CALIFORNIA FIRST LEASING CORP - Quarter Report: 2007 March (Form 10-Q)

California First National Bancorp 10-Q March 31, 2007

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 _____________March 31, 2007_____________

[ ]

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 May 4, 2007, was 11,205,431.

CALIFORNIA FIRST NATIONAL BANCORP

INDEX

		PAGE
PART I. FINANCIAL INFORMATION		NUMBER

Item 1.	Financial Statements

	Consolidated Balance Sheets - March 31, 2007 and June 30, 2006	3

	Consolidated Statements of Earnings - Three and nine Months ended March 31, 2007 and 2006	4

	Consolidated Statements of Cash Flows - Nine months ended March 31, 2007 and 2006	5

	Consolidated Statement of Stockholders’ Equity - Nine months ended March 31, 2007 and 2006	6

	Notes to Consolidated Financial Statements	7-9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	9-16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17


PART II. OTHER INFORMATION

Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 6.	Exhibits	18
Signature		19

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.

CALIFORNIA FIRST NATIONAL BANCORP

CONSOLIDATED BALANCE SHEETS

(thousands, except for share amounts)


	March 31, 2007		June 30, 2006
	(unaudited)
ASSETS
Cash and due from banks	$	24,483	$	23,217
Federal funds sold and securities purchased under agreements to resell		25,015		17,530
Total cash and cash equivalents		49,498		40,747
Investment securities		2,577		1,134
Net receivables		510		1,905
Property acquired for transactions in process		25,839		41,680
Net investment in capital leases		231,934		213,956
Net property on operating leases		310		46
Income taxes receivable		1,393		4,744
Other assets		1,463		1,719
Discounted lease rentals assigned to lenders		6,915		8,424
	$	320,439	$	314,355

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable	$	3,540	$	3,263
Accrued liabilities		3,803		4,702
Demand and money market deposits		8,255		9,778
Time certificates of deposit		91,106		79,388
Lease deposits		5,030		5,534
Non-recourse debt		6,915		8,424
Deferred income taxes - including income taxes payable, net		4,259		9,739
		122,908		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; 11,186,358 (March 2007) and
11,161,508 (June 2006) issued and outstanding		112		112
Additional paid-in capital		4,117		3,756
Retained earnings		193,277		189,659
Other comprehensive gain, net of tax		25		-
		197,531		193,527
	$	320,439	$	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				Nine months ended
	March 31,				March 31,
	2007		2006		2007			2006

Direct finance income	$	6,324	$	5,101	$	18,447		$	13,596
Interest and investment income		468		335		1,447			897

Total direct finance and interest income		6,792		5,436		19,894			14,493

Interest expense on deposits		1,147		683		3,417			1,679
Provision for lease losses		100		-		(120	)		402

Net direct finance and interest income after provision for lease losses		5,545		4,753		16,597			12,412

Other income
Operating and sales-type lease income		1,362		1,004		3,554			2,833
Gain on sale of leases and leased property		728		2,416		2,917			7,785
Other fee income		255		175		666			588

Total other income		2,345		3,595		7,137			11,206
Gross profit		7,890		8,348		23,734			23,618

Selling, general and administrative expenses		4,002		3,852		11,600			11,461
Earnings before income taxes		3,888		4,496		12,134			12,157

Income taxes		1,487		1,742		4,641			4,711

Net earnings	$	2,401	$	2,754	$	7,493		$	7,446

Basic earnings per common share	$	.21	$	.25	$	.67		$	.67
Diluted earnings per common share	$	.21	$	.24	$	.65		$	.65
Dividends declared per common share outstanding	$	.12	$	.11	$	.34		$	.31

Weighted average common shares outstanding		11,186		11,125		11,177			11,114
Diluted common shares outstanding		11,509		11,457		11,526			11,434

The accompanying notes are an integral part

of these consolidated financial statements.

