CALIFORNIA FIRST LEASING CORP - Quarter Report: 2008 December (Form 10-Q)

CFNB 10-Q Dec 31 2008

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, 2008

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

For the transition period from

Commission File No.: 0-15641

California First National Bancorp

(Exact name of registrant as specified in charter)

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

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

Registrant's telephone number, including area code: (949) 255-0500

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes þ No o

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller Reporting Company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o No þ

The number of shares outstanding of the Registrant’s Common Stock, par value $.01 per share, as of February 2, 2009 was 10,159,195.

CALIFORNIA FIRST NATIONAL BANCORP

INDEX

PART I. FINANCIAL INFORMATION		PAGE NUMBER

Item 1.	Financial Statements

	Consolidated Balance Sheets - December 31, 2008 and June 30, 2008	3

	Consolidated Statements of Earnings - Three and six months ended December 31, 2008 and 2007	4

	Consolidated Statements of Cash Flows – Six months ended December 31, 2008 and 2007	5

	Consolidated Statement of Stockholders’ Equity – Six months ended December 31, 2008 and 2007	6

	Notes to Consolidated Financial Statements	7-11

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12-21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21-22
Item 4.	Controls and Procedures	22

PART II. OTHER INFORMATION

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

FORWARD-LOOKING STATEMENTS

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

CALIFORNIA FIRST NATIONAL BANCORP

CONSOLIDATED BALANCE SHEETS

(thousands, except for share amounts)

	December 31,			June 30,
	2008			2008
	(Unaudited)
ASSETS

Cash and due from banks	$	38,113		$	38,355
Federal funds sold and securities purchased under
agreements to resell		7,875			33,435
Total cash and cash equivalents		45,988			71,790
Investment securities		64,078			6,360
Net receivables		1,124			1,946
Property acquired for transactions in process		26,054			29,046
Net investment in leases		218,657			220,163
Commercial loans		62,386			42,212
Net property on operating leases		2,224			333
Income taxes receivable		2,733			4,239
Other assets		756			1,231
Discounted lease rentals assigned to lenders		9,256			9,274

	$	433,256		$	386,594

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Accounts payable	$	2,533		$	2,422
Accrued liabilities		3,532			4,152
Demand and money market deposits		47,463			39,887
Time certificates of deposit		134,490			116,352
Federal Home Loan Bank borrowings		35,444			-
Lease deposits		4,844			5,059
Non-recourse debt		9,256			9,274
Deferred income taxes – including income taxes payable, net		8,267			6,993

		245,829			184,139

Commitments and contingencies

Stockholders' equity:
Preferred stock; 2,500,000 shares authorized; none issued		-			-
Common stock; $.01 par value; 20,000,000 shares authorized; 10,159,195 (December 2008) and 11,440,725 (June 2008) issued and outstanding		102			114
Additional paid in capital		395			7,003
Retained earnings		187,174			195,611
Other comprehensive loss, net of tax		(244	)		(273	)
		187,427			202,455
	$	433,256		$	386,594

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				Six months ended
	December 31,				December 31,
	2008		2007		2008		2007

Direct finance and loan income	$	6,630	$	6,478	$	12,765	$	12,571
Interest and investment income		1,029		492		1,578		988

Total direct finance, loan and interest income		7,659		6,970		14,343		13,559

Interest expense on deposits and borrowings		1,658		1,466		3,259		2,813
Provision for credit losses		650		90		875		130

Net direct finance, loan and interest income after
provision for credit losses		5,351		5,414		10,209		10,616

Other income
Operating and sales-type lease income		1,105		870		1,708		1,697
Gain on sale of leases and leased property		942		710		1,779		1,640
Other fee income		266		132		394		286

Total other income		2,313		1,712		3,881		3,623

Gross profit		7,664		7,126		14,090		14,239

Selling, general and administrative expenses		3,624		4,232		7,180		8,120

Earnings before income taxes		4,040		2,894		6,910		6,119

Income taxes		1,515		1,085		2,591		2,295

Net earnings	$	2,525	$	1,809	$	4,319	$	3,824

Basic earnings per common share	$	.25	$	.16	$	.41	$	.34

Diluted earnings per common share	$	.25	$	.16	$	.41	$	.34

Dividends declared per common share outstanding	$	.12	$	.12	$	.24	$	.24

Weighted average common shares outstanding		10,159		11,098		10,509		11,118

Diluted common shares outstanding		10,210		11,342		10,580		11,393

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,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings	$	4,319		$	3,824
Adjustments to reconcile net earnings to cash flows provided by (used for) operating activities:
Depreciation		226			295
Stock-based compensation expense		12			35
Leased property on operating leases, net		(580	)		(105	)
Interest accretion of estimated residual values		(679	)		(749	)
Amortization (accretion) of premiums (discounts) on securities, net		(87	)		-
Gain on sale of leased property and sales-type lease income		(419	)		(1,241	)
Provision for credit losses		875			130
Deferred income taxes, including income taxes payable		801			(1,978	)
Decrease (increase) in net receivables		822			(207	)
Decrease in income taxes receivable		1,506			2,529
Net (decrease) increase in accounts payable and accrued liabilities		(509	)		1,446
(Decrease) increase in lease deposits		(215	)		428
Net cash provided by operating activities		6,072			4,407

