has one stock option plan, which is more fully described in Note 13 in the Company’s 2010 Annual Report on Form 10-K. The Company has not awarded any new grants since fiscal 2004 and has not recognized compensation expense related to unvested shares since September 2008.

The following table summarizes the stock option activity for the periods indicated:

	Three months ended
	September 30, 2010					September 30, 2009
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options outstanding at the beginning of period		219,722		$	7.90		344,038		$	8.49

Exercised		(21,543	)		8.38		(59,285	)		10.40
Canceled/expired		-			-		-			-
Options outstanding at end of period		198,179		$	7.85		284,753		$	8.10

Options exercisable		198,179					284,753

As of September 30, 2010
Options Outstanding & Exercisable
Range of Exercise prices		Number Exercisable & Outstanding		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
	$ 5.20 - $ 8.81		128,920		0.69	$	5.53
	9.96 - 12.49		69,259		2.10		12.15
	$ 5.20 - $12.49		198,179		1.18	$	7.85

NOTE 4 – FAIR VALUE MEASUREMENT:

ASC Topic 820: “Fair Value Measurements and Disclosures” defines fair value as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. ASC Topic 820 establishes a three-tiered value hierarchy that prioritizes inputs based on the extent to which inputs used are observable in the market and requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. If a value is based on inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. The three levels of inputs are defined as follows:

Level 1 - Valuation is based upon unadjusted quoted prices for identical instruments traded in active markets;

Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market;

Level 3 - Valuation is generated from model-based techniques that use inputs not observable in the market and based on the entity’s own judgment. Level 3 valuation techniques could include the use of option pricing models, discounted cash flow models and similar techniques, and rely on assumptions that market participants would use in pricing the asset or liability.

ASC 820 applies whenever other accounting pronouncements require presentation of fair value measurements, but does not change existing guidance as to whether or not an instrument is carried at fair value. As such, ASC 820 does not apply to the Company’s investment in leases. The Company’s financial assets measured at fair value on a recurring basis include primarily securities available-for-sale and at September 30, 2010, there were no liabilities subject to ASC 820.

Securities available-for-sale include corporate bonds, U.S. Treasury Securities, and mutual fund investments and generally are reported at fair value utilizing Level 1 and Level 2 inputs. The fair value of corporate bonds are obtained from independent quotation bureaus that use computerized valuation formulas to calculate current values based on observable transactions, but not a quoted bid, or are valued using prices obtained from the custodian, who uses third party data service providers (Level 2 input). U.S. Treasury Securities and mutual funds are valued by reference to the market closing or last trade price (Level 1 inputs). In the unlikely event that no trade occurred on the applicable date, an indicative bid or the last trade most proximate to the applicable date would be used (Level 2 input).

The following table summarizes the Company’s assets, which are measured at fair value on a recurring basis as of September 30, 2010 and June 30, 2010:

(in thousands)	Total		Quoted Price in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description of Assets / Liabilities	Fair Value		(Level 1)		(Level 2)		(Level 3)

As of September 30, 2010
U.S. Treasury Securities	$	11,359	$	11,359	$	-	$	-
Corporate bonds		46,445		-		46,445		-
Mutual fund investments		3,431		3,431		-		-
	$	61,235	$	14,790	$	46,445	$	-

As of June 30, 2010
U.S. Treasury Securities	$	11,086	$	11,086	$	-	$	-
Corporate bonds		53,529		-		53,529		-
Mutual fund investments		3,339		3,339		-		-
	$	67,954	$	14,425	$	53,529	$	-

Certain financial instruments, such as impaired loans and unfunded loan commitments, are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances, usually if there was evidence of impairment. The Company had no such assets or liabilities at September 30, 2010 and June 30, 2010.

NOTE 5 – FAIR VALUE OF FINANCIAL INSTRUMENTS:

In accordance with ASC 825-50, the following table summarizes the estimated fair value of financial instruments as of September 30, 2010, and June 30, 2010, and includes financial instruments that are not accounted for or carried at fair value. In accordance with disclosure guidance, certain financial instruments, including all lease related assets and liabilities and all non-financial instruments are excluded from fair value of financial instrument disclosure requirements. Accordingly, the aggregate of the fair values presented does not represent the total underlying value of the Company. These fair value estimates are based on relevant market information and data, however, given there is no active market or observable market transactions for certain financial instruments, the Company has made estimates of fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values.

For cash and cash equivalents, demand deposits, short-term borrowings, and certain commercial loans that re-price frequently, the fair value is estimated to equal the carrying cost. Values for investments and available-for-sale securities are determined as set forth in Note 4 and 7. The fair value of loan participations purchased in the secondary market is based upon current bid prices in such market at the measurement date. For other loans, the estimated fair value is calculated based on discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. These calculations have been adjusted for credit risk based on the Company’s historical credit loss experience. The fair value of certificates of deposit and long-term borrowings is estimated based on discounted cash flows using current offered market rates or interest rates for borrowings of similar maturity.