CALIFORNIA FIRST NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Nine months ended March 31,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings	$	7,493		$	7,446
Adjustments to reconcile net earnings to cash flows provided by (used for) operating activities:
Depreciation		459			629
Stock-based compensation expense		99			141
Leased property on operating leases, net		(323	)		(235	)
Interest accretion of estimated residual values		(1,047	)		(1,074	)
Gain on sale of leased property and sales-type lease income		(3,686	)		(7,354	)
Provision for lease losses		(120	)		402
Deferred income taxes, including income taxes payable		(5,496	)		(7,667	)
Decrease (increase) in receivables		1,395			(450	)
Decrease in income taxes receivable		3,351			-
Net (decrease) increase in accounts payable and accrued liabilities		(622	)		1,332
(Decrease) increase in customer lease deposits		(504	)		296
Net cash provided by (used for) operating activities		999			(6,534	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in leases and transactions in process		(101,725	)		(119,869	)
Payments received on lease receivables		97,820			93,673
Proceeds from sales of leased property and sales-type leases		6,620			12,462
Purchase of investment securities		(1,608	)		(24	)
Pay down of investment securities		207			371
Net increase in other assets		(144	)		(91	)
Net cash provided by (used for) investing activities		1,170			(13,478	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in time certificates of deposit		11,718			27,059
Net decrease in demand and money market deposits		(1,523	)		(3,789	)
Payments to repurchase common stock		(134	)		-
Dividends to stockholders		(3,802	)		(3,449	)
Proceeds from exercise of stock options		323			494
Net cash provided by financing activities		6,582			20,315
NET CHANGE IN CASH AND CASH EQUIVALENTS		8,751			303
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		40,747			43,321
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	49,498		$	43,624
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
(Decrease) increase in lease rentals assigned to lenders and related non-recourse debt	$	(1,509	)	$	539
Estimated residual values recorded on leases	$	(2,177	)	$	(2,603	)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the nine month period for:
Interest	$	3,422		$	1,687
Income Taxes	$	6,771		$	12,378

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
Nine months ended March 31, 2006

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

Net earnings		-		-		-		7,446			-		7,446

Shares issued - Stock options exercised		56,093		-		493		-			-		493

Stock-based compensation expense		-		-		141		-			-		141

Dividends declared		-		-		-		(3,449	)		-		(3,449	)

Balance, March 31, 2006		11,154,776	$	111	$	3,647	$	187,611		$	-	$	191,369

Nine months ended March 31, 2007

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

Comprehensive income
Net earnings	-			-		-			7,493			-		7,493
Unrealized gain on investment securities, net of tax	-			-		-			-			25		25

Total comprehensive income														7,518

Shares issued - Stock options exercised	34,850			-		323			-			-		323

Shares repurchased	(10,000	)		-		(61	)		(73	)		-		(134	)

Stock-based compensation expense	-			-		99			-			-		99

Dividends declared	-			-		-			(3,802	)		-		(3,802	)

Balance, March 31, 2007	11,186,358		$	112	$	4,117		$	193,277		$	25	$	197,531

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 (“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 March 31, 2007 and the statements of earnings for the three and nine-month periods, and cash flows and stockholders’ equity for the nine month periods ended March 31, 2007 and 2006. The results of operations for the three and nine-month periods ended March 31, 2007 are not necessarily indicative of the results of operations to be expected for the entire fiscal year ending June 30, 2007.

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

NOTE 2 - STOCK-BASED COMPENSATION

At March 31, 2007, 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 nine months ended March 31, 2007, the Company recognized pre-tax stock-based compensation expense of $33,027 and $99,081, 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 March 31, 2007, approximately $108,000 of total unrecognized compensation expense related to unvested shares is expected to be recognized over a weighted average period of approximately 8 months.