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in leases, loans and transactions in process		(115,501	)		(73,615	)
Payments received on lease receivables and loans		94,998			65,120
Proceeds from sales of leased property and sales-type leases		3,624			2,892
Purchase of investment securities		(57,142	)		(1,206	)
Pay down of investment securities		13			56
Net decrease (increase) in other assets		364			(295	)
Net cash used for investing activities		(73,644	)		(7,048	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in time certificates of deposit		18,138			11,077
Net increase (decrease) in demand and money market deposits		7,576			(480	)
Net increase in FHLB borrowings		35,444			-
Payments to repurchase common stock		(17,101	)		(974	)
Dividends to stockholders		(2,438	)		(2,665	)
Proceeds from exercise of stock options including tax benefit		151			53
Net cash provided by financing activities		41,770			7,011

NET CHANGE IN CASH AND CASH EQUIVALENTS		(25,802	)		4,370
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		71,790			44,516
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	45,988		$	48,886

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Decrease in lease rentals assigned to lenders and related non-recourse debt	$	(18	)	$	(905	)
Estimated residual values recorded on leases	$	(900	)	$	(1,506	)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the six month period for:
Interest	$	3,238		$	2,824
Income Taxes	$	284		$	1,744

The accompanying notes are an integral part

of these consolidated financial statements.

CALIFORNIA FIRST NATIONAL BANCORP

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

(in thousands, except for share amounts)

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

Six months ended December 31, 2007

Balance, June 30, 2007		11,138,425		$	111		$	4,091		$	193,485		$	(20	)	$	197,667

Cumulative effect of applying provisions of FIN 48 (Note 6)					-			-			1,200			-			1,200

Comprehensive income
Net earnings		-			-			-			3,824			-			3,824
Unrealized loss on
investment securities, net of tax		-			-			-			-			(320	)		(320	)

Total comprehensive income																	3,504

Shares issued - Stock options exercised		5,032			-			53			-			-			53

Shares repurchased		(75,000	)		-			(327	)		(647	)		-			(974	)

Stock-based compensation expense		-			-			35			-			-			35

Dividends declared		-			-			-			(2,665	)		-			(2,665	)

Balance, December 31, 2007		11,068,457		$	111		$	3,852		$	195,197		$	(340	)	$	198,820


Six months ended December 31, 2008

Balance, June 30, 2008		11,440,725		$	114		$	7,003		$	195,611		$	(273	)	$	202,455

Comprehensive income
Net earnings		-			-			-			4,319			-			4,319
Unrealized gain on
investment securities, net of tax		-			-			-			-			29			29

Total comprehensive income																	4,348

Shares issued - Stock options exercised		18,470			1			150			-			-			151

Shares repurchased		(1,300,000	)		(13	)		(6,770	)		(10,318	)		-			(17,101	)

Stock-based compensation expense		-			-			12			-			-			12

Dividends declared		-			-			-			(2,438	)		-			(2,438	)

Balance, December 31, 2008		10,159,195		$	102		$	395		$	187,174		$	(244	)	$	187,427

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, 2008. 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 2008 Annual Report on Form 10-K, which contains Management’s Discussion and Analysis of Financial Condition and Results of Operations as of June 30, 2008 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, 2008 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, 2008 and 2007. The results of operations for the three and six month periods ended December 31, 2008 are not necessarily indicative of the results of operations to be expected for the entire fiscal year ending June 30, 2009.

NOTE 2 – STOCK-BASED COMPENSATION

At December 31, 2008 the Company has one stock option plan, which is more fully described in Note 9 in the Company’s 2008 Annual Report on Form 10-K. On July 1, 2005, the Company implemented Statement of Financial Accounting Standards 123(R), “Share-Based Payments” (“SFAS 123R”) under the “modified prospective method” where stock-based compensation expense is recorded beginning on the adoption date and prior periods are not restated. Compensation expense is recognized using the fair-value based method for all new awards granted after July 1, 2005, while compensation expense for unvested stock options 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 six months ended December 31, 2008, the Company recognized pre-tax stock-based compensation expense of $12,000, compared to $35,000 for the six-month period ended December 31, 2007. Such expense related to options granted during the fiscal years ended 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, 2008, the Company has no more unrecognized compensation expense related to unvested shares.

