CALIFORNIA FIRST LEASING CORP - Quarter Report: 2006 December (Form 10-Q)

California First National Bancorp 10-Q 12/31/06

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, 2006

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

For the transition period from to

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, or a non-accelerated filer. 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 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, 2007 was 11,186,358.

CALIFORNIA FIRST NATIONAL BANCORP

INDEX

PART I. FINANCIAL INFORMATION		PAGE NUMBER

Item 1.	Financial Statements

	Consolidated Balance Sheets — December 31, 2006 and June 30, 2006	3

	Consolidated Statements of Earnings — Three and six months ended December 31, 2006 and 2005	4

	Consolidated Statements of Cash Flows — Six months ended December 31, 2006 and 2005	5

	Consolidated Statement of Stockholders’ Equity — Six months ended December 31, 2006 and 2005	6

	Notes to Consolidated Financial Statements	7-10

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11-17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17-18
Item 4.	Controls and Procedures	18

PART II. OTHER INFORMATION

Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 6.	Exhibits	19
Signature		20

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, from unanticipated changes in the risk characteristics of the lease portfolio, the level of defaults and a change in the provision for lease 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

Restatement

As described in our Annual Report on Form 10-K for the year ended June 30, 2006, the Company restated certain financial statements and other information, including such statements and information for the first two quarters of fiscal 2006, to correctly account for certain lease extensions as operating leases instead of as sales-type leases, and to restate information in the Consolidated Statements of Cash Flows to comply with the guidance under Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows” (“SFAS No. 95”).

CALIFORNIA FIRST NATIONAL BANCORP

CONSOLIDATED BALANCE SHEETS

(thousands, except for share amounts)

	December 31, 2006			June 30, 2006
	(Unaudited)
ASSETS
Cash and due from banks	$	27,966		$	23,217
Federal funds sold and securities purchased under agreements to resell		17,420			17,530
Total cash and cash equivalents		45,386			40,747
Investment securities		2,497			1,134
Net receivables		1,210			1,905
Property acquired for transactions in process		25,185			41,680
Net investment in capital leases		233,191			213,956
Net equipment on operating leases		414			46
Income tax receivable		1,629			4,744
Other assets		1,576			1,719
Discounted lease rentals assigned to lenders		7,696			8,424
	$	318,784		$	314,355

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable	$	4,724		$	3,263
Accrued liabilities		4,695			4,702
Demand and money market deposits		8,327			9,778
Time certificates of deposit		86,021			79,388
Lease deposits		5,137			5,534
Non-recourse debt		7,696			8,424
Deferred income taxes — including income taxes payable, net		5,803			9,739

		122,403			120,828

Commitments and contingencies

Stockholders' equity:
Preferred stock; 2,500,000 shares authorized; none issued		—			—
Common stock; $.01 par value; 20,000,000 shares authorized; 11,181,358 (December 2006) and 11,161,508 (June 2006) issued and outstanding		112			112
Additional paid in capital		4,002			3,756
Retained earnings		192,292			189,659
Other comprehensive loss, net of tax		(25	)		-
		196,381			193,527
	$	318,784		$	314,355

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,
	2006			2005		2006			2005
				(restated)					(restated)
Direct finance income	$	6,659		$	4,483	$	12,123		$	8,496
Interest and investment income		493			256		979			562

Total direct finance and interest income		7,152			4,739		13,102			9,058

Interest expense on deposits		1,183			539		2,270			996
Provision for lease losses		(250	)		—		(220	)		402

Net direct finance and interest income after provision for lease losses		6,219			4,200		11,052			7,660

Other income
Operating and sales-type lease income		1,261			913		2,192			1,828
Gain on sale of leases and leased property		1,081			2,103		2,188			5,369
Other fee income		254			257		412			414

Total other income		2,596			3,273		4,792			7,611
Gross profit		8,815			7,473		15,844			15,271

Selling, general and administrative expenses		3,849			3,759		7,599			7,610
Earnings before income taxes		4,966			3,714		8,245			7,661

Income taxes		1,900			1,440		3,154			2,969

Net earnings	$	3,066		$	2,274	$	5,091		$	4,692

Basic earnings per common share	$	.27		$	.20	$	.46		$	.42
Diluted earnings per common share	$	.27		$	.20	$	.44		$	.41
Dividends declared per common share outstanding	$	.11		$	.10	$	.22		$	.20

Weighted average common shares outstanding		11,179			11,114		11,174			11,110
Diluted common shares outstanding		11,511			11,428		11,529			11,419