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

	Nine months ended March 31, 2007					Nine months ended March 31, 2006
	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		( 34,850	)		9.26		( 56,093	)		8.81
Canceled/expired		-			-		( 8,926	)		10.84
Options outstanding at end of period		910,917		$	9.01		952,499		$	9.02
Options exercisable		868,434					879,657

As of March 31, 2007
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	595,081	3.73	$ 7.53	571,993	$ 7.47
9.85 - 15.27	315,836	2.76	11.80	296,434	11.79
$ 5.20 - $15.27	910,917	3.39	$ 9.01	868,434	$ 8.95

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 March 31, 2007 were as follows:

	Amortized		Gross Unrealized			Fair		Carrying
	Cost		Gains / (Losses)			Value		Value
Held-to-maturity	(dollars in thousands)
Mortgage-backed securities	$	322	$	(16	)	$	306	$	322
Federal Reserve Bank stock		1,055		-			1,055		1,055
Total held-to-maturity	$	1,377	$	(16	)	$	1,361	$	1,377
Available-for-sale
Marketable securities		1,158		42			1,200		1,200
Total investment securities	$	2,535	$	26		$	2,561	$	2,577

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 March 31, 2007.

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:

	March 31, 2007			June 30, 2006
	(in thousands)
Minimum lease payments receivable	$	255,223		$	234,337
Estimated residual value		13,381			12,644
		268,604			246,981
Less allowance for lease losses		(3,241	)		(3,339	)
Less valuation allowance for estimated residual value		(152	)		(230	)
		265,211			243,412
Less unearned income		(33,277	)		(29,456	)
Net investment in capital leases	$	231,934		$	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 $4.5 million and $4.3 million at March 31, 2007 and June 30, 2006, respectively.

NOTE 4 - SEGMENT REPORTING

The Company has two leasing subsidiaries, California First Leasing Corporation and Amplicon, Inc. (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 nine months ended March 31, 2007 and 2006:

					Bancorp and
	Leasing		CalFirst		Eliminating
	Companies		Bank		Entries			Consolidated
	(in thousands)
Quarter ended March 31, 2007
Net direct finance and interest income after provision
for lease losses	$	4,204	$	1,288	$	53		$	5,545
Other income		1,933		412		-			2,345
Gross profit	$	6,137	$	1,700	$	53		$	7,890
Net income	$	1,246	$	588	$	567		$	2,401

Quarter ended March 31, 2006
Net direct finance and interest income after provision
for lease losses	$	3,609	$	1,130	$	14		$	4,753
Other income		3,508		87		-			3,595
Gross profit	$	7,117	$	1,217	$	14		$	8,348
Net income	$	2,029	$	351	$	374		$	2,754

Nine months ended March 31, 2007
Net direct finance and interest income after provision
for lease losses	$	12,856	$	3,639	$	102		$	16,597
Other income		6,403		734		-			7,137
Gross profit	$	19,259	$	4,373	$	102		$	23,734
Net income	$	4,538	$	1,308	$	1,647		$	7,493

Nine months ended March 31, 2006
Net direct finance and interest income after provision
for lease losses	$	9,661	$	2,721	$	30		$	12,412
Other income		10,618		588		-			11,206
Gross profit	$	20,279	$	3,909	$	30		$	23,618
Net income	$	5,709	$	938	$	799		$	7,446

Total assets at March 31, 2007	$	173,427	$	155,464	$	(8,452	)	$	320,439
Total assets at March 31, 2006	$	178,980	$	121,756	$	157		$	300,893

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 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 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 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, changes in interest rates in general have a greater impact on the income earned on the investment in lease receivables, securities and other interest earning assets, with less impact on interest expense.

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 third quarter ended March 31, 2007 were down 13%, as a 35% decrease in other income offset a 17% increase in net direct finance and interest income after provision for lease losses. The significant decline in other income was due almost entirely to lower gains earned on the sale of leased property, and reflected over a 50% reduction in the residual investment in leases coming to end of term.

For the first nine months ended March 31, 2007, net earnings of $7.5 million were slightly ahead of the same period of the prior year, and were consistent with the change in gross profit which at $23.7 million was relatively unchanged from $23.6 million earned in the first nine months of fiscal 2006. Nine month results reflect a 34% increase in net direct finance and interest income after provision for lease losses, offset by a 36% decrease in other income. The increased direct finance income is due to a 170 basis point improvement in yields earned on the portfolio as well as a 15% increase in the average investment in capital leases.

New lease bookings for the first nine months of fiscal 2007 of $125.2 million were down 7% from the first nine months of the prior year. The volume of new lease originations approved during the third quarter of fiscal 2007 were 24% below the comparable quarter of the prior year, while nine month originations were down 15%. As a result of the foregoing, the backlog of lease commitments was down 10% from a year ago.