The estimated fair values of financial instruments were as follows:

	September 30, 2010				June 30, 2010
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
	(in thousands)
Financial Assets:
Cash and cash equivalents	$	71,021	$	71,021	$	73,988	$	73,988
Investments		3,803		3,850		4,020		4,083
Securities available-for-sale		61,235		61,235		67,954		67,954
Commercial loans		94,065		93,392		65,409		65,532
Financial Liabilities:
Demand and savings deposits		70,892		70,892		65,934		65,934
Time certificate of deposits		150,479		150,978		139,988		140,764
Long-term borrowings	$	10,000	$	10,149	$	10,000	$	10,124

NOTE 6 – INVESTMENTS:

Investments are carried at cost and consist of the following:

	September 30, 2010				June 30, 2010
	Carrying Cost		Fair Value		Carrying Cost		Fair Value
	(dollars in thousands)
Federal Reserve Bank Stock	$	1,655	$	1,655	$	1,655	$	1,655
Federal Home Loan Bank Stock		1,542		1,542		1,604		1,604
Mortgage-backed investments		606		653		761		824
	$	3,803	$	3,850	$	4,020	$	4,083

The investment in Federal Home Loan Bank of San Francisco (“FHLB”) stock is a required investment related to CalFirst Bank’s borrowings from the FHLB. The FHLB obtains its funding primarily through issuance of consolidated obligations of the Federal Home Loan Bank system. The U.S. Government does not guarantee these obligations, and each of the 12 FHLB’s are generally jointly and severally liable for repayment of each other’s debt. Therefore, the Company’s investment could be adversely impacted by the financial operations of the FHLB and actions by the Federal Housing Finance Agency. These investments have no stated maturity.

The mortgage-backed investments consist of two U.S. agency issued securities. The Company has determined that it has the ability to hold these investments until maturity and, given the Company’s intent to do so, anticipates that it will realize the full carrying value of its investment and carries the securities at amortized cost.

NOTE 7 – SECURITIES AVAILABLE FOR SALE :

The amortized cost, fair value, and carrying value of securities at September 30, 2010 were as follows:

(in thousands)	Amortized		Gross Unrealized		Fair		Carrying
	Cost		Gains / (Losses)		Value		Value
U.S. Treasury securities	$	10,143	$	1,216	$	11,359	$	11,359
Corporate bonds		43,706		2,739		46,445		46,445
Mutual fund investments		2,702		729		3,431		3,431
Total securities available-for-sale	$	56,551	$	4,684	$	61,235	$	61,235

The amortized cost, fair value, and carrying value of securities at June 30, 2010 were as follows:

(in thousands)	Amortized		Gross Unrealized		Fair		Carrying
	Cost		Gains / (Losses)		Value		Value
U.S. Treasury securities	$	10,147	$	939	$	11,086	$	11,086
Corporate bonds		50,910		2,619		53,529		53,529
Mutual fund investments		2,702		637		3,339		3,339
Total securities available-for-sale	$	63,759	$	4,195	$	67,954	$	67,954

At September 30, 2010 and June 30, 2010, securities with carrying values of $11.4 million were pledged to secure $10.0 million borrowed from the FHLB.

The amortized cost and estimated fair value of available-for-sale securities at September 30, 2010, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Fair Value
	(in thousands)
Due in one year or less	$	8,588	$	8,748
Due after one year but less then 5 years		40,122		43,244
Due after five years		5,139		5,812
No stated maturity		2,702		3,431
Total securities available-for-sale	$	56,551	$	61,235

Gross realized gains and gross realized losses on investment securities are summarized below. During the three months ended September 30, 2010, a corporate bond exercised a call provision resulting in the recognition of a realized gain of $208,000. During the three months ended September 30, 2009, the Company sold most of its investment in trust-preferred securities for proceeds of $16.3 million and gross realized gains of $1.7 million. These gains are recognized using the specific identification method and are included in non-interest income.

	Three months ended
	September 30,
	2010		2009
	(in thousands)
Gross realized gains	$	208	$	1,673
Gross realized losses		-		-
Other than temporary impairment		-		-
Total	$	208	$	1,673

The Company had no unrealized losses on available-for-sale securities at September 30, 2010 and June 30, 2010.

The Company conducts a regular assessment of its investment portfolios to determine whether any securities are other-than-temporarily impaired. In estimating other-than-temporary impairment losses, management considers, among other factors, length of time and extent to which the fair value has been less than cost, the financial condition and near term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery. At of September 30, 2010, no securities were other than temporarily impaired.

NOTE 8 – NET INVESTMENT IN LEASES

The Company's net investment in leases consists of the following:

	September 30, 2010			June 30, 2010
	(in thousands)
Minimum lease payments receivable	$	190,803		$	197,341
Estimated residual value		16,647			16,490
Less unearned income		(17,725	)		(18,764	)
Net investment in leases before allowances		189,725			195,067
Less allowance for lease losses		(2,584	)		(2,569	)
Less valuation allowance for estimated residual value		(113	)		(113	)
Net investment in leases	$	187,028		$	192,385

The minimum lease payments receivable and estimated residual value are discounted using the internal rate of return method related to each specific capital lease. Unearned income includes the offset of initial direct costs of $4.5 million at September 30, 2010 and June 30, 2010.

NOTE 9 – COMMERCIAL LOANS

The Company’s investment in commercial loans consists of the following:

	September 30, 2010			June 30, 2010
	(in thousands)
Commercial loan syndications	$	82,737		$	54,242
Commercial real estate loans		11,683			11,735
Revolving lines of credit		3,085			2,350
Total commercial loans		97,505			68,327
Less unearned income and discounts		(1,643	)		(1,396	)
Less allowance for loan losses		(1,797	)		(1,522	)
Net commercial loans	$	94,065		$	65,409

Commercial loans are reported at their outstanding unpaid principal balances reduced by the allowance for loan losses and net of any deferred fees or costs on originated loans, or unamortized premiums or discounts on purchased loans. Interest income is accrued on the unpaid principal balance. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related commercial loan.

