CFNB 10-Q Quarterly Report Dec. 31, 2014

CALIFORNIA FIRST NATIONAL BANCORP

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10-Q 1 f10q_021215.htm FORM 10-Q f10q_021215.htm

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		December 31, 2014


[ ]	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.)

	28 Executive Park
	Irvine, California		92614
	(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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 and large accelerated filer” 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 February 6, 2015 was 10,459,924.

CALIFORNIA FIRST NATIONAL BANCORP

INDEX

		PAGE
PART 1. FINANCIAL INFORMATION		NUMBER

Item 1.	Financial Statements

	Consolidated Balance Sheets -
	December 31, 2014 and June 30, 2014	3

	Consolidated Statements of Earnings -
	Three and six months ended December 31, 2014 and 2013	4

	Consolidated Statements of Comprehensive Income -
	Three and six months ended December 31, 2014 and 2013	5

	Consolidated Statements of Cash Flows -
	Six months ended December 31, 2014 and 2013	6

	Consolidated Statement of Stockholders’ Equity -
	Six months ended December 31, 2014 and 2013	7

	Notes to Consolidated Financial Statements	8-16

Item 2.	Management's Discussion and Analysis of Financial
	Condition and Results of Operations	17 - 25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25 – 26

Item 4.	Controls and Procedures	26

PART 2. OTHER INFORMATION

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 6.	Exhibits	27

Signature		28

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 portfolio, 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

(thousands, except for share amounts)

	December 31, 2014			June 30, 2014
	(Unaudited)
ASSETS

Cash and due from banks	$	50,058		$	40,122
Investments		3,338			2,552
Securities available-for-sale		53,501			26,764
Receivables		1,509			680
Property acquired for transactions in process		26,568			40,578
Leases and loans:
Net investment in leases		314,852			329,935
Commercial loans		193,093			131,158
Allowance for credit losses		(5,975	)		(5,299	)
Net investment in leases and loans		501,970			455,794

Net property on operating leases		1,084			1,991
Income taxes receivable		321			1,658
Other assets		780			771
Discounted lease rentals assigned to lenders		12,872			8,640
	$	652,001		$	579,550

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Demand and savings deposits	$	76,816		$	65,583
Time certificates of deposit		326,131			290,227
Short-term borrowings		26,858			6,858
Accounts payable		6,705			4,655
Accrued liabilities		2,496			2,553
Lease deposits		1,612			2,005
Non-recourse debt		12,872			8,640
Deferred income taxes, net		13,343			15,284
		466,833			395,805

Commitments and contingencies

Stockholders' equity:
Preferred stock; 2,500,000 shares authorized; none issued		-			-
Common stock; $.01 par value; 20,000,000 shares authorized; 10,459,924 (December 2014) and 10,459,924 (June 2014) issued and outstanding		105			105
Additional paid in capital		3,374			3,372
Retained earnings		181,467			179,844
Accumulated other comprehensive income, net of tax		222			424
		185,168			183,745
	$	652,001		$	579,550

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

CALIFORNIA FIRST NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

(thousands, except for per share amounts)

	Three months ended December 31,				Six months ended December 31,
	2014		2013		2014		2013

Finance and loan income	$	5,370	$	4,489	$	10,315	$	9,075
Investment interest income		344		388		656		814
Total interest income		5,714		4,877		10,971		9,889

Interest expense
Deposits		900		764		1,753		1,556
Borrowings		11		-		16		-
Net interest income		4,803		4,113		9,202		8,333
Provision for credit losses		400		-		675		-

Net interest income after provision for credit losses		4,403		4,113		8,527		8,333

Non-interest income
Operating and sales-type lease income		66		386		200		885
Gain on sale of leases and leased property		1,342		1,678		3,702		2,460
Gain on sale of investment securities		438		-		438		-
Other income, net		2,819		126		2,872		257
Total non-interest income		4,665		2,190		7,212		3,602

Non-interest expenses
Compensation and employee benefits		2,426		1,954		4,351		3,701
Occupancy		158		161		317		366
Professional services		157		145		305		301
Other		544		498		984		1,049
Total non-interest expenses		3,285		2,758		5,957		5,417

Earnings before income taxes		5,783		3,545		9,782		6,518
Income taxes		2,226		1,361		3,766		2,503

Net earnings	$	3,557	$	2,184	$	6,016	$	4,015

Basic earnings per common share	$	0.34	$	0.21	$	0.58	$	0.38
Diluted earnings per common share	$	0.34	$	0.21	$	0.58	$	0.38

Dividends declared per common share outstanding	$	0.42	$	0.40	$	0.42	$	0.40
Weighted average common shares outstanding		10,460		10,448		10,460		10,448
Diluted common shares outstanding		10,460		10,451		10,460		10,451

The accompanying notes are an integral part

of these consolidated financial statements.

CALIFORNIA FIRST NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

	Three months ended December 31,						Six months ended December 31,
	2014			2013			2014			2013

Net earnings	$	3,557		$	2,184		$	6,016		$	4,015

Other comprehensive income (loss):

Unrealized gains/(losses) on securities available-for-sale		344			(102	)		19			(186	)

Other than temporary impairment loss on securities available-for-sale		-			-			91			-

Reclassification adjustment of realized gain included in net income on securities available-for-sale		(438	)		-			(438	)		-

Tax effect		36			39			126			72

Total other comprehensive (loss)/income		(58	)		(63	)		(202	)		(114	)

Total comprehensive income	$	3,499		$	2,121		$	5,814		$	3,901

The accompanying notes are an integral part

of these consolidated financial statements.

CALIFORNIA FIRST NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Six Months Ended December 31,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings	$	6,016		$	4,015
Adjustments to reconcile net earnings to cash flows provided by (used for) operating activities:
Provision for credit losses		675			-
Depreciation and net amortization (accretion)		(136	)		(94	)
Gain on sale of leased property and sales-type lease income		(2,173	)		(387	)
Net gain recognized on investment securities		(438	)		-
Impairment loss on investment securities		91			-
Deferred income taxes, including income taxes payable		(1,828	)		(2,233	)
Decrease in income taxes receivable		1,337			2,977
Net (decrease) increase accounts payable and accrued liabilities		(57	)		388
Other, net		(629	)		(2,082	)
Net cash provided by operating activities		2,858			2,584

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in leases, loans and transactions in process		(177,733	)		(157,467	)
Payments received on lease receivables and loans		108,828			95,167
Proceeds from sales of leased property and sales-type leases		3,563			3,272
Proceeds from sales and assignments of leases		37,338			34,134
Purchase of investment securities		(39,544	)		(300	)
Pay down on investment securities		11,130			9,112
Proceeds from sale of investment securities		808			-
Net (increase) decrease in other assets		(56	)		93
Net cash used for investing activities		(55,666	)		(15,989	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in time certificates of deposit		35,904			(7,104	)
Net increase (decrease) in demand and savings deposits		11,233			(695	)
Net increase in short-term borrowings		20,000			-
Dividends to stockholders		(4,393	)		(4,178	)
Proceeds from exercise of stock options		-			11
Net cash provided by (used for) financing activities		62,744			(11,966	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		9,936			(25,371	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		40,122			75,469
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	50,058		$	50,098