The Bank’s investment in capital leases of $124.1 million at March 31, 2007 represented 54% of the Company’s consolidated investment, and was up 20% from June 30, 2006. To fund this portfolio, demand, money market and time deposits increased by 11% to $99.4 million from $89.2 million at June 30, 2006.

Consolidated Statement of Earnings Analysis

Summary -- For the third quarter ended March 31, 2007, net earnings of $2.4 million decreased $353,000, or 13%, compared to $2.8 million for the third quarter ended March 31, 2006. Diluted earnings per share decreased 13% to $0.21 per share for the third quarter of fiscal 2007 compared to $0.24 per share for the third quarter of the prior year. The results of the third quarter of fiscal 2007 reflect a $792,000 increase in net direct finance and interest income after provision for lease losses, a $1.3 decrease in other income and an increase of $150,000 in SG&A expenses. The volume of new lease transactions booked during the third quarter of fiscal 2006 was $28.9 million, a 47.7% decrease from the same quarter of the prior year.

For the nine months ended March 31, 2007, net earnings of $7.5 million increased $47,000 from $7.4 million reported for the nine months ended March 31, 2006. For the first nine months of fiscal 2007, diluted earnings per share remained unchanged at $0.65. The results of the first nine months of fiscal 2007 reflect a $4.2 million increase in net direct finance and interest income after provision for lease losses, a reduction of $4.1 million in other income and an increase of $139,000 in SG&A expenses.

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, and funding and pricing strategies. Discounted lease rentals and non-recourse debt offset each other, and do not contribute to the Company’s net direct finance and interest income.

Net direct finance and interest income was $5.6 million for the quarter ended March 31, 2007, an $892,000, or 19%, increase compared to the same quarter of the prior year. Direct finance income of $6.3 million increased by $1.2 million, or 24%, as a result of the 13% increase in the average investment in capital leases held in the Company’s own portfolio and a 100 basis point increase in average yields earned. Interest income on investments increased by $133,000 due to a 60 basis point increase in average interest rates together with higher average investment balances. Interest expense paid on deposits was $1.1 million for the third quarter of fiscal 2007, up 68% from $683,000 for the same quarter of the prior year. The increase includes the impact of a 35% increase in average deposit balances together with an increase in the average interest rate paid from approximately 4.1% to 5.1%.

For the nine months ended March 31, 2007, net direct finance and interest income was $16.5 million, a $3.7 million, or 29%, increase from the same period of the prior year. Direct finance income of $18.4 million increased by $4.9 million, or 36%, reflecting a 170 basis point increase in average yields earned and a 15% increase in the average investment in capital leases held in our own portfolio. Direct finance income for the nine months benefited from certain transactions during the second quarter of fiscal 2007 that contributed to the recognition of $541,000 of incremental direct finance income during that quarter. Interest income on investments increased by $550,000 due to a 100 basis point increase in average interest rates earned and 20% increase in average investment balances during the period. Interest expense on deposits was $3.4 million for the first nine months of fiscal 2007, slightly more than double the $1.7 million for the same period of the prior year. The increase reflected a 54% increase in average deposit balances and an increase in the average rate paid from 3.7% to 4.8%.

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

(in thousands)	Three months ended									Nine months ended
	March 31, 2007 vs 2006									March 31, 2007 vs 2006
Interest income	Volume			Rate			Total			Volume			Rate			Total
Net investment in capital leases	$	641		$	582		$	1,223		$	2,015		$	2,836		$	4,851
Discounted lease rentals		(8	)		(9	)		(17	)		39			(11	)		28
Federal funds sold		(17	)		(11	)		(28	)		(17	)		(11	)		(28	)
Federal funds sold		59			21			80			207			198			405
Investment securities		2			2			4			2			6			8
Interest-bearing investments		10			39			49			19			118			137
		704			635			1,339			2,282			3,147			5,429
Interest expense
Non-recourse debt		(8	)		(9	)		(17	)		39			(11	)		28
Demand and money market deposits		(40	)		15			(25	)		(138	)		57			(81	)
Time certificates of deposits		283			206			489			1,067			752			1,819
		235			212			448			968			798			1,766
	$	469		$	423		$	892		$	1,314		$	2,349		$	3,663

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.