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

	Six months ended December 31, 2008					Six months ended December 31, 2007
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options outstanding at the beginning of period		451,374		$	9.18		860,229		$	8.91
Exercised		( 18,470	)		8.13		( 5,032	)		10.50
Canceled/expired		( 55,405	)		12.82		( 14,240	)		13.68
Options outstanding at end of period		377,499		$	8.69		840,957		$	8.81
Options exercisable		375,188					823,638

As of December 31, 2008
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	204,927	2.49	$ 6.55	204,927	$ 6.55
9.96 - 12.49	172,572	2.01	11.24	170,261	11.22
$ 5.20 - $12.49	377,499	2.27	$ 8.69	375,188	$ 8.67

NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS

On July 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). In accordance with the SFAS No. 157-2, “Effective Date of SFAS No. 157”, the Company has not applied the provisions of this statement to non-financial assets and liabilities except those that are disclosed at fair value on a recurring basis (at least annually). SFAS 157, among other things, defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. The adoption of SFAS 157 had no effect on the Company’s financial statements.

SFAS 157 defines fair value as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. SFAS 157 establishes a three-tiered value hierarchy that prioritizes inputs based on the extent to which inputs used are observable in the market and requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. If a value is based on inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. The three levels of inputs are defined as follows:

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

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

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

SFAS 157 applies whenever other accounting pronouncements require presentation of fair value measurements, but does not change existing guidance as to whether or not an instrument is carried at fair value. As such, SFAS 157 does not apply to the Company’s investment in leases or investment securities held to maturity. The Company’s financial assets measured at fair value on a recurring basis include primarily securities available-for-sale and at December 31, 2008, there were no liabilities subject to SFAS 157.

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

The following table summarizes the Company’s assets, which are measured at fair value on a recurring basis as of December 31, 2008:

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

Available-for-sale-securities	$	59,871	$	17,578	$	42,293	$	-

Certain financial instruments, such as impaired loans and unfunded loan commitments are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances, usually if there was evidence of impairment. The Company had no such assets or liabilities at December 31, 2008.

NOTE 4 – 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, 2008 were as follows:

	Amortized		Gross Unrealized			Fair		Carrying
(in thousands)	Cost		Gains / (Losses)			Value		Value
Available-for-sale
U.S. agency collateralized mortgage obligations	$	42,078	$	215		$	42,293	$	42,293
Trust preferred securities		13,504		1,780			15,284		15,284
Mutual fund investments		3,570		(1,568	)		2,002		2,002
Equity investment		578		(286	)		292		292

Total available-for-sale		59,730		141			59,871		59,871

Held-to-maturity
U.S. agency mortgage-backed securities	$	1,486	$	54		$	1,540	$	1,486
Federal Reserve Bank and Federal Home Loan Bank Stock		2,721		-			2,721		2,721

Total held-to-maturity		4,207		54			4,261		4,207
Total investment securities	$	63,937	$	195		$	64,132	$	64,078

The change in fair value within each investment category has occurred primarily as a result of changes in interest rates and credit spreads. The Company conducts a regular assessment of its investment portfolios to determine whether any securities are other-than-temporarily impaired. In estimating other-than-temporary impairment losses, management considers, among other factors, length of time and extent to which the fair value has been less than cost, the financial condition and near term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery. The securities above that have unrealized losses have not been held or valued below cost for more than twelve months. As a result, the Company has not determined that the investments above are other-than-temporarily impaired as of December 31, 2008.

Securities classified as “held-to-maturity” are primarily U. S. agency issued securities and Federal Reserve Bank and Federal Home Loan Bank Stock. The Company has determined that it has the ability to hold these investments until maturity and, given the Company’s intent to do so, anticipates that it will realize the full carrying value of its investment and carries the securities at amortized cost.

The investment in Federal Home Loan Bank of San Francisco (“FHLB”) stock is a required investment related to CalFirst Bank’s borrowings from the FHLB. The FHLB obtains its funding primarily through issuance of consolidated obligations of the Federal Home Loan Bank system. The U.S. Government does not guarantee these obligations, and each of the 12 FHLBs are generally jointly and severally liable for repayment of each other’s debt. Therefore, the Company’s investment could be adversely impacted by the financial operations of the FHLB and actions by the Federal Housing Finance Agency.