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,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:				(restated)
Net Earnings	$	5,091		$	4,692
Adjustments to reconcile net earnings to cash flows provided by (used for) operating activities:
Depreciation		317			397
Stock-based compensation expense		66			94
Leased property on operating leases, net		(420	)		(165	)
Interest accretion of estimated residual values		(699	)		(723	)
Gain on sale of leased property and sales-type lease income		(2,210	)		(4,806	)
Provision for lease losses		(220	)		402
Deferred income taxes, including income taxes payable		(3,921	)		(4,054	)
Decrease (increase) in receivables		695			(167	)
Decrease in income taxes receivable		3,115			—
Net increase in accounts payable and accrued liabilities		1,455			1,043
(Decrease) increase in customer lease deposits		(398	)		959
Net cash provided by (used for) operating activities		2,871			(2,328	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in leases and transactions in process		(71,537	)		(79,789	)
Payments received on lease receivables		67,445			61,930
Proceeds from sales of leased property and sales-type leases		4,481			8,203
Purchase of investment securities		(1,608	)		(24	)
Pay down of investment securities		205			261
Net increase in other assets		(122	)		(192	)
Net cash used for investing activities		(1,136	)		(9,611	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in time certificates of deposit		6,633			10,232
Net decrease in demand and money market deposits		(1,451	)		(1,086	)
Dividends to stockholders		(2,458	)		(2,222	)
Proceeds from exercise of stock options		180			136
Net cash provided by financing activities		2,904			7,060
NET CHANGE IN CASH AND CASH EQUIVALENTS		4,639			(4,879	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		40,747			43,321
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	45,386		$	38,442
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Decrease in lease rentals assigned to lenders and related non-recourse debt	$	(728	)	$	(3,459	)
Estimated residual values recorded on leases	$	(1,557	)	$	(1,352	)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the six month period for:
Interest	$	2,274		$	1,003
Income Taxes	$	3,975		$	7,024

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
	Common Stock				Paid in		Retained			Comprehensive
	Shares			Amount	Capital		Earnings			Income		Total

Six months ended December 31, 2005

Balance, June 30, 2005		11,098,683	$	111	$	3,013	$	183,614		$	—	$	186,738

Net earnings (restated)		—		—		—		4,692			—		4,692

Shares issued - Stock options exercised		15,121		—		136		—			—		136

Stock-based compensation expense		—		—		94		—			—		94

Dividends declared		—		—		—		(2,222	)		—		(2,222	)

Balance, December 31, 2005		11,113,804	$	111	$	3,243	$	186,084		$	—	$	189,438

Six months ended December 31, 2006

Balance, June 30, 2006	11,161,508	$	112	$	3,756	$	189,659		$	—		$	193,527

Comprehensive income
Net earnings	—		—		—		5,091			—			5,091
Unrealized loss on investment securities, net of tax	—		—		—		—			(25	)		(25	)

Total comprehensive income													5,066

Shares issued - Stock options exercised	19,850		—		180		—			—			180

Stock-based compensation expense	—		—		66		—			—			66

Dividends declared	—		—		—		(2,458	)		—			(2,458	)

Balance, December 31, 2006	11,181,358	$	112	$	4,002	$	192,292		$	(25	)	$	196,381

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 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 California First National Bancorp (the “Company”) Annual Report on Form 10-K for the year ended June 30, 2006. 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 2006 Annual Report on Form 10-K, which contains Management’s Discussion and Analysis of Financial Condition and Results of Operations as of June 30, 2006 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 December 31, 2006 and the statements of earnings for the three and six-month periods, and cash flows and stockholders’ equity for the six month periods ended December 31, 2006 and 2005. The results of operations for the three and six-month periods ended December 31, 2006 are not necessarily indicative of the results of operations to be expected for the entire fiscal year ending June 30, 2007.

Restatement

As described in our Annual Report on Form 10-K for the year ended June 30, 2006, the Company restated certain financial statements, including such statements for each of the first two quarters of fiscal 2006, to correctly account for certain lease extensions as operating leases instead of as sales-type leases, and to restate information in the Consolidated Statements of Cash Flows to comply with the guidance under SFAS No. 95.

Accounting for Lease Extensions

A review of the accounting for lease extensions accounted for as sales-type leases identified that certain lease extensions classified as sales-type leases should have been classified as operating leases. The following table summarizes the impact of the adjustments relating to the reclassification of certain lease extensions on affected line items within the Company’s previously reported Statements of Earnings for the quarter and six months ended December 31, 2005. The restatement had an immaterial effect on the Consolidated Balance Sheet at December 31, 2005 and no effect on the timing or amount of actual cash flows.


(decrease in thousands, except per share amounts)	Three months ended December 31, 2005			Six months ended December 31, 2005

Total other income	$	(206	)	$	(245	)
Provision for income taxes		(79	)		(94	)
Net earnings	$	(127	)	$	(151	)

Impact on earnings per share
Diluted earnings per share, as reported	$	0.21		$	0.42
Adjustment		(0.01	)		(0.01	)
Diluted earnings per share, restated	$	0.20		$	0.41

Consolidated Statement of Cash Flows

The following table summarizes the effects of the restatement of the Consolidated Statements of Cash Flows for the six months ended December 31, 2005. The reclassification has the effect of increasing the reported cash used in operating activities and decreasing the cash flow used in investing activities as compared to the Company’s previously issued financial statements.