(dollars in thousands)	Quarter ended March 31, 2007							Quarter ended March 31, 2006
	Average				Yield/			Average				Yield/
Assets	Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets
Interest-earning deposits with banks	$	26,151	$	223		3.4	%	$	24,789	$	174		2.8	%
Federal funds sold		18,659		226		4.8	%		13,268		146		4.4	%
Investment securities		1,378		19		5.5	%		1,192		15		5.0	%
Net investment in capital leases including discounted lease rentals (1,2)		239,049		6,443		10.8	%		213,570		5,237		9.8	%
Total interest-earning assets		285,237		6,911		9.7	%		252,819		5,572		8.8	%
Other assets		32,235							39,868
	$	317,472						$	292,687
Liabilities and Shareholders' Equity
Interest-bearing liabilities
Demand and savings deposits	$	6,933		79		4.6	%	$	11,241		104		3.8	%
Time deposits		86,090		1,068		5.0	%		57,800		579		4.1	%
Non-recourse debt		7,194		119		6.6	%		7,622		136		7.1	%
Total interest-bearing liabilities		100,217		1,266		5.1	%		76,663		819		4.3	%
Other liabilities		20,040							25,652
Shareholders' equity		197,215							190,372
	$	317,472						$	292,687
Net interest income			$	5,645						$	4,753
Net direct finance and interest income to average interest-earning assets						7.9	%						7.5	%
Average interest-earning assets over average interest-bearing liabilities						284.6	%						329.8	%

	Nine months ended							Nine months ended
(dollars in thousands)	March 31, 2007							March 31, 2006
	Average				Yield/			Average				Yield/
Assets	Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets
Interest-earning deposits with banks	$	27,124	$	594		2.9	%	$	26,054	$	457		2.3	%
Federal funds sold		19,900		799		5.4	%		13,010		394		4.0	%
Investment securities		1,342		54		5.4	%		1,295		46		4.7	%
Net investment in capital leases including discounted lease rentals (1,2)		231,918		18,814		10.8	%		202,185		13,935		9.2	%
Total interest-earning assets		280,284		20,261		9.6	%		242,544		14,832		8.2	%
Other assets		38,454							42,332
	$	318,738						$	284,876
Liabilities and Shareholders' Equity
Interest-bearing liabilities
Demand and savings deposits	$	7,215		243		4.5	%	$	12,638		324		3.4	%
Time deposits		86,763		3,174		4.9	%		48,525		1,355		3.7	%
Non-recourse debt		7,678		367		6.4	%		6,883		339		6.6	%
Total interest-bearing liabilities		101,656		3,784		5.0	%		68,046		2,018		4.0	%
Other liabilities		21,417							27,918
Shareholders' equity		195,665							188,911
	$	318,738						$	284,875
Net interest income			$	16,477						$	12,814
Net direct finance and interest income to average interest-earning assets						7.8	%						7.0	%
Average interest-earning assets over average interest-bearing liabilities						275.7	%						356.4	%

(1)	Direct finance income and interest expense on discounted lease rentals and non-recourse debt of $6.9 and $8.9 million at March 31, 2007 and 2006, 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 recorded a $100,000 provision for lease losses in the third quarter of fiscal 2007, compared to no provision made during the same period of the prior year. The amount related to the deterioration in the credit quality of certain leases during the quarter. For the nine months ended March 31, 2007, the Company recognized a net reduction in the provision for lease losses of $120,000, reflecting the recovery of $633,000 during the second quarter of fiscal 2007 of amounts written off related to a transaction that filed bankruptcy in 2002, offset by additions to the allowance of $513,000.