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Increase in lease rentals assigned to lenders and related non-recourse debt	$	4,232		$	9,636
Estimated residual values recorded on leases	$	(1,001	)	$	(2,481	)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Net cash paid during the six month period for:
Interest	$	1,732		$	1,564
Income Taxes	$	4,257		$	1,759

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)

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

Six months ended December 31, 2013

Balance, June 30, 2013		10,447,227	$	104	$	3,213	$	176,972		$	590		$	180,879
Net earnings		-		-		-		4,015			-			4,015
Other comprehensive loss		-		-		-		-			(114	)		(114	)
Shares issued - Stock options exercised		1,154		-		11		-			-			11
Stock based compensation expense		-		-		2		-			-			2
Dividends declared		-		-		-		(4,178	)		-			(4,178	)

Balance, December 31, 2013		10,448,381	$	104	$	3,226	$	176,809		$	476		$	180,615


Six months ended December 31, 2014

Balance, June 30, 2014		10,459,924	$	105	$	3,372	$	179,844		$	424		$	183,745
Net earnings		-		-		-		6,016			-			6,016
Other comprehensive loss		-		-		-		-			(202	)		(202	)
Stock based compensation expense		-		-		2		-			-			2
Dividends declared		-		-		-		(4,393	)		-			(4,393	)

Balance, December 31, 2014		10,459,924	$	105	$	3,374	$	181,467		$	222		$	185,168

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, 2014. 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 2014 Annual Report on Form 10-K, which contains Management’s Discussion and Analysis of Financial Condition and Results of Operations as of June 30, 2014 and for the year then ended.

In the opinion of management, the unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the consolidated balance sheet as of December 31, 2014 and the statements of earnings, comprehensive income, cash flows and stockholders’ equity for the periods presented. The results of operations for the three and six month periods ended December 31, 2014 are not necessarily indicative of the results of operations to be expected for the entire fiscal year ending June 30, 2015.

Certain reclassifications have been made to the fiscal 2014 financial statements to conform with the presentation of the second quarter of fiscal 2015 financial statements.

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The ASU is a converged standard between the FASB and the International Accounting Standards Board that provides a single comprehensive revenue recognition model for all contracts with customers across transactions and industries. The new accounting guidance clarifies the principles for recognizing revenue from contracts with customers. The new accounting guidance, which does not apply to financial instruments, is effective for interim and annual reporting periods beginning after December 15, 2016. The Company does not expect the new guidance to have a material impact on its consolidated financial position or results of operations.

NOTE 3 – STOCK-BASED COMPENSATION

At December 31, 2014, the Company has one stock option plan, which is more fully described in Note 14 in the Company’s 2014 Annual Report on Form 10-K. Pursuant to ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”), compensation expense is recognized over the requisite service period using the fair-value based method for all new awards calculated at the grant date.

During the quarter and six months ended December 31, 2014, the Company recognized pre-tax stock-based compensation expense of $1 ,000 and $2,000, respectively. Such expense related to options granted during fiscal 2013. The Company has not awarded any new grants in fiscal 2015 and has calculated the stock-based compensation expense based upon the original grant date fair value as allowed under ASC 718. The valuation variables utilized at the grant dates are discussed in the Company’s 2013 Annual Report on Form 10-K, the year of the original grant. As of December 31, 2014, approximately $11,000 of total unrecognized compensation expense related to unvested shares is expected to be recognized over the next 31 months.

Stock option activity for the periods indicated is summarized in the following table:

	For the six months ended
	December 31, 2014				December 31, 2013
	Shares		Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options outstanding at beginning of period		10,000	$	16.00		22,697		$	13.91
Exercised		-		-		(1,154	)		9.96
Granted		-		-		-			-
Options outstanding at end of period		10,000	$	16.00		21,543		$	14.12
Options exercisable at end of period		4,000				13,543

Stock options outstanding and exercisable are summarized below:

As of December 31, 2014
Options Outstanding									Options Exercisable
Range of Exercise prices			Number Outstanding		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$16.00	-	16.00		10,000		7.58	$	16.00		4,000	$	16.00

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 December 31, 2014, there were no liabilities subject to ASC 820.

Securities available-for-sale include U.S. Treasury Notes, corporate bonds, municipal bonds, U.S. government agency (“Agency”) mortgaged-backed securities (“MBS”), mutual fund and equity investments and generally are reported at fair value utilizing Level 1 and Level 2 inputs. The fair value of corporate and municipal bonds and the MBS 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 Notes, mutual funds and equity investments 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 Company’s assets, which are measured at fair value on a recurring basis as of December 31, 2014 and June 30, 2014 are summarized as follows:

Description of Assets / Liabilities	Total Fair Value		Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
As of December 31, 2014
Corporate debt securities	$	9,764	$	-	$	9,764	$	-
Securities of state and political subdivisions		420		-		420		-
U.S. Treasury notes		36,989		36,989		-		-
Agency MBS		4,932		-		4,932		-
Mutual fund investment		1,260		1,260		-		-
Equity investment		136		136		-		-
	$	53,501	$	38,385	$	15,116	$	-

As of June 30, 2014
Corporate debt securities	$	16,310	$	-	$	16,310	$	-
Securities of state and political subdivisions		427		-		427		-
U.S. Treasury notes		7,973		7,973		-		-
Mutual fund investment		1,261		1,261		-		-
Equity investment		793		793		-		-
	$	26,764	$	10,027	$	16,737	$	-

Certain financial instruments, such as impaired loans, 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 is evidence of impairment. The Company had no such assets or liabilities at December 31, 2014 and June 30, 2014.

NOTE 5 – F AIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with ASC 825-50, the following table summarizes the estimated fair value of financial instruments as of December 31, 2014, and June 30, 2014, 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 and demand deposits, because of their short-term nature, the carrying amounts approximate the fair value and are classified as Level 1 in the fair value hierarchy. Values for investments and available-for-sale securities are determined as set forth in Notes 4, 6 and 7. The fair value of loan participations that trade regularly in the secondary market is based upon current bid prices in such market at the measurement date and are classified as Level 2 in the fair value hierarchy. For other loans, the estimated fair value is calculated based on discounted cashflow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality and are classified as Level 3 in the fair value hierarchy. These calculations have been adjusted for credit risk based on the Company’s historical credit loss experience. The fair value of certificates of deposit are estimated based on discounted cash flows using current offered market rates or interest rates for borrowings of similar maturity and are classified as Level 3 in the fair value hierarchy.