(dollars in thousands)	Six months ended December 31, 2005
Net cash used for operating activities, previously reported	$	(353	)
Restatement of cash flows related to:
Net income		(151	)
Sale of property and sales-type leases		(8,501	)
Transactions in process		6,585
Other		92
Restated net cash used for operating activities	$	(2,328	)
Net cash used for investing activities, previously reported	$	(11,586	)
Restatement of cash flows related to:
Proceeds from sale of property and sales-type leases		(6,585	)
Investment in leases and transactions in process		8,501
Other		59
Restated net cash used for investing activities	$	(9,611	)

Certain reclassifications have been made to the fiscal 2006 financial statements to conform to the presentation of the fiscal 2007 financial statements.

NOTE 2 - STOCK-BASED COMPENSATION

At December 31, 2006, the Company has one stock option plan, which is more fully described in Note 9 in the Company’s 2006 Annual Report on Form 10-K. On July 1, 2005, the Company implemented Statement of Financial Accounting Standards 123(R),“Share-Based Payments” (“SFAS No. 123R”) which replaced SFAS No. 123 and supersedes Opinion No. 25 and the related implementation guidance. SFAS No. 123R addresses accounting for equity-based compensation arrangements, including employee stock options. The Company adopted the “modified prospective method” where stock-based compensation expense is recorded beginning on the adoption date and prior periods are not restated. Under this method, compensation expense is recognized using the fair-value based method for all new awards granted after July 1, 2005. Additionally, compensation expense for unvested stock options that are outstanding at July 1, 2005 is recognized over the requisite service period based on the fair value of those options as previously calculated at the grant date under the pro-forma disclosures of SFAS 123. The fair value of each grant is estimated using the Black-Scholes option-pricing model.

During the three and six months ended December 31, 2006, the Company recognized pre-tax stock-based compensation expense of $33,027 and $66,054, respectively, as a result of adopting SFAS 123R. Such expense related to options granted during the fiscal years ended June 2001 through June 2004. The Company has not awarded any new grants since fiscal 2004 and has calculated the stock-based compensation expense based upon the original grant date fair value as allowed under SFAS 123R. The valuation variables utilized at the grant dates are discussed in the Company’s Annual Report on Form 10-K in the respective years of the original grants. As of December 31, 2006, approximately $141,000 of total unrecognized compensation expense related to unvested shares is expected to be recognized over a weighted average period of approximately 11 months.

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

	Six months ended December 31, 2006					Six months ended December 31, 2005
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options outstanding at the beginning of period		945,767		$	9.02		1,017,518		$	9.02
Exercised		( 19,850	)		9.08		( 15,121	)		9.05
Canceled/expired		—			—		( 7,772	)		10.72
Options outstanding at end of period		925,917		$	9.02		994,625		$	9.01
Options exercisable		881,125					914,857

	As of December 31, 2006
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
		$ 5.20 - $ 8.81		600,081		4.00	$	7.54		576,993	$	5.51
		9.85 - 12.49		248,018		3.42		11.05		226,314		8.05
		13.64 - 15.27		77,818		1.32		13.95		77,818		11.56
		$ 5.20 - $15.27		925,917		3.62	$	9.02		881,125	$	8.90

NOTE 3 - INVESTMENT SECURITIES

The Company’s investment securities are classified as held-to-maturity and available for sale. The amortized cost, fair value, and carrying value of investment securities at December 31, 2006 were as follows:

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Carrying Value
Held-to-maturity
Mortgage-backed securities	$	324	$	—	$	(16	)	$	308	$	324
Federal Reserve Bank Stock		1,055		—		—			1,055		1,055
Total held-to-maturity	$	1,379	$	—	$	(16	)	$	1,363	$	1,379
Available-for-sale
Marketable securities		1,158		—		(40	)		1,118		1,118
Total investment securities	$	2,537	$	—	$	(56	)	$	2,481	$	2,497

The unrealized loss on the Company’s investment in the mortgaged-backed securities was caused by changes in interest rates and the contractual cash flows are guaranteed by an agency of the U. S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and the Company has the ability and intent to hold those investments to maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2006.

Securities classified as “available for sale” may be sold in the future. These securities are carried at market value. Net aggregate unrealized gains or losses on these securities are included in a valuation allowance account and are shown net of taxes, as a component of shareholders’ equity.

NOTE 4 - CAPITAL LEASES

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

	December 31, 2006			June 30, 2006
	(in thousands)
Minimum lease payments receivable	$	257,946		$	234,337
Estimated residual value		13,025			12,644
		270,971			246,981
Less allowance for lease losses		(3,476	)		(3,339	)
Less valuation allowance for estimated residual value		(155	)		(230	)
		267,340			243,412
Less unearned income		(34,149	)		(29,456	)
Net investment in capital leases	$	233,191		$	213,956

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 $4.4 million and $4.3 million at December 31, 2006 and June 30, 2006, respectively.