Other Income -- Total other income of $2.3 million for the quarter ended March 31, 2007 decreased $1.3 million compared to $3.6 million for the quarter ended March 31, 2006. The gain on sale of leases and leased property decreased by $1.7 million to $728,000 in third quarter of fiscal 2007, compared to $2.4 million the third quarter of fiscal 2006. The significant decline was due almost entirely to lower volume of leases reaching the end of term during the quarter and a resulting reduction in sales of leased property. A higher level of lease extensions resulted in a $358,000, or 36%, increase in operating and sales-type lease income to $1.4 million for the third quarter of fiscal 2007 from $1.0 million for the same period of the prior year. Other fee income increased $80,000 to $255,000 for the third quarter ended March 31, 2007, reflecting higher fees earned.

For the nine months ended March 31, 2007, total other income was $7.1 million compared to $11.2 million for the nine months ended March 31, 2007, a 36% decrease. The gain on sale of leases and leased property for the first nine months of fiscal 2007 of $2.9 million decreased $4.9 million compared to the same period of the prior year due to a significantly lower volume of leased property sales. Operating and sales-type lease income of $3.6 million increased by $721,000 during the first nine months of fiscal 2007 from $2.8 million for the same period of fiscal 2006 due to higher income from lease renewals. Other fee income increased by $78,000 to $666,000 for the nine months ended March 31, 2007, reflecting slightly higher fees earned.

Selling, General, and Administrative Expenses -- S,G&A expenses increased by $150,000, or 4%, to $4.0 million during the third quarter of fiscal 2007 compared to $3.9 million during the third quarter of fiscal 2006. For the first nine months of fiscal 2007, S,G&A expenses increased $139,000, or 1%, to $11.6 million from $11.5 million reported for the first nine months of the prior fiscal year. The increase in S,G&A expenses for both periods is due to higher costs resulting from a growth in the sales force, offset by and lower variable costs related to efforts to control costs.

Taxes - Income taxes were accrued at a tax rate of 38.25% for the three and nine months ended March 31, 2007 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. During the nine months ended March 31, 2007 and 2006, approximately 96% and 91%, respectively, of the total dollar amount of new leases booked by the Company were held in its own portfolio. For the nine months ended March 31, 2007, the Company’s net investment in capital leases grew by $18.0 million, or 8.4%. This increase includes a $17.6 million increase in the Company’s investment in lease receivables, and a $364,000 increase in the investment in estimated residual values. The increase in the investment in lease receivables is primarily due to the volume of new lease transactions booked and retained by the Company, while the increase in investment in residual values is due to higher residual values being recorded on new lease transactions, which offset the reduction related to leases reaching the end of term and the residual values being realized.

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 to make rental payments directly to the Company during the period that the transaction is in process, and the lessee is obligated to reimburse the Company for all disbursements under certain circumstances. No income is recognized while a transaction is in process and prior to the commencement of the lease. At March 31, 2007, the Company’s investment in property acquired for transactions in process of $25.8 million related to approximately $88.8 million of approved lease commitments. This investment in transactions in process was down $15.8 million from $41.7 million at June 30, 2006, and down $4.0 million from $29.8 million at March 31, 2006, which related to approved lease commitments of $98.7 million at March 31, 2006.

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 doubts 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:

	March 31, 2007			June 30, 2006
Non-performing Capital Leases	(dollars in thousands)
Non-accrual leases	$	1,319		$	1,010
Restructured leases		819			996
Leases past due 90 days (other than above)		-			-
Total non-performing capital leases	$	2,138		$	2,006
Non-performing assets as % of net investment in capital leases before allowances		0.9	%		0.9	%

The increase in non-accrual leases reflects an increase in non-performing leases and is after the write-off of $300,000 of problem receivables during the third quarter. In addition to the non-performing capital leases identified above, there was $508,000 of investment in capital leases at March 31, 2007 for which management has concerns regarding the ability of the lessees to continue to meet existing lease obligations, compared with $1.8 million at June 30, 2006. The decrease reflects the benefit from the early termination of one large problem lease. 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. 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 estimatable 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.