Securities classified as “available-for-sale” 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 5 – NET INVESTMENT IN LEASES

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

	December 31, 2008			June 30, 2008
	(in thousands)
Minimum lease payments receivable	$	237,150		$	237,423
Estimated residual value		11,375			13,310
Less unearned income		(26,219	)		(26,687	)
Net investment in leases before allowances		222,306			224,046
Less allowance for lease losses		(3,526	)		(3,779	)
Less valuation allowance for estimated residual value		(123	)		(104	)
Net investment in leases	$	218,657		$	220,163

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 $4.9 million and $5.1 million at December 31, 2008 and June 30, 2008, respectively.

NOTE 6 – COMMERCIAL LOANS

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

	December 31, 2008			June 30, 2008
	(in thousands)
Commercial loan syndications	$	54,046		$	31,454
Commercial real estate loans		12,154			8,832
Revolving lines of credit		-			3,300
Total commercial loans		66,200			43,586
Less unearned income and discounts		(2,942	)		(1,374	)
Less allowance for loan losses		(872	)		-
Net commercial loans	$	62,386		$	42,212

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

NOTE 7 – 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, 2008 and 2007:

	Leasing		CalFirst		Bancorp and
	Companies		Bank		Eliminating Entries			Consolidated
	(in thousands)
Quarter ended December 31, 2008
Net direct finance, loan and interest income
after provision for credit losses	$	3,115	$	2,159	$	77		$	5,351
Other income		1,992		321		-			2,313
Gross profit	$	5,107	$	2,480	$	77		$	7,664
Net earnings	$	1,299	$	1,012	$	214		$	2,525

Quarter ended December 31, 2007
Net direct finance, loan and interest income
after provision for credit losses	$	3,936	$	1,433	$	45		$	5,414
Other income		1,581		131		-			1,712
Gross profit	$	5,517	$	1,564	$	45		$	7,126
Net earnings	$	938	$	402	$	469		$	1,809

Six months ended December 31, 2008
Net direct finance, loan and interest income
after provision for credit losses	$	6,303	$	3,735	$	171		$	10,209
Other income		3,412		469		-			3,881
Gross profit	$	9,715	$	4,204	$	171		$	14,090
Net earnings	$	2,338	$	1,529	$	452		$	4,319

Six months ended December 31, 2007
Net direct finance, loan and interest income
after provision for credit losses	$	7,784	$	2,734	$	98		$	10,616
Other income		3,209		414		-			3,623
Gross profit	$	10,993	$	3,148	$	98		$	14,239
Net earnings	$	2,022	$	855	$	947		$	3,824

Total assets at December 31, 2008	$	160,323	$	283,344	$	(10,411	)	$	433,256
Total assets at December 31, 2007	$	177,526	$	181,496	$	(20,447	)	$	338,575

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities; including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to report most financial assets and liabilities at fair value, with subsequent changes in fair value reported in earnings. The election can be applied on an instrument-by-instrument basis. The statement establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. The Company adopted the provisions of SFAS 159 effective July 1, 2008. The adoption of SFAS 159 had no impact on the Company’s financial statements.

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 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 and provides commercial loans to businesses, including real estate based and unsecured revolving lines of credit, and participates in commercial loan syndications. CalFirst Bank gathers deposits from a centralized location primarily through posting rates on the Internet.

The Company’s direct finance, loan and interest income includes interest income earned on the Company’s investment in lease receivables, residuals and commercial loans. 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 and loan portfolios, the interest rate environment, the volume of new lease or loan 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 historically has been short-term in nature, with a greater portion of assets that reprice or mature within one year. With the increased investment in commercial loans and investment securities with longer maturities, this maturity gap has diminished. The Company’s interest margin also is susceptible to timing lags related to varying movements in market interest rates. Many of Company’s leases, loans and liquid investments are tied to U.S. treasury rates and the fed funds rate that have decreased to a greater degree than bank deposit rates due to competitive market factors. As a result, this can result in a greater decline in net interest income than indicated by the repricing asset and liability comparison.

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

Critical Accounting Policies and Estimates

The preparation of the Company’s financial statements requires management to make certain critical accounting estimates that impact the stated amount of assets and liabilities at a financial statement date and the reported amount of income and expenses during a reporting period. These accounting estimates are based on management’s judgment and are considered to be critical because of their significance to the financial statements and the possibility that future events may differ from current judgments, or that the use of different assumptions could result in materially different estimates. The critical accounting policies and estimates have not changed from and should be read in conjunction with the Company’s Annual Report filed on Form 10-K for the year ended June 30, 2008.

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

Overview of Results and Trends

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

Net earnings of $2.5 million for the second quarter ended December 31, 2008 increased 40% from net earnings of $1.8 million from the second quarter of fiscal 2008. The large percentage increase in second quarter net earnings is largely due to a 14% reduction in SG&A expenses, higher income earned on the loan and investment portfolios and increased end of term lease income that compounded to offset a substantial increase in the provision for credit losses.