NOTE 5 - SEGMENT REPORTING

The Company has two leasing subsidiaries, California First Leasing Corporation (“CalFirst Leasing”) and Amplicon, Inc. (“Amplicon”), collectively the “Leasing Companies”. The Company has a bank subsidiary, California First National Bank (“CalFirst Bank” or the “Bank”), which is an FDIC-insured national bank. Below is a summary of each segment’s financial results for the quarter and six months ended December 31, 2006 and 2005:

	Leasing Companies		CalFirst Bank		Bancorp and Eliminating Entries			Consolidated
	(in thousands)
Quarter ended December 31, 2006
Net direct finance and interest income after provision for lease losses	$	4,928	$	1,260	$	31		$	6,219
Other income		2,393		203		—			2,596
Gross profit	$	7,321	$	1,463	$	31		$	8,815
Net earnings	$	2,082	$	439	$	545		$	3,066
Quarter ended December 31, 2005 (restated)
Net direct finance and interest income after provision for lease losses	$	3,281	$	909	$	10		$	4,200
Other income		3,005		268		—			3,273
Gross profit	$	6,286	$	1,177	$	10		$	7,473
Net earnings	$	1,713	$	355	$	206		$	2,274
Six months ended December 31, 2006
Net direct finance and interest income after provision for lease losses	$	8,652	$	2,352	$	48		$	11,052
Other income		4,470		322		—			4,792
Gross profit	$	13,122	$	2,674	$	48		$	15,844
Net earnings	$	3,291	$	720	$	1,080		$	5,091
Six months ended December 31, 2005 (restated)
Net direct finance and interest income after provision for lease losses	$	6,053	$	1,591	$	16		$	7,660
Other income		7,110		501		—			7,611
Gross profit	$	13,163	$	2,092	$	16		$	15,271
Net earnings	$	3,680	$	587	$	425		$	4,692

Total assets at December 31, 2006	$	175,989	$	146,687	$	(3,892	)	$	318,784
Total assets at December 31, 2005	$	195,032	$	108,918	$	(19,123	)	$	284,827

NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006, the FASB issued Financial Accounting Standards Interpretation No. 48, (“FIN 48”), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently analyzing the potential effects of FIN 48 on its financial statements.

NOTE 7 - SUBSEQUENT EVENT

On January 23, 2007, the Board approved a 9% increase in the quarterly dividend rate to $0.12 per share from $0.11 per share. The dividend will be paid April 6, 2007 to shareholders of record on March 23, 2007.

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. The Leasing Companies and CalFirst Bank focus on leasing and financing capital assets, primarily computers, computer networks and other high technology 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 the Leasing Companies. CalFirst Bank gathers deposits from a centralized location primarily through posting rates on the Internet.

The Company’s direct finance income includes interest income earned on the Company’s investment in lease receivables and residuals. Other income primarily includes gains realized on the sale of leased property, income from sales-type and operating leases and gains realized on the sale of leases, and other fee 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 operating leases rather than as sales-type leases.

The Company's operating results are subject to quarterly fluctuations resulting from a variety of factors, including the volume and profitability of leased property being re-marketed through re-lease or sale, the size and credit quality of the lease portfolio, the interest rate environment, the volume of new lease originations, including variations in the mix and funding of such originations, and economic conditions in general. 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. The Company’s interest-bearing liabilities represent about 30% of total assets, and therefore, changes in interest rates in general have a greater impact on the yield earned on the investment in lease receivables, securities and other interest earning assets, with less impact from higher or lower interest expense. However, a flattening of the yield curve does result in some impact to earnings due to the compression of earning asset yields and funding rates, while a steeper curve would result in increased earnings as investment margins widen.

The Company conducts its leasing 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 in lease receivables 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, 2006.

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 second quarter of fiscal 2007 were up 35% from the second quarter of fiscal 2006. The large increase is due in part to the contribution of $961,000 in recovery and income related to a transaction that filed bankruptcy in 2002. In addition, the early termination of three leases and resolution of another problem lease resulted in recognition of accelerated direct finance income of $439,000 in the quarter. For the first six months of fiscal 2007, net earnings were up 9% from the prior year, reflecting a 44% increase in net direct finance and interest income offset by a 56% decrease in income from the portfolio of assets reaching the end of term. The net investment in capital leases of $233.2 million at December 31, 2006 was up 19% from the balance at December 31, 2005, and along with higher yields, contributed to the growth in direct finance income in the six-month period.

New lease bookings for the three and six month periods of fiscal 2007 of $53.4 million and $96.3 million, respectively, were 31% and 21% greater than the same periods of the prior year. The volume of new lease commitments approved during the first six months of fiscal 2007 (“lease originations”) is about 13% below the same period of fiscal 2006. As a result, the backlog of approved lease commitments is approximately 14% below the level of the prior year.