The estimated fair values of financial instruments were as follows:

	December 31, 2014				June 30, 2014
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(in thousands)
Financial Assets:
Cash and cash equivalents	$	50,058	$	50,058	$	40,122	$	40,122
Investments		3,338		3,352		2,552		2,567
Securities available-for-sale		53,501		53,501		26,764		26,764
Commercial loan participations		173,523		171,713		111,472		111,691
Other loans		17,023		16,999		17,714		17,929
Financial Liabilities:
Demand and savings deposits		76,816		76,816		65,583		65,583
Time certificate of deposits		326,131		325,868		290,227		290,044
Short-term borrowings	$	26,858	$	26,865	$	6,858	$	6,858

NOTE 6 – INVESTMENTS:

Investments are carried at cost and consist of the following:

		December 31, 2014				June 30, 2014
		Carrying Cost		Fair Value		Carrying Cost		Fair Value
	(in thousands)
Federal Reserve Bank Stock		$	1,955	$	1,955	$	1,955	$	1,955
Federal Home Loan Bank Stock			1,262		1,262		475		475
Mortgage-backed investment			121		135		122		137
		$	3,338	$	3,352	$	2,552	$	2,567

The investment in Federal Home Loan Bank of San Francisco (“FHLB”) stock is a required investment related to CalFirst Bank’s borrowing arrangements with 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 twelve 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 investment consists of an Agency issued security. The Company has determined that it has the ability to hold this investment 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 security at amortized cost.

NOTE 7 – SECURITIES AVAILABLE FOR SALE :

The amortized cost and fair value of securities available for sale at December 31, 2014 were as follows:

(in thousands)	Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value
U.S. Treasury Notes	$	36,807	$	182	$	-		$	36,989
Corporate debt securities		9,811		24		(71	)		9,764
Securities of state and political subdivisions		408		12		-			420
Agency MBS		4,856		76		-			4,932
Mutual fund investment		1,215		45		-			1,260
Equity investment		52		84		-			136
Total securities available-for-sale	$	53,149	$	423	$	(71	)	$	53,501

The amortized cost and fair value of securities available for sale at June 30, 2014 were as follows:

(in thousands)	Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value
U.S. Treasury notes	$	7,930	$	43	$	-		$	7,973
Corporate debt securities		16,030		280		-			16,310
Securities of state and political subdivisions		409		18		-			427
Mutual fund investments		1,306		-		(45	)		1,261
Equity investment		422		371		-			793
Total securities available-for-sale	$	26,097	$	712	$	(45	)	$	26,764

The available-for-sale securities amortized cost and estimated fair value at December 31, 2014, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers 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	$	10,012	$	9,968
Due after one year but less than 5 years		37,014		37,205
Due after five years		4,856		4,932
No stated maturity		1,267		1,396
Total securities available-for-sale	$	53,149	$	53,501

During the six months ended December 31, 2014, the Company realized a gain of $438,000 from the sale of one equity investment for proceeds of $808,000. The net gain is recognized using the specific identification method and is included in non-interest income. During the six months ended December 31, 2013, the Company had no realized gains or losses from the sale of available-for-sale securities. The following table presents the fair value and associated gross unrealized loss on available-for-sale securities with a gross unrealized loss at December 31, 2014 and June 30, 2014.

	Less than 12 Months					12 Months or More					Total
	Unrealized Loss			Estimated Fair Value		Unrealized Loss			Estimated Fair Value		Unrealized Loss			Estimated Fair Value
	(in thousands)
At December 31, 2014
Corporate debt securities	$	(71	)	$	9,764	$	-		$	-	$	(71	)	$	9,764
Total	$	(71	)	$	9,794	$	-		$	-	$	(71	)	$	9,764

At June 30, 2014
Mutual fund investment	$	-		$	-	$	(45	)	$	1,261	$	(45	)	$	1,261
Total	$	-		$	-	$	(45	)	$	1,261	$	(45	)	$	1,261

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 recovery. In September 2014, the Company recorded a pre-tax impairment charge of $91,000 related to the mutual fund investment which had a $45,000 unrealized loss at June 30, 2014. While the Company has the ability and intent to retain this investment, given that the fund lowered its dividend by 11% in May 2014 and had traded below its recorded cost for over twelve months, the Company determined that an other than temporary impairment had occurred. The $71,000 unrealized loss at December 31, 2014 relates to one security in the oil-fields industry that matures in November 2015. Because the Company has the intent to hold this security and more likely than not will not need to sell it, the Company does not consider this investment to be other-than-temporarily impaired at December 31, 2014.

At December 31, 2014, securities with carrying values of $37.0 million were pledged to secure borrowings from the FHLB (see Note 11). At June 30, 2014, securities with carrying values of $8.0 million were pledged to secure the borrowing from the FHLB.

NOTE 8 – NET INVESTMENT IN LEASES

Net investment in leases consists of the following:

	December 31, 2014			June 30, 2014
	(in thousands)
Minimum lease payments receivable	$	327,553		$	340,211
Estimated residual value		12,773			12,996
Less unearned income		(25,474	)		(23,272	)
Net investment in leases before allowances		314,852			329,935
Less allowance for lease losses		(3,348	)		(3,247	)
Less valuation allowance for estimated residual value		(80	)		(80	)
Net investment in leases	$	311,424		$	326,608

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 $2.3 million at December 31, 2014 and $2.5 million at June 30, 2014.

NOTE 9 – COMMERCIAL LOANS

Commercial loans consist of the following:

	December 31, 2014			June 30, 2014
	(in thousands)
Commercial term loans	$	183,501		$	121,236
Commercial real estate loans		7,729			7,920
Revolving lines of credit		2,453			2,471
Total commercial loans		193,683			131,627
Less unearned income and discounts		(590	)		(469	)
Less allowance for loan losses		(2,547	)		(1,972	)
Net commercial loans	$	190,546		$	129,186

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 to the yield of the related commercial loan.

In addition to the amount outstanding on revolving lines of credit set forth above, the Company had additional unused commitments on revolving lines of credit in the amount of $7.4 million at December 31, 2014 and $13.3 million at June 30, 2014. The Company has a recorded liability for unfunded loan commitments of $50,000 at December 31, 2014 and $25,000 at June 30, 2014 related to such commitments.

NOTE 10 – CREDIT QUALITY OF FINANCING RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES

The following tables provide information on the credit profile of the components of the portfolio and allowance for credit losses related to “financing receivables” as defined under ASC Topic 310, Receivables. This disclosure on “financing receivables” covers the Company’s direct finance and sales-type leases and all commercial loans, but does not include operating leases and transactions in process. The portfolio is disaggregated into segments and classifications appropriate for assessing and monitoring the portfolios’ risk and performance. This disclosure does not encompass all risk assets or the entire allowance for credit losses.

Portfolio segments identified by the Company include leases and loans. These segments have been disaggregated into four classes: 1) commercial leases, 2) education, government and non-profit leases, 3) commercial and industrial loans and 4) commercial real estate loans. Relevant risk characteristics for establishing these portfolio classes generally include the nature of the borrower, structure of the transaction and collateral type. The Company’s credit process includes a policy of classifying all leases and loans in accordance with a risk rating classification system consistent with regulatory models under which leases and loans may be rated as “pass”, “special mention”, “substandard”, or “doubtful”. These risk categories reflect an assessment of the ability of the borrowers to service their obligation based on current financial position, historical payment experience, and collateral adequacy, among other factors. The Company uses the following definitions for risk ratings:

Pass – Includes credits of the highest quality as well as credits with positive primary repayment source but one or more characteristics that are of higher than average risk.

Special Mention – Have a potential weakness that if left uncorrected may result in deterioration of the repayment prospects for the lease or loan or of the Company’s credit position at some future date.

Substandard – Are inadequately protected by the paying capacity of the obligor or of the collateral, if any. Substandard credits have a well-defined weakness that jeopardize the liquidation of the debt or indicate the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – Based on current information and events, collection of all amounts due according to the contractual terms of the lease or loan agreement is considered highly questionable and improbable.