NOTE 10 – BORROWINGS

CalFirst Bank is a member of the Federal Home Loan Bank of San Francisco (“FHLB”) and as such can take advantage of FHLB programs for overnight and term advances at published daily rates. Under terms of a blanket collateral agreement, advances from the FHLB are collateralized by qualifying investment securities and qualifying commercial loans. The Bank also has authority to borrow from the Federal Reserve Bank (“FRB”) discount window amounts secured by certain lease receivables. At September 30, 2010, CalFirst Bank had unused borrowing availability of approximately $59.8 million with the FRB and $2.7 million with the FHLB.

Borrowing capacity from the FHLB or FRB may fluctuate based upon the acceptability and risk rating of securities, loan and lease collateral and both the FRB and FHLB could adjust advance rates applied to such collateral at their discretion. The long-term debt that matures on January 12, 2012 and weighted average interest rates at September 30, 2010 and June 30, 2010 was as follows:

	September 30, 2010					June 30, 2010
			Weighted					Weighted
(dollars in thousands)	Amount		Average Rate			Amount		Average Rate

Long-term Borrowings
FHLB advances		10,000		2.07	%		10,000		2.07	%
	$	10,000				$	10,000

NOTE 11 – SEGMENT REPORTING

The Company’s two subsidiaries, CalFirst Leasing and CalFirst Bank, an FDIC-insured national bank, are considered to be two different business segments. Below is a summary of each segment’s financial results for the quarters ended September 30, 2010 and 2009:

					Bancorp and
	CalFirst		CalFirst		Eliminating
	Leasing		Bank		Entries		Consolidated
	(in thousands)
Quarter ended September 30, 2010
Net direct finance, loan and interest income,
after provision for credit losses	$	1,957	$	2,642	$	109	$	4,708
Non-interest income		623		289		55		967
Gross profit	$	2,580	$	2,931	$	164	$	5,675
Net earnings	$	344	$	1,257	$	60	$	1,661
Total assets	$	148,923	$	316,406	$	8,709	$	474,038

Quarter ended September 30, 2009
Net direct finance, loan and interest income,
after provision for credit losses	$	2,611	$	2,888	$	229	$	5,728
Non-interest income		841		1,848		-		2,689
Gross profit	$	3,452	$	4,736	$	229	$	8,417
Net earnings	$	928	$	2,461	$	64	$	3,453
Total assets	$	127,442	$	348,613	$	23,703	$	499,758

CALIFORNIA FIRST NATIONAL BANCORP

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

California First National Bancorp, a California corporation, is a bank holding company headquartered in Orange County, California. CalFirst Leasing and CalFirst Bank focus on leasing and financing capital assets through centralized marketing programs designed to offer cost-effective leasing alternatives. Leased assets are re-marketed at lease expiration. CalFirst Bank also provides business loans to fund the purchase of assets leased by third parties, including CalFirst Leasing, purchases participations in commercial loan syndications and provides commercial loans to businesses, including real estate based and unsecured revolving lines of credit. CalFirst Bank gathers deposits from a centralized location primarily through posting rates on the Internet.

The Company’s direct finance, loan and interest income includes interest income earned on the Company’s investment in lease receivables, residuals, commercial loans and investment securities. Non-interest income primarily includes gains realized on the sale of leased property and leases, income from sales-type and operating leases, gains and losses realized on investments, and other income. Income from sales-type leases relates to the re-lease of lease property (“lease extensions”) while income from operating leases generally involves lease extensions that are accounted for as an operating lease rather than as a sales-type lease.

The Company's operating results are subject to quarterly fluctuations resulting from a variety of factors, including the size and credit quality of the lease and loan portfolios, the volume and profitability of leased property being re-marketed through re-lease or sale, the interest rate environment, the volume of new lease or loan originations, including variations in the mix and funding of such originations, the market for investment securities and economic conditions in general. The Company’s principal market risk exposure currently is related to declining interest rates as well as differences in the repricing characteristics of interest-earning assets and interest-bearing liabilities. The Company’s current balance sheet structure is short-term in nature, with a greater portion of assets that reprice or mature within one year, although the increased investment in investment securities with longer maturities has diminished the maturity gap some. The Company’s interest margin also is susceptible to timing lags related to varying movements in market interest rates. Many of Company’s leases, loans and liquid investments are tied to U.S. treasury rates and Libor that often do not move in step with bank deposit rates. As a result, this can result in a greater change in net interest income than indicated by the repricing asset and liability comparison.

The Company conducts its business in a manner designed to mitigate risks. However, the assumption of risk is a key source of earnings in the leasing and banking industries and the Company is subject to risks through its investment securities, leases and loans held in its own portfolio, lease transactions in process, and residual investments. The Company takes steps to manage risks through the implementation of strict credit management processes and on-going risk management review procedures.

Critical Accounting Policies and Estimates

The preparation of the Company’s financial statements requires management to make certain critical accounting estimates that impact the stated amount of assets and liabilities at a financial statement date and the reported amount of income and expenses during a reporting period. These accounting estimates are based on management’s judgment and are considered to be critical because of their significance to the financial statements and the possibility that future events may differ from current judgments, or that the use of different assumptions could result in materially different estimates. The critical accounting policies and estimates have not changed from and should be read in conjunction with the Company’s Annual Report filed on Form 10-K for the year ended June 30, 2010.