New lease bookings during the second quarter of fiscal 2009 of $41.3 million were 6.5% lower than the prior year, but with commercial loans boarded of $27.5 million, total loan and lease assets booked in the second quarter of fiscal 2009 increased 10% to $68.7 million. For the first six months of fiscal 2009, new lease bookings of $82.7 million were slightly above the first six months of fiscal 2008, and along with commercial loans boarded of $38.3 million contributed to a 42% increase in loan and lease assets booked to $121.0 million during the six months ended December 31, 2008. As a result, the net investment in leases and loans of $281.0 million at December 31, 2008 increased $18.7 million, or 7%, from the balance at June 30, 2008 and increased $35.0 million, or 14% from the balance at December 31, 2007.

The Bank’s investment in leases and loans of $199.3 million at December 31, 2008 represented 71% of the Company’s consolidated investment. In addition, the Bank increased its investment securities portfolio to $61.8 million at December 31, 2008 from $2.6 million at June 30, 2008. The new investments include certain U. S. agency mortgage-backed securities and investment grade bank issued trust-preferred securities that offer a better yield than federal funds sold and other short-term investments. To fund this portfolio, demand, money market and time deposits increased by 16% to $182.0 million from $156.2 million at June 30, 2008, and the Bank began using its availability under a credit line at the Federal Home Loan Bank of San Francisco (“FHLB”) through borrowings of $35.4 million at an average annual interest rate of 0.67%.

During the second quarter of fiscal 2009, new lease originations and loan commitments were down over 20% when compared to the prior year, reflecting the disruption in the capital markets and deteriorating economy. As a result, at December 31, 2008, the backlog of approved lease and loan commitments of $58 million is 41% below the level of December 31, 2007. In the face of continued slow demand for leasing from its historical customer base, the Company will continue to pursue alternative investment opportunities.

Consolidated Statement of Earnings Analysis

Summary -- For the second quarter ended December 31, 2008, net earnings of $2.5 million increased $716,000, or 39.6%, compared to $1.8 million for the second quarter ended December 31, 2007. Diluted earnings per share increased 55.1% to $0.25 per share for the second quarter of fiscal 2009, compared to $0.16 per share for the second quarter of the prior year. Earnings per share comparisons benefited from the Company’s August 2008 purchase of 1.3 million shares of common stock pursuant to a modified Dutch auction tender offer, which reduced the fully diluted average shares outstanding in the quarter by 10% to 10.2 million.

For the six months ended December 31, 2008, net earnings of $4.3 million increased $495,000, or 12.9%, compared to the six months ended December 31, 2007. Diluted earnings per share increased 21.6% to $0.41 for the first six months of fiscal 2009 compared to $0.34 for the same period of the prior year.

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

Net direct finance, loan and interest income was $6.0 million for the quarter ended December 31, 2008, a $497,000, or 9.0%, increase compared to the same quarter of the prior year. Total direct finance, loan and interest income for the second quarter ended December 31, 2008 increased 9.9% to $7.7 million from $7.0 million earned during the second quarter of fiscal 2008. The increase was primarily due to a $1.0 million increase in income earned on the commercial loan portfolio that stood at $62.4 million at December 31, 2008 and a $537,000 increase in investment income earned. Together, this income offset an $878,000 decrease in direct finance income that resulted from an 8% decline in the average net investment in leases. The average yield on leases held in the Company’s own portfolio decreased 66 basis points to 10.1% while the average yield on loans decreased 93 basis points to 8.4%. With the expanded investment strategy, the average total investment in cash and securities increased to $83.2 million from $50.0 million for the second quarter of fiscal 2008, and the average yield earned on such investments increased 101 basis points to 4.95%. During the second quarter of fiscal 2009, interest expense paid on deposits and FHLB borrowings increased by $191,900 or 13% reflecting a 49% increase in average deposit balances to $169.5 million that was offset by a 129 basis point drop in average interest rates paid. During the second quarter, CalFirst Bank made its initial borrowings under a Federal Home Loan Bank line at an average cost of .67%.