The Bank represents a growing portion of the Company’s consolidated results, with the Bank’s investment in capital leases of $121.6 million at December 31, 2006 representing 52% of the Company’s consolidated investment. To fund this portfolio, the Bank’s demand, money market and time deposits increased by 49% to $94.3 million from $63.2 million at December 31, 2005, and 6% from $89.2 million at June 30, 2006.

Consolidated Statement of Earnings Analysis

Summary -- For the second quarter ended December 31, 2006, net earnings of $3.1 million increased $792,000, or 34.8%, compared to $2.3 million for the second quarter ended December 31, 2005. Diluted earnings per share increased 33.8% to $0.27 per share for the second quarter of fiscal 2007, compared to $0.20 per share for the second quarter of the prior year. The results for the second quarter of fiscal 2007 reflect a 48.1% increase in net direct finance and interest income after provision for leases losses, a 21.7% decline in other income, and a slight increase in selling, general and administrative (“SG&A”) expenses.

For the six months ended December 31, 2006, net earnings of $5.1 million increased $400,000, or 8.5%, compared to the six months ended December 31, 2005. Diluted earnings per share increased 7.5% to $0.44 for the first six months of fiscal 2007 compared to $0.41 for the same period of the prior year. Net direct finance income after provision for lease losses increased 44.3%, offset by a 37.0% decrease in other income.

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

Net direct finance and interest income was $6.0 million for the quarter ended December 31, 2006, a $1.8 million, or 42.1%, increase compared to the same quarter of the prior year. Direct finance income of $6.7 million increased by $2.2 million primarily as a result of the 18.2% increase in the average investment in capital leases held in the Company’s own portfolio and a 240 basis point increase in average yields earned. Contributing to the higher yields earned was the early termination of three leases and resolution of a problem lease which resulted in the acceleration of direct finance income of $439,000 in the quarter, as well as $102,000 of direct finance income recognized as part of the bankruptcy resolution. Interest income on investments increased by $237,000 due to an increase in interest rates on higher average investment balances. Interest expense on deposits was $1.2 million for the second quarter of fiscal 2007 compared to $539,000 for the same quarter of the prior year. The increase includes the impact of a 63.2% increase in average deposit balances together with an increase in the average interest rate paid from approximately 3.64% to 4.90%.

For the six months ended December 31, 2006, net direct finance and interest income was $10.8 million, a $2.8 million, or 34.4% increase from the same period of the prior year. Direct finance income of $12.1 million increased by $3.6 million, or 42.7%, reflecting a 16.9% increase in the average investment in capital leases held in our own portfolio and a 200 basis point increase in average yields earned. Interest income on investments increased by $417,000 due to higher yields earned on higher investment balances during the period. Interest expense on deposits was $2.3 million for the first six months of fiscal 2007, compared to $996,000 for the same period of the prior year. The increase reflected a 65.1% increase in average deposit balances and an increase in the average rate paid from 3.45% to 4.77%.

The following table presents the components of the increases (decreases) in net direct finance and interest income by volume and rate:

	Quarter ended December 31, 2006 vs 2005									Six Months ended December 31, 2006 vs 2005
	Volume			Rate			Total			Volume			Rate			Total
Interest income	(in thousands)
Net investment in capital leases	$	818		$	1,358		$	2,176		$	1,432		$	2,195		$	3,627
Discounted lease rentals		45			4			49			58			(13	)		45
Federal funds sold		78			78			156			137			189			326
Investment securities		3			(3	)		—			—			4			4
Interest-earning investments		39			42			81			14			73			87
		983			1,479			2,462			1,641			2,448			4,089
Interest expense
Non-recourse debt		45			4			49			58			(13	)		45
Demand and money market deposits		(50	)		22			(28	)		(99	)		43			(56	)
Time certificates of deposits		400			272			672			764			566			1,330
		395			298			693			723			596			1,319
	$	588		$	1,181		$	1,769		$	918		$	1,852		$	2,770

The following tables present the Company’s average balance sheets, direct finance 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
(dollars in thousands)	December 31, 2006							December 31, 2005
	Average				Yield/			Average				Yield/
Assets	Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets
Interest-earning deposits with banks	$	29,123	$	196		2.7	%	$	21,908	$	115		2.1	%
Federal funds sold		20,229		280		5.5	%		12,404		124		4.0	%
Investment securities		1,474		17		4.6	%		1,245		17		5.5	%
Net investment in capital leases including discounted lease rentals (1,2)		235,663		6,784		11.5	%		197,585		4,559		9.2	%
Total interest-earning assets		286,489		7,277		10.2	%		233,142		4,815		8.3	%
Other assets		37,051							46,675
	$	323,540						$	279,817
Liabilities and Shareholders' Equity
Interest-bearing liabilities
Demand and savings deposits	$	7,074		83		4.7	%	$	12,849		111		3.4	%
Time deposits		88,768		1,100		4.9	%		45,866		428		3.7	%
Non-recourse debt		7,866		125		6.4	%		4,933		76		6.2	%
Total interest bearing liabilities		103,708		1,308		5.0	%		63,648		615		3.9	%
Other liabilities		24,329							27,337
Shareholders' equity		195,503							188,832
	$	323,540						$	279,817
Net interest income			$	5,969						$	4,200
Net direct finance and interest income to average interest-earning assets						8.3	%						7.2	%
Average interest earning assets over average interest bearing liabilities						276.2	%						366.3	%