The Company's estimates are reviewed continuously to ensure reasonableness. However, the amounts the Company may ultimately realize could differ from such estimated amounts.

Overview of Results and Trends

The following discussion is provided in addition to the required analysis of earnings in order to discuss trends in our business. We believe this analysis provides additional meaningful information on a comparative basis.

Net earnings for the first quarter ended September 30, 2010 were $1.7 million, down 52% from the $3.5 million earned during the first quarter of fiscal 2010. The decline in net earnings from the first quarter of the prior year is largely due to the inclusion of a $1.7 million gain realized on the sale of investment securities during the prior period, but also reflects a 25% decline in direct finance income and 50% drop in investment income due to lower average balances and lower rates.

New lease bookings of $28.3 million for the first quarter of fiscal 2011 were up 47%, and included $5.1 million of lease receivables purchased from third parties. With commercial loans boarded of $37.5 million, combined loan and lease assets booked of $65.8 million during the three months ended September 30, 2010 increased 188% from $22.8 million booked during the first three months of fiscal 2010. As a result, the net investment in leases and loans of $281.1 million at September 30, 2010 increased 9.0% from June 30, 2010 and was up 5.8% from the balance at September 30, 2009. During the first quarter of fiscal 2011, lease originations were 35% less than the level of the first quarter of fiscal 2010, but with new loan and lease purchase commitments, total originations were up 61%. As a result, at September 30, 2010 the backlog of approved lease and loan commitments of $150.9 million is 62% above the level of a year ago and up slightly from June 30, 2010.

Consolidated Statement of Earnings Analysis

Summary -- For the first quarter ended September 30, 2010, net earnings of $1.7 million decreased 52% compared to the first quarter ended September 30, 2009. Diluted earnings per share of $0.16 for the first quarter of fiscal 2011 were down 52% from $0.34 for the first quarter of fiscal 2010.

Net Direct Finance, Loan and Interest Income -- Net direct finance, loan and interest income is the difference between interest earned on the investment in leases, loans, securities and other interest earning assets and interest paid on deposits or other borrowings. Net direct finance, loan and interest income is affected by changes in the volume and mix of interest earning assets, the movement of interest rates, and funding and pricing strategies.

Net direct finance, loan and interest income was $5.0 million for the quarter ended September 30, 2010, a $1.0 million, or 16.6% decrease compared to the same quarter of the prior year. Total direct finance, loan and interest income for the first quarter ended September 30, 2010 decreased 21.5% to $5.9 million from $7.5 million earned during the first quarter of fiscal 2010. The decrease includes a $1.2 million, or 24.7%, decrease in direct finance income related to a 6.4% decline in the average investment in leases and a 191 basis point drop in average yields earned on leases held in the Company’s own portfolio. Investment income decreased by $741,000 as average cash and investment balances declined 24% to $141.7 million and the average yield dropped 102 basis points. Commercial loan income increased $342,000 on an average loan portfolio that increased by $7.2 million, or 9.8% to $80.5 million, benefiting from the acceleration of $213,000 of income related to the early payoff of a commercial loan. During the first quarter of fiscal 2011, interest expense paid on deposits and borrowings decreased $622,000, or 40.3%, reflecting an 18.7% decrease in average balances to $223.1 million and a 60 basis point drop in interest rates paid to 1.65%.

The following table presents the components of the increases (decreases) in net direct finance, loan and interest income before provision for credit losses by volume and rate:

	Quarter ended
	September 30, 2010 vs 2009
	Volume			Rate			Total
Interest income				(in thousands)
Net investment in leases	$	(318	)	$	(900	)	$	(1,218	)
Commercial loans		99			243			342
Discounted lease rentals		87			6			93
Federal funds sold		(17	)		(11	)		(28	)
Investment securities		(736	)		(15	)		(751	)
Interest-bearing deposits with banks		10			-			10
		(858	)		(666	)		(1,524	)
Interest expense
Non-recourse debt		87			6			93
Demand and savings deposits		(15	)		(61	)		(76	)
Time deposits		(88	)		(427	)		(515	)
Borrowings		(66	)		35			(31	)
		(82	)		(447	)		(529	)
	$	(776	)	$	(219	)	$	(995	)

The following table presents the Company’s average balances, direct finance and loan income and interest earned or interest paid, the related yields and rates on major categories of the Company’s interest-earning assets and interest-bearing liabilities. Yields/rates are presented on an annualized basis.

	Quarter ended							Quarter ended
	September 30, 2010							September 30, 2009
(dollars in thousands)	Average				Yield/			Average				Yield/
	Balance		Interest		Rate			Balance		Interest		Rate
Assets
Interest-earning assets
Interest-earning deposits with banks	$	74,935	$	41		0.2	%	$	56,442	$	31		0.2	%
Federal funds sold		-		-		0.0	%		2,999		-		0.0	%
Investment securities		66,773		797		4.8	%		127,257		1,548		4.9	%
Commercial loans		80,500		1,351		6.7	%		73,333		1,009		5.5	%
Net investment in leases, including
discounted lease rentals (1,2)		201,610		3,899		7.7	%		207,983		5,024		9.7	%
Total interest-earning assets		423,818		6,088		5.7	%		468,014		7,612		6.5	%
Other assets		40,613							31,352
	$	464,431						$	499,366
Liabilities and Stockholders' Equity
Interest-bearing liabilities
Demand and savings deposits	$	67,654		178		1.1	%	$	71,866		254		1.4	%
Time deposits		145,423		691		1.9	%		156,940		1,206		3.1	%
Other borrowings		10,000		53		2.1	%		45,444		84		0.7	%
Non-recourse debt (1)		13,342		183		5.5	%		6,762		90		5.3	%
Total interest-bearing liabilities		236,419		1,105		1.9	%		281,012		1,634		2.3	%
Other liabilities		28,353							24,617
Stockholders' equity		199,659							193,737
	$	464,431						$	499,366
Net direct finance, loan and interest income			$	4,983						$	5,978
Net direct finance, loan and interest income to
average interest-earning assets						4.7	%						5.1	%
Average interest-earning assets over
average interest-bearing liabilities						179.3	%						166.5	%