For the six months ended December 31, 2008, net direct finance and interest income was $11.1 million, a $338,000 or 3.2% increase from the $10.7 million earned during the same period of the prior year. Total direct finance, loan and interest income increased 6% to $14.3 million for the first six months of fiscal 2009 compared to the same period of the prior year. The increase was due to a $1.7 million increase in income earned on the commercial loan portfolio and a $590,000 increase in investment income, was which offset by a $1.5 million decline in direct finance income. The average yield on leases held in the Company’s own portfolio decreased by 52 basis points to 10.1% and the average yield on commercial loans decreased 182 basis points to 7.5%. The increased investment income reflected a 69% increase in the average investment in cash and securities to $81.4 million, with the average yield down 23 basis points to 3.87% for the six months ended December 31, 2008. For the six months ended December 31, 2008, interest expense on deposits and FHLB borrowings increased by $446,000 to $3.3 million, primarily reflecting a 122 basis point decrease in the average interest rates paid on average deposit balances that increased by 51% from the year before to $165.0 million.

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

	Quarter ended									Six Months ended
	December 31, 2008 vs 2007										December 31, 2008 vs 2007
	Volume			Rate			Total				Volume			Rate			Total
	(in thousands)
Interest income
Net investment in leases	$	(517	)	$	(361	)	$	(878	)		$	1,484		$	(2,962	)	$	(1,478	)
Commercial loans		1,160			(130	)		1,030				2,127			(455	)		1,672
Discounted lease rentals		70			(24	)		46				136			(45	)		91
Federal funds sold		(250	)		(68	)		(318	)			(184	)		(273	)		(457	)
Investment securities		582			233			815				742			232			974
Interest-earning deposits with banks		97			(57	)		40				229			(156	)		73
		1,142			(407	)		735				4,534			(3,659	)		875
Interest expense
Non-recourse debt		70			(24	)		46				136			(45	)		91
Demand and money market deposits		460			(179	)		281				900			(348	)		552
Time certificates of deposits		211			(323	)		(112	)			446			(575	)		(129	)
FHLB borrowings		23			-			23				23			-			23
		764			(526	)		238				1,505			(968	)		537
Net direct finance, loan and interest income	$	378		$	119		$	497			$	3,029		$	(2,691	)	$	338

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

	Quarter ended							Quarter ended
(dollars in thousands)	December 31, 2008							December 31, 2007
	Average				Yield/			Average				Yield/
Assets	Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets
Interest-earning deposits with banks	$	34,126	$	163		1.9	%	$	19,007	$	122		2.6	%
Federal funds sold		6,959		14		0.8	%		28,415		332		4.7	%
Investment securities		42,098		852		8.1	%		2,567		38		5.9	%
Commercial loans		55,216		1,163		8.4	%		5,683		133		9.4	%
Net investment in leases, including
discounted lease rentals (1,2)		226,409		5,599		9.9	%		241,348		6,431		10.7	%
Total interest-earning assets		364,808		7,791		8.5	%		297,020		7,056		9.5	%
Other assets		34,730							40,063
	$	399,538						$	337,083

Liabilities and Shareholders' Equity
Interest-bearing liabilities
Demand and savings deposits	$	46,843		365		3.1	%	$	7,259		84		4.6	%
Time deposits		122,653		1,270		4.1	%		106,411		1,382		5.2	%
FHLB borrowings		13,722		23		0.7	%		-		-		0.0	%
Non-recourse debt		9,654		132		5.5	%		5,350		86		6.4	%
Total interest-bearing liabilities		192,872		1,790		3.7	%		119,020		1,552		5.2	%
Other liabilities		20,327							18,504
Shareholders' equity		186,339							199,559
	$	399,538						$	337,083

Net direct finance, loan and interest income			$	6,001						$	5,504
Net direct finance, loan and interest income
to average interest-earning assets						6.6	%						7.4	%
Average interest-earning assets over
average interest-bearing liabilities						189.1	%						249.6	%

	Six months ended							Six months ended
	December 31, 2008							December 31, 2007
	Average				Yield/			Average				Yield/
Assets	Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets
Interest-earning deposits with banks	$	34,741	$	362		2.1	%	$	19,357	$	288		3.0	%
Federal funds sold		18,652		173		1.9	%		26,376		630		4.8	%
Investment securities		28,006		1,043		7.4	%		2,400		70		5.8	%
Commercial loans		50,585		1,892		7.5	%		4,733		220		9.3	%
Net investment in leases, including
discounted lease rentals (1,2)		225,757		11,142		9.9	%		238,782		12,529		10.5	%
Total interest-earning assets		357,741		14,612		8.2	%		291,648		13,737		9.4	%
Other assets		36,428							42,847
	$	394,169						$	334,495

Liabilities and Shareholders' Equity
Interest-bearing liabilities
Demand and savings deposits	$	45,616		714		3.1	%	$	6,968		162		4.6	%
Time deposits		119,397		2,522		4.2	%		102,189		2,651		5.1	%
FHLB borrowings		7,841		23		0.6	%		-		-		0.0	%
Non-recourse debt		9,820		269		5.5	%		5,574		178		6.4	%
Total interest-bearing liabilities		182,674		3,528		3.9	%		114,731		2,991		5.2	%
Other liabilities		20,428							20,859
Shareholders' equity		191,067							198,905
	$	394,169						$	334,495