	Six months ended							Six months ended
	December 31, 2006							December 31, 2005
	Average				Yield/			Average				Yield/
Assets	Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets
Interest-earning deposits with banks	$	27,801	$	371		2.7	%	$	26,523	$	284		2.1	%
Federal funds sold		20,254		573		5.7	%		13,028		247		3.8	%
Investment securities		1,327		35		5.3	%		1,347		31		4.6	%
Net investment in capital leases including discounted lease rentals (1,2)		229,125		12,371		10.8	%		195,450		8,699		8.9	%
Total interest-earning assets		278,507		13,350		9.6	%		236,348		9,261		7.8	%
Other assets		40,961							44,057
	$	319,468						$	280,405
Liabilities and Shareholders' Equity
Interest-bearing liabilities
Demand and savings deposits	$	7,354		164		4.4	%	$	13,343		220		3.3	%
Time deposits		87,092		2,106		4.8	%		43,887		776		3.5	%
Non-recourse debt		7,958		248		6.2	%		6,184		203		6.6	%
Total interest bearing liabilities		102,404		2,518		4.9	%		63,414		1,199		3.8	%
Other liabilities		22,183							28,839
Shareholders' equity		194,881							188,152
	$	319,468						$	280,405
Net interest income			$	10,832						$	8,062
Net direct finance and interest income to average interest-earning assets						7.8	%						6.8	%
Average interest earning assets over average interest bearing liabilities						272.0	%						372.7	%

(1)	Direct finance income and interest expense on discounted lease rentals and non-recourse debt of $7.7 million and $4.9 million at December 31, 2006 and 2005, respectively, offset each other and do not contribute to the Company’s net direct finance 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 Lease Losses -- The Company recognized a reduction in the allowance for lease losses of $250,000 in the second quarter of fiscal 2007, compared with no provision made in the second quarter of fiscal 2006. The reduction reflects a recovery of $633,000 related to amounts written off related to the bankruptcy transaction, which was offset by a $383,000 provision. The additional provision related to the deterioration in credit quality of certain leases during the second quarter of fiscal 2007. For the six-month period ended December 31, 2006, the Company recognized a reduction in the allowance for lease losses of $220,000 compared to a $402,000 provision for the same period of the prior year. Aside from the recovery, the provision for lease losses during the first six months of fiscal 2007 was $413,000, relatively unchanged from the first six months of fiscal 2006.

Other Income -- Total other income for the quarter ended December 31, 2006 decreased by $677,000, or 20.7%, to $2.6 million, compared to $3.3 million for the same quarter of the prior fiscal year. The decrease in other income is due largely to a $1.0 million, or 48.6%, decrease in gain on sale of leases and leased property from $2.1 million for the same period of the prior year, the result of a decline in gains from leased property sales. Operating and sales-type lease income of $1.3 million for second quarter of fiscal 2007 increased $348,000 from the second quarter of fiscal 2006, as the volume of lease renewals increased slightly. Other fee income remained flat between periods.

For the first six months ended December 31, 2006, total other income was down 37.0% to $4.8 million, compared to $7.6 million for the six months ended December 31, 2005. The gain on sale of leases and leased property of $2.2 million for the first six months of fiscal 2007 was $3.2 million below the same period of the prior year. In the prior year period, the early buyout of four leases contributed to the higher gain on sale of leases and leased property. Operating and sales-type lease income of $2.2 million increased $364,000 during the first six months of fiscal 2007, as the volume of lease renewals increased slightly. Other fee income remained flat between periods.

Selling, General, and Administrative (“S,G&A”) Expenses - During the second quarter and first six months of fiscal 2007, S,G&A expenses of $3.8 million and $7.6 million, respectively, were relatively unchanged from the same periods of fiscal 2006. During both periods, increased costs related to growth in the sales organization were offset by cost containment in other expenses and a higher amount of SG&A expense deferred.

Taxes - Income taxes were accrued at a tax rate of 38.25% for the three and six months ended December 31, 2006 compared to 38.75% for the same periods of the prior fiscal year representing the estimated annual tax rate for the fiscal years ending June 30, 2007 and 2006, respectively.