(1)

Direct finance income and interest expense on average discounted lease rentals and non-recourse debt of $13.3 million and $6.8 million for the quarters ended September 30, 2010 and 2009, respectively, offset each other and do not contribute to the Company’s net direct finance, loan and interest income.

(2)	Average balance is based on month-end balances, and includes non-accrual leases, and is presented net of unearned income.

Provision for Credit Losses -- The Company made a provision for credit losses in the first quarter of fiscal 2011 of $275,000, compared to a $250,000 provision for the same period in the prior year. The increase in the provision related primarily related to the growth within the commercial loan portfolio.

Non-interest Income -- Total non-interest income for the first quarter ended September 30, 2010 decreased by $1.7 million, or 64.0%, to $967,000, compared to $2.7 million for the same quarter of the prior fiscal year. The decrease was primarily due to a $1.7 million investment gain realized during the prior year quarter. Excluding the investment securities gains recognized in both periods, non-interest income declined 25.3% as lower income was realized on leases reaching the end of term.

Non-interest Expense -- The Company’s non-interest expenses reported for the quarter ended September 30, 2010 increased $160,000, or 5.7%, to $3.0 million compared to $2.8 million for the first quarter of fiscal 2010. The increase in non-interest expenses is primarily due to higher compensation expense related to growth in the sales organization.

Income Taxes -- Income taxes were accrued at a tax rate of 38.25% for the first quarter ended September 30, 2010 and 2009 representing the estimated annual tax rate for the fiscal years ending June 30, 2011 and 2010, respectively.

Financial Condition Analysis

Consolidated total assets at September 30, 2010 increased 4.5% to $474.0 million from $453.6 million at June 30, 2010. The change in total assets includes a $28.7 million increase in commercial loans to $94.1 million and a $7.7 million increase in transactions in process to $34.5 million, offset by a $6.9 million decrease in investment securities to $65.0 million and a $5.4 million decrease the net investment in leases to $187.0 million.

Lease and Loan Portfolio Analysis

The Company’s strategy is to develop lease and loan portfolios with risk/reward profiles that meet its objectives. The Company currently funds most new lease transactions internally, with a portion of lease receivables assigned to other financial institutions. During the first three months ended September 30, 2010, all of the new leases booked by the Company were held in its own portfolios, compared to 90% during the first three months of fiscal 2010. The $5.4 million decline in the Company’s net investment in leases during the quarter includes a $5.7 million decrease in lease receivables offset by a slight increase in the estimated residual values. The decrease in lease receivables is due to the volume of new leases being booked during the period not being sufficient to offset payments received and leases terminating. The increased investment in residual values is due to a larger volume of leases booked during the period in which the Company retained a residual investment. The $28.7 million growth in the Company’s commercial loan portfolio reflected the addition of ten new commercial loan participations that was offset somewhat by loan payoffs or repayments aggregating to $8.5 million.

The Company often makes payments to purchase leased property prior to the commencement of the lease. The disbursements for these lease transactions in process are generally made to facilitate the lessees’ property implementation schedule. The lessee is contractually obligated by the lease to make rental payments directly to the Company during the period that the transaction is in process, and the lessee generally is obligated to reimburse the Company for all disbursements under certain circumstances. Income is not recognized while a transaction is in process and prior to the commencement of the lease. At September 30, 2010, the Company’s investment in property acquired for transactions in process of $34.5 million related to approximately $82.5 million of approved direct lease commitments. This investment in transactions in process increased from $26.8 million at June 30, 2010, which related to direct lease commitments of $85.5 million, and from $30.5 million at September 30, 2009, which related to approved lease commitments of $93.0 million. In addition, at September 30, 2010 CalFirst Bank had unused lines of credit of $7.4 million related to existing loans, unfunded commercial loan commitments of $27.5 million, and unfunded lease purchase commitments of $33.3 million.

The Company monitors the performance of all leases and loans held in its own portfolio, transactions in process, as well as lease transactions assigned to lenders, if the Company retains a residual investment in the leased property subject to those leases. An ongoing review of all leases and loans ten or more day’s delinquent is conducted. Lessees and loans that are delinquent with the Company or an assignee are coded in the Company’s accounting and tracking systems in order to provide management visibility, periodic reporting, and appropriate reserves. The accrual of interest income on leases and loans generally will be discontinued when the lease or loan becomes ninety days or more past due on its payments with the Company, unless the Company believes the investment is otherwise recoverable. Leases and loans may be placed on non-accrual earlier if the Company has significant doubts about the ability of the customer to meet its obligations, as evidenced by consistent delinquency, deterioration in the customer’s financial condition or other relevant factors.