Net direct finance, loan and interest income			$	11,084						$	10,748
Net direct finance, loan and interest income
to average interest-earning assets						6.2	%						7.4	%
Average interest-earning assets over
average interest-bearing liabilities						195.8	%						254.2	%

(1)	Direct finance income and interest expense on discounted lease rentals and non-recourse debt of $9.3 million and $5.3 million at December 31, 2008 and 2007, 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 Credit Losses -- The Company recorded a provision for credit losses of $650,000 in the second quarter of fiscal 2009, compared to a provision of $90,000 in the second quarter of fiscal 2008. For the six-month period ended December 31, 2008, the provision was $875,000 compared to a provision of $130,000 for the same period of the prior fiscal year. The increase in the provision for both periods related to the substantial growth in the commercial loan portfolio and the heightened credit risk related to these assets, as well as deterioration in the credit quality of certain customers.

Other Income -- Total other income for the quarter ended December 31, 2008 increased by $601,000, or 35.1%, to $2.3 million, compared to $1.7 million for the same quarter of the prior fiscal year. The increase in other income primarily reflects a $232,000 increase in gain on sales of leases and leased property, including an increase in income from the sale of leases of $140,000, and a $235,000 increase in operating and sales-type lease income. The increased income from end of term transactions primarily reflected greater income from lease extensions as well as slightly higher values realized on leased property sales.

For the first six months ended December 31, 2008, total other income of $3.9 million increased slightly compared to $3.6 million for the six months ended December 31, 2007. The increase was principally due to a $364,000 increase in gains recognized on the sale of leases, which offset the slight decline in income earned on end of term transactions. Other fee income of $394,000 increased $108,000 as fee income collected increased.

Selling, General, and Administrative (“S,G&A”) Expenses – During the second quarter and first six months of fiscal 2009, S,G&A expenses of $3.6 million and $7.2 million declined by 14.4% and 11.6%, respectively. During both periods, the decrease is due to lower fixed and variable office costs resulting from efforts to lower overhead, including substantial savings in the second quarter from lower personnel costs.

Taxes – Income taxes were accrued at a tax rate of 37.5% for the first quarter and six months ended December 31, 2008 and December 31, 2007 representing the estimated annual tax rate for the fiscal years ending June 30, 2009 and 2008, respectively.

Financial Condition Analysis

As of December 31, 2008, consolidated total assets were up 12.1% to $433.3 million, compared to $386.6 million at June 30, 2008. The increase in total assets includes a $1.5 million decrease of the net investment in leases to $218.7 million, a 47.8% or $20.2 million increase in commercial loans to $62.4 million, a $57.7 million increase in investment securities to $64.1 million and a $25.8 million decrease in cash and equivalents, including federal funds sold.

Lease and Commercial Loan Portfolio Analysis

The Company’s strategy is to develop lease and loan portfolios with risk/reward profiles that meet its objectives. The Company currently funds most new lease transactions internally, with a portion of lease receivables assigned to other financial institutions. During the first six months ended December 31, 2008, approximately 86% of the total dollar amount of new leases booked by the Company were held in its own portfolios, compared to 96% during the first six months of fiscal 2008. At December 31, 2008, the Company’s net investment in leases decreased by $1.5 million from June 30, 2008. This decrease includes a $1.7 million decrease in the investment in estimated residual values offset by a slight increase in the net investment in lease receivables. The decrease in the investment in residual values is due to a larger volume of leases maturing than booked on which the Company realized a residual value. The Company’s commercial loan portfolio increased $20.2 million to $62.4 million from June 30, 2008 and increased $56.7 million from December 31, 2007. The increase in loans held at the Bank since June 30, 2008 related to additional purchases of participations in syndicated transactions originated by other financial institutions.

The Company often makes payments to purchase leased property prior to the commencement of the lease. The disbursements for these lease transactions in process are generally made to facilitate the lessees’ property implementation schedule. The lessee is contractually obligated by the lease to make rental payments directly to the Company during the period that the transaction is in process, and the lessee generally is obligated to reimburse the Company for all disbursements under certain circumstances. Income is not recognized while a transaction is in process and prior to the commencement of the lease. At December 31, 2008, the Company’s investment in property acquired for transactions in process of $26.1 million related to approximately $57.1 million of approved lease commitments. This investment in transactions in process decreased from $29.0 million at June 30, 2008, which related to approved lease commitments of $100.2 million, and down from $28.0 million at December 31 2007, which related to approved lease commitments of $84.7 million. In addition to the approved lease commitments, CalFirst Bank had an unfunded loan commitment at December 31, 2008 of $1.0 million.