Financial Condition Analysis

Lease Portfolio Analysis

The Company’s risk assets are comprised almost exclusively of leases for capital assets to businesses and other commercial or non-profit organizations. All leases are secured by the underlying property being leased. The Company’s strategy is to develop lease portfolios with risk/reward profiles that meet its objectives. The Company currently funds a large percentage of new lease transactions internally, while only a small portion of leases are assigned to financial institutions. In the six months ended December 31, 2006 and 2005, approximately 95% and 93%, respectively, of the total dollar amount of new leases booked by the Company were held in its own portfolio. During the six months ended December 31, 2006, the Company’s net investment in capital leases grew by $19.2 million from June 30, 2006. The Company’s investment in lease receivables increased $19.2 million while the estimated residual values remained relatively unchanged. The increase in the investment in capital leases is primarily due to the higher volume of new lease transactions booked and retained by the Company. The level of investment in residual values remained flat as the volume of residual values booked on new leases offset residuals reaching their end of term.

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 generally is contractually obligated by the lease to make rental payments directly to the Company during the period that the transaction is in process, and to reimburse the Company for all disbursements under certain circumstances. At December 31, 2006, the Company’s investment in property acquired for transactions in process of $25.2 million related to approximately $88.9 million of approved lease commitments. This investment in transactions in process reflected a decrease of $16.5 million from $41.7 million at June 30, 2006, which related to approved lease commitments of $117.7 million, and compared to $40.6 million at December 31, 2005 which related to approved lease commitments of $103.7.

The Company monitors the performance of all leases 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 ten or more days delinquent is conducted. Lessees who 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 generally will be discontinued when the lessee becomes ninety days or more past due on its lease payments with the Company, unless the Company believes the investment is otherwise recoverable. Leases may be placed on non-accrual earlier if the Company has significant doubt about the ability of the lessee to meet its lease obligations, as evidenced by consistent delinquency, deterioration in the lessee’s financial condition or other relevant factors.

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

	December 31, 2006			June 30, 2006
Non-performing Capital Leases	(dollars in thousands)
Non-accrual leases	$	1,707		$	1,010
Restructured leases		919			996
Leases past due 90 days (other than above)		166			-
Total non-performing capital leases	$	2,792		$	2,006
Non-performing assets as % of net investment in capital leases before allowances		1.2	%		0.9	%

The increase in non-performing leases at December 31, 2006 from June 30, 2006 is primarily due to one customer who filed bankruptcy during the period and whose lease obligations were greater than 90 days past due at December 31, 2006. In addition to the non-performing capital leases identified above, there was $496,000 of investment in capital leases at December 31, 2006 for which management has concerns regarding the ability of the lessees to continue to meet existing lease obligations, compared to $1.8 million at June 30, 2006. This amount consists of leases classified as substandard or doubtful, or with lessees that currently are experiencing financial difficulties or that management believes may experience financial difficulties in the future. Although these leases have been identified as potential problem leases, they may never become non-performing. The decrease reflects the benefit from the pay-off or upgrades of certain substandard leases. These potential problem leases are considered in the determination of the allowance for lease losses.

Allowance for Lease Losses

The allowance for lease losses provides coverage for probable and estimable losses in the Company’s lease portfolios. The allowance recorded is based on a quarterly review of all leases outstanding and transactions in process. Lease receivables 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 lease portfolio.

	Six months ended
	December 31,
	2006			2005
	(dollars in thousands)

Property acquired for transactions in process before allowance	$	25,253		$	42,241
Net investment in capital leases before allowance		236,821			192,735
Net investment in “risk assets”	$	262,074		$	234,976

Allowance for lease losses at beginning of period	$	3,637		$	3,495
Charge-off of lease investment		(374	)		(9	)
Recovery of amounts previously written off		655			16
Provision for lease losses		(220	)		402
Allowance for lease losses at end of period	$	3,698		$	3,904

Allowance for lease losses as a percent of net investment
in capital leases before allowances		1.5	%		2.0	%
Allowance for lease losses as a percent of “risk assets”		1.4	%		1.7	%

The allowance for lease losses increased $100,000 to $3.7 million (1.5% of net investment in capital leases before allowances) at December 31, 2006 from $3.6 million (1.7% of net investment in capital leases before allowances) at June 30, 2006. This allowance consisted of $1.10 million allocated to specific accounts that were identified as impaired and $2.53 million that was available to cover losses inherent in the portfolio. This compared to $753,000 allocated to specific accounts at June 30, 2006 and $2.88 million available for losses inherent in the portfolio at that time. The increase in the specific allowance at December 31, 2006 primarily relates to an increase in estimatable losses related to specifically identified problems. The Company considers the allowance for lease losses of $3.7 million at December 31, 2006 adequate to cover losses specifically identified as well as inherent in the lease portfolios. However, no assurance can be given that the Company will not, in any particular period, sustain lease losses that are sizeable in relation to the amount reserved, or that subsequent evaluations of the lease 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 lease losses. Among other factors, economic and political events may have an adverse impact on the adequacy of the allowance for lease losses by increasing credit risk and the risk of potential loss even further. As the Company has retained a significantly greater percentage of leases in its own portfolio, this creates increased exposure to delinquencies, repossessions, foreclosures and losses than the Company has historically experienced.