The following table summarizes the Company’s non-performing leases and loans:

	September 30, 2010			June 30, 2010
Non-performing Leases and Loans	(dollars in thousands)
Non-accrual leases	$	949		$	789
Restructured leases and loans		7,977			8,150
Leases past due 90 days (other than above)		-			411
Total non-performing capital leases and loans	$	8,926		$	9,350
Non-performing assets as % of net investment
in leases and loans before allowances		3.1	%		3.6	%

The increase in non-accrual leases at September 30, 2010 compared to June 30, 2010 is primarily due to one problem lease placed on non-accrual that offset other reductions during the quarter. The restructured lease and loan balance for both periods includes a loan and lease with one customer with an aggregate balance of approximately $8.0 million. This relationship was current with its restructured payments at September 30, 2010 and the transactions remain on an accrual basis. In addition to the non-performing leases and loans identified above, there was $8.9 million of investment in leases and loans at September 30, 2010 classified as substandard or with credits that currently are experiencing financial difficulties or that management believes may experience financial difficulties in the future. Although these credits have been identified as potential problems, they may never become non-performing. These potential problem leases and loans are considered in the determination of the allowance for credit losses.

Allowance for Credit Losses

The allowance for credit losses provides coverage for probable and estimatable losses in the Company’s lease and loan portfolios. The allowance recorded is based on a quarterly review of all leases and loans outstanding and transactions in process. Lease receivables, loans or residuals are charged off when they are deemed completely uncollectible. The determination of the appropriate amount of any provision is based on management’s judgment at that time and takes into consideration all known relevant internal and external factors that may affect the portfolios.

	Three months ended
	September 30,
	2010			2009
	(dollars in thousands)
Property acquired for transactions in process before allowance	$	34,746		$	30,750
Net investment in leases and loans before allowance		285,587			270,580
Net investment in “risk assets”	$	320,333		$	301,330

Allowance for credit losses at beginning of period	$	4,467		$	4,830
Charge-off of lease receivables		-			(14	)
Recovery of amounts previously written off		15			42
Provision for credit losses		275			250
Allowance for credit losses at end of period	$	4,757		$	5,108

Components of allowance for credit losses:
Allowance for lease and loan losses	$	4,494		$	4,845
Liability for unfunded loan commitments		20			20
Allowance for transactions in process		243			243
	$	4,757		$	5,108
Allowance for credit losses as a percent of net investment
in leases and loans before allowances		1.7	%		1.9	%
Allowance for credit losses as a percent of net investment in “risk assets”		1.5	%		1.7	%

The allowance for credit losses increased $290,000 to $4.8 million (1.7% of net investment in leases and loans before allowances) at September 30, 2010 from $4.5 million (1.7% of net investment in leases and loans before allowances) at June 30, 2010. This allowance consisted of $1.1 million allocated to specific accounts that were identified as problems and $3.6 million that was available to cover losses inherent in the portfolio. This compared to $1.0 million allocated to specific accounts at June 30, 2010 and $3.4 million available for losses inherent in the portfolio at that time. The slight increase in the specific allowance at

September 30, 2010 primarily relates to the addition of specifically identified substandard leases. The Company considers the allowance for credit losses of $4.8 million at September 30, 2010 adequate to cover losses specifically identified as well as inherent in the lease and loan portfolios. However, no assurance can be given that the Company will not, in any particular period, sustain lease and loan losses that are sizeable in relation to the amount reserved, or that subsequent evaluations of the lease and loan portfolio, in light of factors then prevailing, including economic conditions and the on-going credit review process, will not require significant increases in the allowance for credit losses. Among other factors, economic and political events may have an adverse impact on the adequacy of the allowance for credit losses by increasing credit risk and the risk of potential loss even further.

Investment Securities Available-for-sale

Total securities available-for-sale was $61.2 million as of September 30, 2010, compared with $68.0 million at June 30, 2010. The amortized cost and fair value of the Company’s securities portfolio available-for-sale at September 30, 2010 and June 30, 2010 are as follows:

	As of September 30, 2010				As of June 30, 2010
(in thousands)	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Available-for-sale
Corporate bonds	$	43,706	$	46,445	$	50,910	$	53,529
U.S. Treasury securities		10,143		11,359		10,147		11,086
Mutual fund investment		2,702		3,431		2,702		3,339
Total securities available-for-sale	$	56,551	$	61,235	$	63,759	$	67,954

During the first quarter of fiscal 2011, the Company’s portfolio of securities available-for-sale declined $6.7 million primarily due to the early call of two corporate bonds. At September 30, 2010, the securities portfolio included an unrealized pre-tax gain of $4.7 million compared to a $4.2 million unrealized pre-tax gain at June 30, 2010. The weighted average maturity was 2.5 years and the corresponding weighted average yield was 5.14 percent at September 30, 2010.

Liquidity and Capital Resources

The Company funds its operating activities through internally generated funds, bank deposits and non-recourse debt. At September 30, 2010 and June 30, 2010, the Company’s cash and cash equivalents were $71.0 million and $74.0 million, respectively. Stockholders’ equity at September 30, 2010 was $200.7 million, or 42.3% of total assets, compared to $198.5 million, or 43.8% of total assets, at June 30, 2010. At September 30, 2010, the Company and the Bank exceed their regulatory capital requirements and are considered “well-capitalized” under guidelines established by the FRB and OCC.