The risk classification of financing receivables by portfolio class is as follows:

(dollars in thousands)	Commercial		Education Government Non-profit		Commercial & Industrial		Commercial Real Estate		Total Financing
	Leases		Leases		Loans		Loans		Receivable
As of December 31, 2014:
Pass	$	225,619	$	77,358	$	170,638	$	7,719	$	481,334
Special Mention		11,019		-		9,835		-		20,854
Substandard		98		735		4,901		-		5,734
Doubtful		19		4		-		-		23
	$	236,755	$	78,097	$	185,374	$	7,719	$	507,945
Non-accrual	$	42	$	4	$	-	$	-	$	46

As of June 30, 2014:
Pass	$	245,360	$	76,569	$	108,453	$	2,344	$	432,726
Special Mention		6,440		566		9,881		-		16,887
Substandard		4		972		4,917		5,563		11,456
Doubtful		20		4		-		-		24
	$	251,824	$	78,111	$	123,251	$	7,907	$	461,093
Non-accrual	$	43	$	4	$	-	$	-	$	47

The accrual of interest income on leases and loans will be discontinued when the customer becomes ninety days or more past due on its lease or loan 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 doubt about the ability of the customer to meet its lease or loan obligations, as evidenced by consistent delinquency, deterioration in the customer’s financial condition or other relevant factors. Payments received while on non-accrual are applied to reduce the Company’s recorded value.

The aging of financing receivables by portfolio class is as follows:

(dollars in thousands)	31-89 Days		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivable		Over 90 Days & Accruing

As of December 31, 2014:
Commercial Leases	$	-	$	42	$	42	$	236,713	$	236,755	$	-
Education, Government, Non-profit Leases		-		4		4		78,093		78,097		-
Commercial and Industrial Loans		-		-		-		185,374		185,374		-
Commercial Real Estate Loans		-		-		-		7,719		7,719		-
	$	-	$	46	$	46	$	507,899	$	507,945	$	-

As of June 30, 2014:
Commercial Leases	$	-	$	43	$	43	$	251,781	$	251,824	$	-
Education, Government, Non-profit Leases		-		4		4		78,107		78,111		-
Commercial and Industrial Loans		-		-		-		123,251		123,251		-
Commercial Real Estate Loans		-		-		-		7,907		7,907		-
	$	-	$	47	$	47	$	461,046	$	461,093	$	-

The allowance balances and activity in the allowance related to financing receivables, along with the recorded investment and allowance determined based on impairment method as of December 31, 2014 and June 30, 2014 are presented in the following table:

(in thousands)	Commercial Leases			Education Government Non-profit Leases			Commercial & Industrial Loans		Commercial Real Estate Loans			Total Financing Receivable
As of December 31, 2014:
Allowance for lease and loan losses
Balance beginning of period	$	2,510		$	817		$	1,761	$	211		$	5,299
Charge-offs		-			-			-		-			-
Recoveries		1			-			-		-			1
Provision		100			-			675		(100	)		675
Balance end of period	$	2,611		$	817		$	2,436	$	111		$	5,975

Individually evaluated for impairment	$	255		$	120		$	-	$	-		$	375
Collectively evaluated for impairment		2,356			697			2,436		111			5,600
Total ending allowance balance	$	2,611		$	817		$	2,436	$	111		$	5,975

Finance receivables
Individually evaluated for impairment	$	3,207		$	739		$	-	$	-		$	3,946
Collectively evaluated for impairment		233,548			77,358			185,374		7,719			503,999
Total ending finance receivable balance	$	236,755		$	78,097		$	185,374	$	7,719		$	507,945

As of June 30, 2014:
Allowance for lease and loan losses
Balance beginning of period	$	2,557		$	618		$	1,561	$	411		$	5,147
Charge-offs		(61	)		(1	)		-		-			(62	)
Recoveries		14			-			-		-			14
Provision		-			200			200		(200	)		200
Balance end of period	$	2,510		$	817		$	1,761	$	211		$	5,299

Individually evaluated for impairment	$	27		$	191		$	0	$	-		$	218
Collectively evaluated for impairment		2,483			626			1,761		211			5,081
Total ending allowance balance	$	2,510		$	817		$	1,761	$	211		$	5,299

Finance receivables
Individually evaluated for impairment	$	73		$	976		$	-	$	-		$	1,049
Collectively evaluated for impairment		251,751			77,135			123,251		7,907			460,044
Total ending finance receivable balance	$	251,824		$	78,111		$	123,251	$	7,907		$	461,093

NOTE 11 – BORROWINGS

CalFirst Bank is a member of the Federal Home Loan Bank of San Francisco and 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 real estate loans and investment securities. The Bank also has authority to borrow from the Federal Reserve Bank (“FRB”) discount window amounts secured by certain lease receivables. 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 borrowings from the FHLB and weighted average interest rates at December 31, 2014 and June 30, 2014 were as follows:

	December 31, 2014					June 30, 2014
(dollars in thousands)	Amount		Weighted Average Rate			Amount		Weighted Average Rate

Short-term borrowings
FHLB advances	$	26,858		0.29	%	$	6,858		0.27	%

At December 31, 2014, there was available borrowing capacity from the FHLB of $13.9 million related to qualifying real estate loans of $6.9 million and securities pledged with a carrying value of $37.0 million. There were no borrowings from the FRB, leaving availability of approximately $113.7 million secured by $147.9 million of lease receivables.

NOTE 12 – SEGMENT REPORTING

The Company’s two subsidiaries, CalFirst Bank, an FDIC-insured national bank, and CalFirst Leasing are considered to be two different business segments. Below is a summary of each segment’s financial results for the quarters and six months ended December 31, 2014 and 2013:

	CalFirst Bank		CalFirst Leasing		Bancorp and Eliminating Entries			Consolidated
			(in thousands)
Quarter ended December 31, 2014
Total interest income	$	5,222	$	492	$	-		$	5,714
Net interest income after provision for credit losses		3,772		631		-			4,403
Other income		2,217		2,448		-			4,665
Net income	$	2,162	$	1,662	$	(267	)	$	3,557

Quarter ended December 31, 2013
Total interest income	$	4,137	$	740	$	-		$	4,877
Net interest income after provision for credit losses		3,373		740		-			4,113
Other income		1,220		970		-			2,190
Net income	$	1,566	$	997	$	(379	)	$	2,184

Six months ended December 31, 2014
Total interest income	$	9,928	$	1,043	$	-		$	10,971
Net interest income after provision for credit losses		7,320		1,207		-			8,527
Other income		2,683		4,529		-			7,212
Net income	$	3,341	$	3,177	$	(502	)	$	6,016

Six months ended December 31, 2013
Total interest income	$	8,395	$	1,493	$	1		$	9,889
Net interest income after provision for credit losses		6,839		1,493		1			8,333
Other income		1,596		2,006		-			3,602
Net income	$	2,897	$	1,750	$	(632	)	$	4,015

Total assets at December 31, 2014	$	604,028	$	95,265	$	(47,292	)	$	652,001
Total assets at December 31, 2013	$	468,676	$	94,551	$	(10,498	)	$	552,729

NOTE 13 – SUBSEQUENT EVENT

In January 2015, the Office of Comptroller of the Currency (“OCC”), CalFirst Bank’s primary regulator, terminated the operating agreement between the Bank and the OCC pursuant to which the Bank was required to obtain prior approval from the OCC before implementing any significant deviation or change from an approved operating plan, and under which the OCC had imposed conditions that the Bank maintain a Tier 1 capital ratio of not less than 14% through June 30, 2015 and limit the growth in the commercial loan portfolio within certain guidelines. Following the termination of the operating agreement, the Company’s obligation to provide capital maintenance and liquidity support to the Bank, if and when necessary, will be the only continuing unique condition.