Liquidity and Capital Resources

The Company funds its operating activities through internally generated funds, bank deposits and non-recourse debt. At December 31, 2006 and June 30, 2006, the Company’s cash and cash equivalents were $45.4 million and $40.7 million, respectively. Stockholders’ equity of $196.4 million at December 31, 2006, and $193.5 million at June 30, 2006 represented 62% of total assets. At December 31, 2006, 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 $94.3 million at December 31, 2006, compared to $63.2 million at December 31, 2005. The $31.1 million increase was used to fund leases and maintain liquidity at the Bank. The following table presents average balances and average rates paid on deposits for the six months ended December 31, 2006 and 2005:

	Six months ended December 31,
	2006					2005
	Average		Average			Average		Average
(dollars in thousands)	Balance		Rate Paid			Balance		Rate Paid
Non-interest-bearing demand deposits	$	1,454		n/a		$	1,127		n/a
Interest-bearing demand deposits		55		0.50	%		47		0.49	%
Money market deposits		7,298		4.45	%		13,296		3.28	%
Time deposits less than $100,000		44,987		4.77	%		25,908		3.47	%
Time deposits, $100,000 or more	$	42,105		4.82	%	$	17,979		3.56	%

The Leasing Companies’ 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 December 31, 2006, the Company had outstanding non-recourse debt aggregating $7.7 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.

Contractual Obligations and Commitments

The following table summarizes various contractual obligations to make and receive future payments as of December 31, 2006. Commitments to purchase property for leases are binding and 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
	Total		1 Year		1-5 Years		5 Years
Contractual Obligations	(dollars in thousands)
Time deposits	$	86,021	$	65,101	$	20,920	$	-
Deposits without a stated maturity		8,327		8,327		-		-
Operating lease rental expense		1,772		1,030		742		-
Lease property purchases (1)		63,684		63,684		-		-
Total contractual commitments	$	159,804	$	138,142	$	21,662	$	-
Contractual Cash Receipts
Lease payments receivable (2,3)	$	257,946	$	112,069	$	144,817	$	1,060
Cash - current balance		45,386		45,386		-		-
Total projected cash availability		303,332		157,455		144,817		1,060
Net projected cash inflow	$	143,528	$	19,313	$	123,155	$	1,060

(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.
(2)	Based upon contractual cash flows; amounts could differ due to prepayments, lease restructures, charge-offs and other factors.
(3)	Does not include amounts to be received related to Transactions in process already funded and the unfunded lease property purchases included above, which together aggregate to $88.9 million at December 31, 2006. The timing and amount of repayment cannot be determined until a lease commences.

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 in a financial instrument arising from changes in market indices such as interest rates and equity 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. The Company’s balance sheet structure is primarily short-term in nature, with a greater portion of assets that reprice or mature within one year. As a result, the Company’s exposure to interest rate risk largely results from declines in interest rates and the impact on net direct finance and interest income.

At December 31, 2006, the Company had $45.4 million invested in securities of very short duration, including $17.4 million in federal funds sold and securities purchased under agreements to resell. The Company’s gross investment in lease payments receivable of $257.9 million consists of leases with fixed rates, however, $112.1 million of such investment is due within one year of December 31, 2006. This compares to the Bank’s interest bearing deposit liabilities of $94.3 million, 78% of which mature within one year. The Leasing Companies have 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. Based on the foregoing, at December 31, 2006, the Company had assets of $157.5 million subject to changes in interest rates over the next twelve months, compared to repricing liabilities of $73.4 million. Given the current structure of the consolidated balance sheet, as interest rates increase, interest income on the Company’s short-term investment position increases, and future lease rates from direct financing leases, which often are based on United States Treasury rates, will tend to be increase.

As the banking operations of the Company have grown and the Bank’s deposits represent a greater portion of the Company’s assets, 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. 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. The results of this analysis on the Bank currently are not material to the Company as a whole.

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 December 31, 2006 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, 2006.

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

The following table summarizes share repurchase activity for the quarter ended December 31, 2006:

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


October 1, 2006 - October 31, 2006		-	$	-		612,956
November 1, 2006 - November 30, 2006		-	$	-		612,956
December 1, 2006 - December 31, 2006		-	$	-		612,956
		-	$	-

(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 Chief Executive Officer	21
	31.2 Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial Officer	22
	32.1 Section 1350 Certifications by Principal Executive Officer and Principal Financial Officer	23

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 7, 2007	BY: /s/ S. LESLIE JEWETT
	S. LESLIE JEWETT
	Chief Financial Officer
	(Principal Financial and
	Accounting Officer)