	Nine months ended
	March 31,
	2007			2006
	(dollars in thousands)
Property acquired for transactions in process before allowance	$	25,907		$	29,912
Net investment in capital leases before allowance		235,328			216,881
Net investment in “risk assets”	$	261,238		$	246,793

Allowance for lease losses at beginning of period	$	3,637		$	3,495
Charge-off of lease investment		(723	)		(391	)
Recovery of amounts previously written off		668			43
Provision for lease losses		(120	)		402
Allowance for lease losses at end of period	$	3,462		$	3,549

Allowance for lease losses as a percent of net investment in capital leases before allowances		1.5	%		1.6	%
Allowance for lease losses as a percent of “risk assets”		1.3	%		1.4	%

The allowance for lease losses of $3.5 million decreased by $87,000 which represented 1.5% of net investment in capital leases before allowances at March 31, 2007, compared to 1.6% of net investment in capital leases before allowances at March 31, 2006 and 1.7% of net investment before allowances at June 30, 2006. The allowance at March 31, 2007 consisted of $1.10 million allocated to specific accounts that were identified as impaired and $2.40 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 March 31, 2007 primarily relates to an increase in estimatable losses related to specifically identified problems. The Company considers the allowance for lease losses of $3.5 million at March 31, 2007 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 March 31, 2007 and June 30, 2006, the Company’s cash and cash equivalents were $49.5 million and $40.7 million, respectively. Stockholders’ equity at March 31, 2007 was $197.5 million, or 62% of total assets, compared to $193.5 million, or 62% of total assets, at June 30, 2006. At March 31, 2007, 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 $99.4 million at March 31, 2007, compared to $74.4 million at March 31, 2006. The $22.0 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 nine months ended March 31, 2007 and 2006:

	Nine months ended March 31,
	2007					2006
	Average		Average			Average		Average
(dollars in thousands)	Balance		Rate Paid			Balance		Rate Paid
Non-interest-bearing demand deposits	$	1,390		n/a		$	1,157		n/a
Interest-bearing demand deposits		56		0.50	%		47		0.54	%
Money market deposits		7,159		4.52	%		12,591		3.43	%
Time deposits less than $100,000		44,383		4.84	%		27,910		3.66	%
Time deposits, $100,000 or more	$	42,379		4.91	%	$	20,615		3.80	%

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 March 31, 2007, the Company had outstanding non-recourse debt aggregating $6.9 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 March 31, 2007. 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.

(dollars in thousands)	Due by Period
			Less Than				After
Contractual Obligations	Total		1 Year		1-5 Years		5 Years
Time deposits	$	91,106	$	66,024	$	25,082	$	-
Deposits without a stated maturity		8,255		8,255		-		-
Operating lease rental expense		1,495		1,031		464		-
Lease property purchases (1)		63,010		63,010		-		-
Total contractual commitments	$	163,866	$	138,320	$	25,546	$	-
Contractual Cash Receipts
Lease payments receivable (2,3)	$	255,223	$	111,640	$	143,583	$	-
Cash and cash equivalents		49,498		49,498		-		-
Total projected cash availability		304,721		161,138		143,583		-
Net projected cash inflow	$	140,855	$	22,818	$	118,037	$	-

(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 $88.8 million at March 31, 2007. 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.

At March 31, 2007, the Company had $49.5 million invested in securities of very short duration, including $25.0 million in federal funds sold and securities purchased under agreements to resell. The Company’s gross investment in lease payments receivable of $255.2 million consists of leases with fixed rates, however, $111.6 million of such investment is due within one year of March 31, 2007. This compares to the Bank’s interest bearing deposit liabilities of $99.4 million, 75% 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 March 31, 2007, the Company had assets of $161.1 million subject to changes in interest rates over the next twelve months, compared to repricing liabilities of $74.3 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 March 31, 2007 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 March 31, 2007:

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


January 1, 2007 - January 31, 2007		-	$	-		612,956
February 1, 2007 - February 28, 2007		-	$	-		612,956
March 1, 2007 - March 31, 2007		10,000	$	13.43		602,956
		10,000	$	13.43

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	20

31.2	Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial Officer	21

32.1	Section 1350 Certifications by Principal Executive Officer and Principal Financial Officer	22

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: May 11, 2007	BY:	/s/ S. LESLIE JEWETT
		S. LESLIE JEWETT
		Chief Financial Officer
		(Principal Financial and
		Accounting Officer)