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 (the “Company”), is a bank holding company headquartered in Orange County, California with a bank subsidiary, California First National Bank (“CalFirst Bank” or the “Bank”) and leasing subsidiary, California First Leasing Corp (“CalFirst Leasing”). The primary business of the Company is leasing and financing capital assets, while CalFirst Bank also participates in the syndicated commercial loan market, provides business loans to fund the purchase of assets leased by third parties and offers commercial loans directly to businesses. CalFirst Bank gathers deposits from a centralized location primarily through posting rates on the Internet. All banking and other operations are conducted from one central location.

The Company’s 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 market for investment securities, the volume of new lease or loan bookings, including variations in the mix and funding of such bookings, and economic conditions in general. The Company’s principal market risk exposure currently is related to interest rates and the impact the interest rate environment has on its net interest margin. The Company’s current balance sheet structure is short-term in nature, with over 59% of interest-earning assets and 83% of interest bearing liabilities repricing within one year. The Company’s interest margin is susceptible to the disparate impact of varying movements in market interest rates as many of the 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 cause 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 leases and loans held in its own portfolio, investment securities, 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, 2014.

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 of $3.6 million for the second quarter ended December 31, 2014 increased 62.8% from net earnings of $2.2 million for the second quarter of fiscal 2014 primarily due to a $2.7 million increase in non-interest income and a $690,000 increase in net interest income. The increase in non-interest income includes the pre-tax recovery of $2.7 million from the settlement of claims filed in a TFT-LCD (thin-film transistor liquid display) products antitrust case.

During the second quarter of fiscal 2015, commercial loans booked of $46.3 million increased 74.5% from $26.5 million booked during the second quarter of fiscal 2014, while commercial loan bookings of $71.7 million for the first six months were up 170.3% compared to the same prior year period. Lease bookings of $52.7 million for the second quarter of fiscal 2015 were 15.2% below $62.2 million booked during the second quarter of fiscal 2014, but for the six months ended December 31, 2014, lease bookings of $118.3 million were up 15.2% compared to the first six months of fiscal 2014. With total lease and loan bookings for the first six months of fiscal 2015 of $190.0 million up 47.0% from the same period of fiscal 2014, the Company’s net investment in leases and loans of $502 million was up 10.1% from $455.8 million at June 30, 2014 and 19.7% greater than at December 31, 2013.

The Company’s portfolio of investment securities increased to $56.8 million at December 31, 2014 from $29.3 million at June 30, 2014. The increase during the first six months of fiscal 2015 primarily related to the acquisition of US Treasury notes.

Consolidated Statement of Earnings Analysis

Summary – For the second quarter ended December 31, 2014, net earnings of $3.6 million increased $1.4 million, or 62.8%, from $2.2 million for the second quarter ended December 31, 2013. For the six months ended December 31, 2014 net earnings increased $2.0 million, or 49.8% to $6.0 million from $4.0 million for the first six months of fiscal 2014. Diluted earnings per share of $0.34 per share for the second quarter of fiscal 2015 were up 62.7% from the $0.21 per share for the second quarter of fiscal 2014. For the six months ended December 31, 2014, diluted earnings per share of $0.58 increased 49.7%, compared to $0.38 per share for the same prior year period.

Net Interest Income – Net interest income is the difference between finance income earned on the investment in leases, interest income on loans, securities and other interest earning investments and interest paid on deposits and other borrowings. Net 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.

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

	Quarter ended December 31, 2014 vs 2013									Six Months ended December 31, 2014 vs 2013
	Volume			Rate			Total			Volume			Rate			Total
	(in thousands)
Interest income
Net investment in leases	$	(131	)	$	219		$	88		$	1,141		$	(1,164	)	$	(23	)
Commercial loans		928			(135	)		793			1,619			(356	)		1,263
Investment securities		74			(113	)		(39	)		28			(174	)		(146	)
Interest-earning deposits with banks		(6	)		1			(5	)		(17	)		5			(12	)
		865			(28	)		837			2,771			(1,689	)		1,082
Interest expense
Demand and savings deposits		(7	)		1			(6	)		(15	)		1			(14	)
Time deposits		119			23			142			203			8			211
Short-term borrowings		-			11			11			-			16			16
		112			35			147			188			25			213
Net interest income	$	753		$	(63	)	$	690		$	2,583		$	(1,714	)	$	869

Net interest income was $4.8 million for the quarter ended December 31, 2014, a $690,000, or a 16.8% increase compared to the same quarter of the prior year. Total interest income for the second quarter of fiscal 2015 increased 17.2% to $5.7 million from $4.9 million during the second quarter of the prior year. This increase includes a $793,000, or 99.0%, increase in commercial loan income that reflected a 115.8% increase in average loan balances to $174.5 million, offset somewhat by a 31 basis point decline in average rates earned to 3.65%. Finance income increased by $87,700 or 2.4%, as a 28 basis point increase in the average yield to 4.74% offset a 3.6% decrease in the average investment in leases to $318.5 million. Investment income declined by 11.2%, or $43,600, as average cash and investment balances declined 6.3% to $98.3 million and the average yield declined 8 basis points to 1.40%. Interest expense paid on deposits and borrowings during the second quarter of fiscal 2015 increased by $147,000, or 19.2%, reflecting a 16.8% increase in average balances to $396.9 million while the average rate paid increased from 0.90% to 0.92%. The average rate paid during the second quarter benefitted from increased borrowings from the Federal Home Loan Bank Board (FHLB) at an average rate of 0.30% that offset an increase in average deposit costs from 0.90% to 0.94%.

(dollars in thousands)	Quarter ended December 31, 2014							Quarter ended December 31, 2013
Assets	Average Balance (1)		Interest		Yield/ Rate			Average Balance (1)		Interest		Yield/ Rate
Interest-earning assets
Interest-earning deposits with banks	$	48,563	$	19		0.16	%	$	63,574	$	24		0.15	%
Investment securities		49,778		325		2.61	%		41,335		364		3.52	%
Commercial loans		174,507		1,594		3.65	%		80,860		801		3.96	%
Net investment in leases		318,479		3,776		4.74	%		330,285		3,688		4.47	%
Total interest-earning assets		591,327		5,714		3.87	%		516,054		4,877		3.78	%
Other assets		38,586							36,512
	$	629,913						$	552,566
Liabilities and Shareholders' Equity
Interest-bearing liabilities
Demand and savings deposits	$	64,084	$	80		0.50	%	$	69,683	$	86		0.49	%
Time deposits		318,038		820		1.03	%		270,135		678		1.00	%
Other borrowings		14,793		11		0.30	%		-		-		-
Total interest-bearing liabilities		396,915		911		0.92	%		339,818		764		0.90	%
Non-interest bearing demand deposits		1,991							1,844
Other liabilities		45,895							29,261
Shareholders' equity		185,112							181,643
	$	629,913						$	552,566
Net interest income			$	4,803						$	4,113
Net interest spread (2)						2.95	%						2.88	%
Net interest margin (3)						3.25	%						3.19	%
Average interest earning assets over average interest bearing liabilities						149.0	%						151.9	%

(1)

Average balances are based on month-end balances, include non-accrual leases, and are presented net of unearned income.