Deposits at CalFirst Bank totaled $221.4 million at September 30, 2010, compared to $227.8 million at September 30, 2009 and $205.9 million at June 30, 2010. The $6.4 million decrease from September 30, 2009 was commensurate with the decline in the Bank’s investment securities portfolio. The following table presents average balances and average rates paid on deposits for the quarters ended September 30, 2010 and 2009:

	Three months ended September 30,
	2010					2009
	Average		Average			Average		Average
	Balance		Rate Paid			Balance		Rate Paid
	(dollars in thousands)
Non-interest bearing demand deposits	$	1,582		n/a		$	2,207		n/a
Interest-bearing demand deposits		344		0.50	%		159		0.50	%
Money market deposits		67,310		1.05	%		71,707		1.40	%
Time deposits, less than $100,000		53,925		2.04	%		71,456		3.04	%
Time deposits, $100,000 or more	$	91,498		1.80	%	$	85,484		3.06	%

The following table shows the maturities of certificates of deposits at September 30, 2010:

	Less Than		Greater Than
	$ 100,000		$ 100,000
	(in thousands)
Under 3 months	$	6,182	$	14,098
3 - 6 months		16,644		22,571
6 - 12 months		18,928		39,054
Over 12 months		12,098		20,904
	$	53,852	$	96,627

The Bank has entered into borrowing agreements with the Federal Home Loan Bank of San Francisco to take advantage of FHLB programs for overnight and term advances at published daily rates. The Bank had an outstanding balance of $10.0 million under the Federal Home Loan Bank agreement at September 30, 2010, classified as long-term, at a borrowing cost of 2.07%. The principal amount of the long-term FHLB advance matures on January 12, 2012. Under terms of the blanket collateral agreement, advances from the FHLB are collateralized by qualifying investment securities and qualifying commercial loans, with $2.7 million available under the agreement as of September 30, 2010. The Bank also has the authority to borrow from the Federal Reserve Bank (“FRB”) discount window amounts secured by certain lease receivables. The Bank had no borrowings under this agreement at September 30, 2010, and unused borrowing availability of approximately $59.8 million. The Bank may elect from time-to-time to borrow from the Federal Reserve Bank rather than the Federal Home Loan Bank of San Francisco to maintain an immediate secondary source of liquidity.

CalFirst Leasing’s capital expenditures for leased property purchases are sometimes financed by assigning certain lease term payments to banks or other financial institutions, including CalFirst Bank. The assigned lease payments are discounted at fixed rates such that the lease payments are sufficient to fully amortize the aggregate outstanding debt. At September 30, 2010, the Company had outstanding non-recourse debt aggregating $12.5 million relating to discounted lease rentals assigned to unaffiliated lenders. In the past, the Company has been able to obtain adequate non-recourse funding commitments, and the Company believes it will be able to do so in the future.

At September 30, 2010, CalFirst Leasing has a $15 million line of credit with a bank. The purpose of the line is to provide resources as needed for investment in transactions-in-process and leases. The agreement provides for borrowings based on Libor, requires a commitment fee on the unused line balance and allows for advances through March 31, 2011. The agreement is unsecured, however, the Company guarantees CalFirst Leasing’s obligations. CalFirst Leasing was not in compliance with one of the covenants under the agreement at September 30, 2010, which the bank has agreed to waive. No borrowings have been made under this line of credit as of September 30, 2010.

Contractual Obligations and Commitments

The following table summarizes various contractual obligations as of September 30, 2010. Commitments to purchase property for leases are binding and generally have fixed expiration dates or other termination clauses. Commercial loan commitments are agreements to lend to a customer or purchase a participation provided there is no violation of any condition in the contract. These commitments generally have fixed expiration dates or other termination clauses. Since the Company expects some of the commitments to expire without being funded, the total amounts do not necessarily represent the Company’s future liquidity requirements.

	Due by Period
			Less Than				After
Contractual Obligations	Total		1 Year		1-5 Years		5 Years
	(dollars in thousands)
Commercial loan and lease purchase commitments	$	68,386	$	68,386	$	-	$	-
Lease property purchases (1)		45,936		45,936		-		-
FHLB & FRB Borrowings		10,000		-		10,000
Operating lease rental expense		3,375		796		2,579		-
Total contractual commitments	$	127,697	$	115,118	$	12,579	$	-

(1)

Disbursements to purchase property on approved leases are estimated to be completed within one year, but it is likely that some portion could be deferred to later periods.

The need for cash for operating activities will increase as the Company expands. The Company believes that existing cash balances, cash flow from operations, cash flows from its financing and investing activities, and assignments (on a non-recourse basis) of lease payments will be sufficient to meet its foreseeable financing needs.

Inflation has not had a significant impact upon the operations of the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss of value in a financial instrument arising from changes in market indices such as interest rates, credit spreads and securities prices. The Company’s principal market risk exposure is interest rate risk, which is the exposure due to differences in the repricing characteristics of interest-earning assets and interest-bearing liabilities. Market risk also arises from the impact that fluctuations in interest rates may have on security prices that may result in changes in the values of financial instruments, such as available-for-sale securities that are accounted for at fair value. As the banking operations of the Company have grown and CalFirst Bank’s deposits represent a greater portion of the Company’s liabilities, the Company is subject to increased interest rate risk. The Bank has an Asset/Liability Management Committee and policies established to manage its interest rate risk. CalFirst Leasing has no interest-bearing debt, and non-recourse debt does not represent an interest rate risk to the Company because it is fully amortized through direct payments from lessees to the purchaser of the lease receivable.