(2)

Net interest spread is the difference between the average rates on interest-earning assets and interest-bearing liabilities.

(3)

Net interest margin represents net interest income as a percent of average interest earning assets.

Net interest income for the six months ended December 31, 2014 was $9.2 million, an $868,900, or a 10.4% increase compared to $8.3 million for the six months ended December 31, 2013. Total interest income for the first six months of fiscal 2015 increased 10.9% to $11.0 million from $9.9 million for first six months of the prior year as a result of a $1.3 million increase in commercial loan income that reflected a 102.9% increase in average loan balances to $156.2 million, offset somewhat by a 46 basis point decline in average rates earned to 3.63%. For the first six months of fiscal 2015, finance income was essentially unchanged at $7.5 million as the average investment in leases declined 5.1% to $315.8 million while the average yield earned increased by 23 basis points to 4.74%. Investment and interest income declined by 19.4%, or $158,300, to $656,000 as average cash and investment balances decreased 17.9% to $94.9 million and average yields declined by 3 basis points to 1.38%. Over the past year, maturing corporate securities were replaced by U.S. treasuries yielding substantially less, reducing average investment yields for the first six months of fiscal 2015 to 2.73% from 3.51% for the first six months of fiscal 2014. For the six months ended December 31, 2014, interest expense on deposits and borrowings increased by $212,700, or 13.7%, to $1.8 million on a 13.1% increase in average deposits and borrowings to $386.9 million compared to the first six months of the prior year. The average rate paid was unchanged at 0.91% as FHLB borrowings helped offset the increase in average deposit costs from 0.91% to 0.93%.

	Six months ended December 31, 2014							Six months ended December 31, 2013
Assets	Average Balance (1)		Interest		Yield/ Rate			Average Balance (1)		Interest		Yield/ Rate
Interest-earning assets
Interest-earning deposits with banks	$	50,202	$	45		0.18	%	$	72,417	$	57		0.16	%
Investment securities		44,682		611		2.73	%		43,095		757		3.51	%
Commercial loans		156,221		2,836		3.63	%		76,987		1,573		4.09	%
Net investment in leases		315,768		7,479		4.74	%		332,696		7,502		4.51	%
Total interest-earning assets		566,873		10,971		3.87	%		525,195		9,889		3.77	%
Other assets		47,192							30,736
	$	614,065						$	555,931

Liabilities and Shareholders' Equity
Interest-bearing liabilities
Demand and savings deposits	$	63,927	$	159		0.50	%	$	69,989	$	173		0.49	%
Time deposits		312,069		1,594		1.02	%		272,106		1,383		1.02	%
Other borrowings		10,925		16		0.29	%		-		-		-
Total interest bearing liabilities		386,921		1,769		0.91	%		342,095		1,556		0.91	%
Non-interest bearing demand deposits		2,100							1,819
Other liabilities		40,078							30,480
Shareholders' equity		184,966							181,537
	$	614,065						$	555,931
Net interest income			$	9,202						$	8,333
Net interest spread (2)						2.96	%						2.86	%
Net interest margin (3)						3.25	%						3.17	%
Average interest earning assets over average interest bearing liabilities						146.5	%						153.5	%

(1)

Average balances are based on month-end balances, include non-accrual leases, and are presented net of unearned income.

(2)

Net interest spread is the difference between the average rates on interest-earning assets and interest-bearing liabilities.

(3)

Net interest margin represents net interest income as a percent of average interest earning assets.

The average yield on all interest-earning assets for the second quarter of fiscal 2015 increased to 3.87% from 3.78% for the second quarter ended December 31, 2013, while the average rate paid on all interest-bearing liabilities increased by two basis points to 0.92%. As a result, the net interest margin increased to 3.25% in the second quarter of fiscal 2015 from 3.19% in the second quarter of fiscal 2014. For the first six months of fiscal 2015, the net interest margin of 3.25% compared to 3.17% for the first six months of fiscal 2014. The yield and net interest margin during the first six months of fiscal 2015 includes the benefit of accelerated finance income from early terminated leases during the first quarter which boosted the yield on leases for the six months by almost 29 basis points and offset the decline in average yield on commercial loans and securities. The average yield on interest earnings assets can fluctuate from quarter to quarter due to transaction activity in both the lease and loan portfolio.

Provision for Credit Losses – The Company made a $400,000 provision for credit losses during the second quarter of fiscal 2015, which compared to no provision made during the quarter ending December 30, 2013. The second quarter 2015 provision related to the 23% growth in the loan portfolio during the quarter and a slight increase in credit risk of the lease portfolio. During the first six months of fiscal 2015, the Company made a provision for credit losses of $675,000, compared to no provision recorded during the first six months of fiscal 2014. The provision in fiscal 2015 supports the 48% growth in the loan portfolio since June 2014 and a slight increase in credit risk of the lease portfolio during the second quarter of fiscal 2015.

Non-interest Income – Total non-interest income of $4.7 million for the second quarter of fiscal 2015 was up 113.0% from $2.2 million for the same period of the prior year. Non-interest income for the three months ended December 31, 2014 includes the $2.7 million recovery from the settlement of claims filed in antitrust litigation against certain manufacturers of thin-film transistor liquid display (“TFT-LCD”) panels (“LCD Litigation”). In July 2012, a settlement was approved in antitrust litigation filed against certain manufacturers of TFT-LCD panels over allegations that between 1999 and 2006 the manufacturers conspired to fix the prices of those panels. The settlement provided for all claims in the LCD Litigation to be filed by December 2012. In January 2014, notwithstanding the December 2012 claims bar date, the Company filed a claim, which it supplemented with additional documentation through May 2014. On October 17, 2014, the judge presiding over the LCD Litigation ruled that late filed claims in the LCD Litigation would be included for payment under the terms of the settlement, and payment was received in late October 2014.

Second quarter non-interest income also included a $1.2 million gain on the sale of leases and a $437,700 gain on the sale of an investment security that offset a $575,400 decrease in income from leases reaching the end of term during the quarter. The second quarter of fiscal 2014 included a $1.3 million gain realized on the sale of leases. Total non-interest income of $7.2 million for the first six months of fiscal 2015 was up 100.2% from $3.6 million reported for the first six months of fiscal 2014. The increase included the $2.7 million recovery on the LCD Litigation, an increase of $529,000 of income from leases reaching the end of term during the first six months of fiscal 2015 and $347,000 of net gains realized on securities.

Non-interest Expenses – During the second quarter of fiscal 2015, non-interest expenses of $3.3 million were 19.1% higher than the $2.8 million for second quarter of fiscal 2014. For the six months ended December 31, 2014, non-interest expenses of $6.0 million increased 10.0% from $5.4 million for the same period of the prior year. The increase in expenses during both periods is due primarily to higher compensation expense related to the sales organization as well as higher incentive compensation paid.

Taxes – Income taxes were accrued at a tax rate of 38.5% for the three and six months ended December 31, 2014, compared to 38.4% for the same periods of the prior year, representing the estimated annual tax rate at the end of each respective period.

Financial Condition Analysis

Consolidated total assets at December 31, 2014 of $652.0 million increased 12.5% from $579.6 million at June 30, 2014. The growth in total assets is due to an increase of $61.4 million in the commercial loan portfolio, a $26.7 million increase in securities available-for-sale and $9.9 million increase in cash and due from banks, offset by a decrease of $14.0 million in property acquired for transaction in process.

Lease Portfolio

During the first six months of fiscal 2014, 87.2% of the direct leases booked by the Company were held in its own portfolios, with 12.8% participated with other financial institutions. In addition, during the six months ended December 31, 2014 the Company sold or assigned receivables of $15.2 million held in its portfolio at June 30, 2014. As a result, the Company’s net investment in leases at December 31, 2014 of $311.4 million was down 4.7% from $326.6 million at June 30, 2014, a reduction of $15.2 million, and decreased 5.7% from $330.2 million at September 30, 2014.

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 December 31, 2014, the Company’s investment in property acquired for transactions in process of $26.6 million was down 34.5% from $40.6 million at June 30, 2014, and down 6.8% from $28.5 million at December 31, 2013.

Commercial Loan Portfolio

The Company’s commercial loan portfolio increased by $61.4 million, or 47.5%, to $190.5 million at December 31, 2014 from $129.2 million at June 30, 2014. The increase in the Company’s commercial loan portfolio included the investment of $77.5 million in new commercial loan participations offset by loan payoffs and repayments aggregating to $16.1 million. In addition, at December 31, 2014 the Company had unfunded commercial loan commitments of $34.4 million compared to $14.8 million at June 30, 2014.

During the second quarter of fiscal 2015, CalFirst Bank submitted a plan to the OCC and received approval to eliminate limitations previously imposed on CalFirst Bank’s ability to grow the loan portfolio.

Asset Quality

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. Leases 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.

	December 31, 2014			June 30, 2014
Non-performing Leases and Loans	(dollars in thousands)
Non-accrual leases	$	46		$	47
Restructured leases		-			-
Leases past due 90 days (other than above)		-			-
Total non-performing leases and loans	$	46		$	47
Non-performing assets as % of net investment
in leases and loans before allowances		0.01	%		0.01	%

The change in non-performing assets at December 31, 2014 from June 30, 2014 reflects payments received on non-accrual leases with no new leases added. In addition to the non-performing leases and loans identified above, there was $8.8 million of investment in leases and loans at December 31, 2014 classified as substandard or with credits that currently are experiencing financial difficulties or that management believes may experience financial difficulties in the future. This amount compared to $6.6 million at June 30, 2014 and $6.3 million at December 31, 2013. 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 estimable 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.

	Six months ended December 31,
	2014				2013
	(dollars in thousands)

Property acquired for transactions in process before allowance		$	26,568		$	28,525
Net investment in leases and loans before allowance			507,945			424,639
Net investment in “risk assets”		$	534,513		$	453,164

Allowance for credit losses at beginning of period		$	5,299		$	5,147
Charge-off of lease receivables			-			(8	)
Recovery of amounts previously written off			1			14
Provision for credit losses			675			-
Allowance for credit losses at end of period		$	5,975		$	5,153

Components of allowance for credit losses:
Allowance for lease losses		$	3,348		$	2,930
Residual valuation allowance			80			251
Allowance for loan losses			2,547			1,972
		$	5,975		$	5,153
Allowance for credit losses as a percent of net investment
in leases and loans before allowances			1.18	%		1.21	%
Allowance for credit losses as a percent of net investment in “risk assets”			1.12	%		1.14	%

The allowance for credit losses increased $676,000 to $5.98 million (1.18% of net investment in leases and loans before allowances) at December 31, 2014 from $5.3 million (1.15% of net investment in leases and loans before allowances) at June 30, 2014. This allowance consisted of $414,000 allocated to specific accounts that were identified as problems and $5.56 million that was available to cover losses inherent in the portfolio. This compared to $250,000 allocated to specific accounts at June 30, 2014 and $5.05 million available for losses inherent in the portfolio at that time. The increase in the specific allowance at December 31, 2014 primarily relates to the addition of one downgraded credit offset by payments received on accounts. The Company considers the allowance for credit losses of $5.98 million at December 31, 2014 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 available-for-sale investment securities were $53.5 million as of December 31, 2014, compared with $26.8 million at June 30, 2014. The amortized cost and fair value of the Company’s securities portfolio available-for-sale at December 31, 2014 and June 30, 2014 are as follows:

	As of December 31, 2014				As of June 30, 2014
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available-for-sale
U.S. Treasury notes	$	36,807	$	36,989	$	7,930	$	7,973
Corporate debt securities		9,811		9,764		16,030		16,310
Securities of state and political subdivisions		408		420		409		427
Agency MBS		4,856		4,932		-		-
Mutual fund investment		1,215		1,260		1,306		1,261
Equity investment		52		136		422		793
Total securities available-for-sale	$	53,149	$	53,501	$	26,097	$	26,764

During the first six months of fiscal 2015, the Company’s portfolio of securities available-for-sale increased $26.7 million through new purchases of $38.3 million offset by maturities, sales and pay downs of securities of $11.5 million and an impairment charge of $91,000. The Company recorded a pre-tax impairment charge of $91,000 related to a mutual fund investment held in the securities available-for-sale portfolio. While the Company intends to retain this investment for a sufficient time to recover its investment, the investment fund lowered its dividend by 11% in May 2014 and had traded below its recorded cost for over twelve months, thus the Company determined that an other than temporary impairment had occurred and recorded a valuation adjustment in the first quarter of fiscal 2015. At December 31, 2014, the weighted average maturity of the portfolio is 4.7 years and the corresponding weighted average yield was 2.22%.

Liquidity and Capital Resources

The Company funds its operating activities through internally generated funds, bank deposits, FHLB borrowings and non-recourse debt. At December 31, 2014 and June 30, 2014, the Company’s cash and due from banks were $50.1 million and $40.1 million, respectively.