At September 30, 2010, the Company had $74.5 million of cash or invested in securities of very short duration, with another $8.7 million of securities that mature within twelve months. The Company’s gross investment in lease payments receivable and loan principal of $305.0 million consists of leases with fixed rates and loans with fixed and variable rates, however, $184.9 million of such investment reprices within one year of September 30, 2010. This compares to the Bank’s interest bearing deposit liabilities of $221.4 million, of which 85.1%, or $188.4 million, reprice within one year. Based on the foregoing, at September 30, 2010 the Company had assets of $268.1 million subject to changes in interest rates over the next twelve months, compared to repricing liabilities of $198.4 million.

The consolidated gap analysis below sets forth the maturity and repricing characteristics of interest-earning assets and interest-bearing liabilities for selected time bands. The mismatch between repricings or maturities within a time band is commonly referred to as the “gap” for that period. A positive gap (asset sensitive), where interest rate sensitive assets exceed interest rate sensitive liabilities, generally will result in the net interest margin increasing in a rising rate environment and decreasing in a falling rate environment. A negative gap (liability sensitive) will generally have the opposite result on the net interest margin. The gap analysis at September 30, 2010 presented below indicates that net interest income should increase during periods of rising interest rates and decrease during periods of falling interest rates. However, the static gap analysis does not assess the relative sensitivity of assets and liabilities to changes in interest rates and other factors that could have an impact on interest rate sensitivity or net interest income. Sudden and substantial changes in interest rates may adversely impact income to the extent that the interest rates associated with the assets and liabilities do not change at the same speed, to the same extent, or on the same basis.

							Over 1
	3 Months			Over 3 to			Through			Over			Non-rate
(in thousands)	or Less			12 Months			5 years			5 years			Sensitive			Total

Rate Sensitive Assets (RSA):
Cash due from banks	$	71,021		$	-		$	-		$	-		$	-		$	71,021
Investment securities		3,431			8,748			43,244			9,615			-			65,038
Net investment in leases		21,439			75,483			110,161			368			(20,423	)		187,028
Commercial loans		88,007			-			9,498			-			(3,440	)		94,065
Non-interest earning assets		-			-			-			-			56,886			56,886
Totals	$	183,898		$	84,231		$	162,903		$	9,983		$	33,023		$	474,038
Cumulative total for RSA	$	183,898		$	268,129		$	431,032		$	441,015

Rate Sensitive Liabilities (RSL):
Demand and savings deposits	$	70,892		$	-		$	-		$	-		$	-		$	70,892
Time deposits		20,280			97,196			33,003			-			-			150,479
Borrowings		-			10,000			-			-			-			10,000
Non-interest bearing liabilities		-			-			-			-			41,939			41,939
Stockholders' equity		-			-			-			-			200,728			200,728
Totals	$	91,172		$	107,196		$	33,003		$	-		$	242,667		$	474,038
Cumulative total for RSL	$	91,172		$	198,368		$	231,371		$	231,371

Interest rate sensitivity gap	$	92,726		$	(22,965	)	$	129,900		$	9,983
Cumulative GAP	$	92,726		$	69,761		$	199,661		$	209,644

RSA divided by RSL (cumulative)		201.70	%		135.17	%		186.29	%		190.61	%
Cumulative GAP / total assets		19.56	%		14.72	%		42.12	%		44.23	%

In addition to the consolidated gap analysis, the Bank measures its asset/liability position through duration measures and sensitivity analysis, and calculates the potential effect on earnings using maturity gap analysis. The interest rate sensitivity modeling includes the creation of prospective twelve month "baseline" and "rate shocked" net interest income simulations. After a "baseline" net interest income is determined, using assumptions that the Bank deems reasonable, market interest rates are raised or lowered by 100 to 300 basis points instantaneously, parallel across the entire yield curve, and a "rate shocked" simulation is run. Interest rate sensitivity is then measured as the difference between calculated "baseline" and "rate shocked" net interest income.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

As of the end of the period covered by this report, the Company's management, including its principal executive officer and its principal financial officer, evaluated the effectiveness of the Company's disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2010 to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. There were no changes made during the most recent fiscal quarter to the Company's internal controls over financial reporting that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1A. RISK FACTORS.

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table summarizes share repurchase activity for the quarter ended September 30, 2010:

					Maximum number
	Total number				of shares that may
	of shares		Average price		yet be purchased
Period	purchased		paid per share		under the plan (1)

July 1, 2010 - July 31, 2010		-	$	-		368,354
August 1, 2010 - August 31, 2010		-	$	-		368,354
September 1, 2010 - September 30, 2010		-	$	-		368,354
		-	$	-

In April 2001, the Board of Directors authorized management, at its discretion, to repurchase up to 1,000,000 shares of common stock.

ITEM 6. EXHIBITS

CALIFORNIA FIRST NATIONAL BANCORP

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	California First National Bancorp
	Registrant


DATE: November 9, 2010	BY:	/s/ S. LESLIE JEWETT
		S. LESLIE JEWETT
		Chief Financial Officer
		(Principal Financial and
		Accounting Officer)

TABLE OF CONTENTS

(a) Exhibits

Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer

Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial Officer

Section 1350 Certifications by Principal Executive Officer and Principal Financial Officer