Deposits at CalFirst Bank totaled $402.9 million at December 31, 2014, up 13.3% from $355.8 million at June 30, 2014 and up 19.1% from $338.2 million at December 31, 2013. The $64.7 million increase from December 31, 2013 was used to fund the growth in the Bank’s portfolios and maintain liquidity. The following table presents average balances and average rates paid on deposits for the six months ended December 31, 2014 and 2013:

	Six months ended December 31,
	2014							2013
	Ending Balance		Average Balance		Average Rate Paid			Ending Balance		Average Balance		Average Rate Paid
	(in thousands)
Non-interest bearing demand deposits	$	2,837	$	2,100		n/a		$	1,014	$	1,819		n/a
Interest-bearing demand deposits		3,593		1,104		0.20	%		1,413		1,833		0.20	%
Money market deposits		70,386		62,823		0.50	%		68,824		68,156		0.50	%
Time deposits, less than $100,000		59,368		56,615		1.03	%		50,951		52,028		1.01	%
Time deposits, $100,000 or more	$	266,763	$	255,454		1.02	%	$	216,027	$	220,077		1.01	%

The following table shows the maturities of certificates of deposits at December 31, 2014:

	$250,000 or less		More than $ 250,000
	(in thousands)
Under 3 months	$	59,665	$	15,350
3 – 6 months		62,103		7,495
7 – 12 months		89,914		18,843
13 – 24 months		52,123		10,887
25 – 36 months		9,279		472
	$	273,084	$	53,047

The Bank has borrowing agreements with 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. The Bank has short-term borrowings outstanding of $26.9 million at December 31, 2014 at an average rate of 0.30% and had no outstanding balance at December 31, 2013. Under terms of the blanket collateral agreement, advances from the FHLB are collateralized by qualifying securities and real estate loans, with $13.9 million available under the agreement as of December 31, 2014. The Bank also has the authority to borrow from the Federal Reserve Bank (“FRB”) discount window amounts secured by certain lease receivables with unused borrowing availability at December 31, 2014 of approximately $113.7 million.

An additional source of liquidity for financing and managing the lease portfolio comes from selling, participating or assigning certain lease term payments to banks or other financial institutions. If the transaction is characterized as a sale of the financial asset or meets the parameters of a participating interest, the lease is removed from the balance sheet and a resulting gain or loss recognized. If the Company retains a controlling interest in the lease, the assignment is considered a secured borrowing with the associated financing characterized as non-recourse debt. The assigned lease payments are discounted at fixed rates such that the lease payments are sufficient to fully amortize the aggregate outstanding debt. At December 31, 2014, the Company had outstanding non-recourse debt aggregating $12.9 million relating to discounted lease rentals assigned to unaffiliated lenders, up from $8.6 million at June 30, 2014 and $10.4 million at December 31, 2013. 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.

The following table presents capital and capital ratio information for the Company and CalFirst Bank as of December 31, 2014 and June 30, 2014, when both exceed their regulatory capital requirements and are considered “well-capitalized” under guidelines established by the FRB and OCC.

	December 31,					June 30,
	2014					2014
	(dollars in thousands)
California First National Bancorp	Amount		Ratio			Amount		Ratio
Tier 1 risk-based capital	$	184,946		31.12	%	$	183,321		31.84	%
Total risk-based capital	$	190,971		32.13	%	$	188,645		32.76	%
Tier 1 leverage capital	$	184,946		29.60	%	$	183,321		32.80	%

California First National Bank
Tier 1 risk-based capital	$	106,121		18.77	%	$	102,780		19.61	%
Total risk-based capital	$	111,780		19.77	%	$	107,639		20.54	%
Tier 1 leverage capital	$	106,121		18.77	%	$	102,780		21.09	%

Contractual Obligations and Commitments

The following table summarizes various contractual obligations as of December 31, 2014. 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
Contractual Obligations		Total		Less Than 1 Year		1-5 Years		After 5 Years
	(in thousands)
Lease property purchases (1)		$	48,540	$	48,540	$	-	$	-
Commercial loan and lease purchase commitments			33,712		33,712		-		-
FHLB Borrowings			26,858		26,858		-		-
Operating lease rental payments			2,503		643		1,860		-
Total contractual commitments		$	111,613	$	109,753	$	1,860	$	-

___________________________________________

(1)	Disbursements to purchase property on approved lease commitments are estimated to be completed within one year, but it is likely that some portion could be deferred or never funded.

The need for cash for operating activities is increasing as the Company expands its portfolios. 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 have increased significantly, the Company is subject to greater 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 December 31, 2014, the Company had $56.5 million of cash or invested in securities of very short duration. The Company’s investment in gross lease payments receivable and commercial loans of $534.0 million consists of leases with fixed rates and loans with variable rates, however, $314.5 million of such investment matures or reprices within one year of December 31, 2014. Of the $56.8 million investment in securities, $11.5 million mature within twelve months. This compares to interest bearing deposit and borrowing liabilities of $427.0 million, of which $354.2 million, or 83%, mature within one year. Based on the foregoing, at December 31, 2014 the Company had assets of $375.9 million subject to changes in interest rates over the next twelve months, compared to repricing liabilities of $354.2 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. However, the traditional 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 increase or decrease in interest rates may adversely impact our 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.

Consolidated Interest Rate Sensitivity

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

Rate Sensitive Assets (RSA):
Cash due from banks	$	50,058		$	-		$	-		$	-		$	-		$	50,058
Investment securities		6,436			4,928			37,205			8,270			-			56,839
Net investment in leases		30,873			105,845			193,361			10,247			(28,902	)		311,424
Commercial loans		176,853			900			15,930			-			(3,137	)		190,546
Non-interest earning assets		-			-			-			-			43,134			43,134
Totals		264,220			111,673			246,496			18,517			11,095		$	652,001
Cumulative total for RSA	$	264,220		$	375,893		$	622,389		$	640,905

Rate Sensitive Liabilities (RSL):
Demand and savings deposits	$	73,979		$	-		$	-		$	-		$	2,837		$	76,816
Time deposits		75,015			178,354			72,762			-			-			326,131
Borrowings		-			26,858			-			-			-			26,858
Non-interest bearing liabilities		-			-			-			-			37,028			37,028
Stockholders' equity		-			-			-			-			185,168			185,168
Totals	$	148,994		$	205,212		$	72,762		$	-		$	225,033		$	652,001
Cumulative total for RSL	$	148,994		$	354,206		$	426,968		$	426,968

Interest rate sensitivity gap	$	115,226		$	(93,539	)	$	173,734		$	18,517
Cumulative GAP	$	115,226		$	21,687		$	195,421		$	213,938

RSA divided by RSL (cumulative)		177.34	%		106.12	%		145.77	%		150.11	%
Cumulative GAP / total assets		17.67	%		3.33	%		29.97	%		32.81	%

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 Executive Vice President concluded that the Company's disclosure controls and procedures were effective as of December 31, 2014 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, 2014.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table summarizes share repurchase activity for the quarter ended December 31, 2014:

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

October 1, 2014 - October 31, 2014		-	$	-		368,354
November 1, 2014 - November 30, 2014		-	$	-		368,354
December 1, 2014 - December 31, 2014		-	$	-		368,354
		-	$	-

1)	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

(a) Exhibits		Page

31.1	Rule 13a-14(a)/15d-14(a) Certifications of Principal Executive Officer	29

31.2	Rule 13a-14(a)/15d-14(a) Certifications of Principal Financial Officer	30

31.3	Section 1350 Certifications by Principal Executive Officer and Principal Financial Officer	31

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:	February 10, 2015	BY:	/s/ S. Leslie Jewett
			S. Leslie Jewett Executive Vice President (Principal Financial and Accounting Officer)

TABLE OF CONTENTS

CFNB 10-Q Quarter ended Dec. 31, 2014