The Company monitors the performance of all leases and loans held in its own portfolio, transactions in process, as well as lease transactions assigned to lenders, if the Company retains a residual investment in the leased property subject to those leases. An ongoing review of all leases and loans ten or more days delinquent is conducted. Customers 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 and loans generally will be discontinued when the customer becomes ninety days or more past due on its payments to the Company, unless the Company believes the investment is otherwise recoverable. Leases and loans may be placed on non-accrual earlier if the Company has significant doubt about the ability of the customer to meet its obligations, as evidenced by consistent delinquency, deterioration in the customer’s financial condition or other relevant factors.

The following table summarizes the Company’s non-performing leases. There were no non-performing loans during the periods summarized below.

	December 31, 2008			June 30, 2008
Non-performing Leases	(dollars in thousands)
Non-accrual leases	$	2,381		$	2,132
Restructured leases		282			398
Leases past due 90 days (other than above)		-			39
Total non-performing leases	$	2,663		$	2,569
Non-performing assets as % of net investment
in leases and loans before allowances		0.9	%		1.0	%

The increase in non-performing leases at December 31, 2008 from June 30, 2008 is primarily due to one relationship placed on non-accrual, offset by payments received. In addition to the non-performing capital leases identified above, there was $2.2 million of investment in capital leases at December 31, 2008 for which management has concerns regarding the ability of the lessees to continue to meet existing lease obligations, compared to $1.1 million at June 30, 2008. 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 credit losses.

Allowance for Credit Losses

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

	Six months ended
	December 31,
	2008			2007
	(dollars in thousands)
Property acquired for transactions in process before allowance	$	26,247		$	28,020
Net investment in leases and loans before allowance		285,564			249,530
Net investment in “risk assets”	$	311,811		$	277,550

Allowance for credit losses at beginning of period	$	3,921		$	3,344
Charge-off of lease receivables		(74	)		(5	)
Recovery of amounts previously written off		13			68
Provision for credit losses		875			130
Allowance for credit losses at end of period	$	4,735		$	3,537
Components of allowance for credit losses:
Allowance for lease losses	$	3,650		$	3,469
Allowance for loan losses		872			-
Liability for unfunded loan commitments		20			-
Allowance for transactions in process		193			68
	$	4,735		$	3,537
Allowance for credit losses as a percent of net investment
in leases and loans before allowances		1.7	%		1.4	%
Allowance for credit losses as a percent of net investment in “risk assets”		1.5	%		1.3	%

The allowance for credit losses increased $814,000 to $4.7 million (1.7% of net investment in leases and loans before allowances) at December 31, 2008 from $3.9 million (1.5% of net investment in leases and loans before allowances) at June 30, 2008. The allowance at December 31, 2008 consisted of $1.7 million allocated to specific accounts that were impaired and $3.0 million that was available to cover losses inherent in the portfolios. This compared to $1.5 million allocated to specific accounts at June 30, 2008 and $2.4 million available for losses inherent in the portfolio at that time. The increase in the specific allowance at December 31, 2008 primarily relates to the increase in estimatable losses related to specifically identified problems. The Company considers the allowance for credit losses of $4.7 million at December 31, 2008 adequate to cover losses specifically identified as well as inherent in the lease and loan portfolios. However, no assurance can be given that the Company will not, in any particular period, sustain lease and loan losses that are sizeable in relation to the amount reserved, or that subsequent evaluations of the lease and loan portfolio, in light of factors then prevailing, including economic conditions and the on-going credit review process, will not require significant increases in the allowance for credit losses. Among other factors, economic and political events may have an adverse impact on the adequacy of the allowance for credit losses by increasing credit risk and the risk of potential loss even further.

Investment Securities

Total investment securities, both available-for-sale and held-to-maturity, were $64.1 million as of December 31, 2008, compared with $6.4 million at June 30, 2008. During the six months ended December 31, 2008, CalFirst Bank purchased $15.3 million of investment grade bank issued trust preferred securities and $42.3 million of mortgage-backed securities, all of which are held as available-for-sale. The Company conducts a regular assessment of its investment portfolio to determine whether any securities are other-than-temporarily impaired. At December 31, 2008, the available-for-sale securities portfolio included a $141,000 unrealized gain, compared with a net unrealized loss of $360,000 at June 30, 2008. During the second quarter and first six months of fiscal 2009, the Company’s assessment of the investment securities portfolio did not result in the determination of any other-than-temporary impairment of investment securities. During this period of lower originations of new lease transactions, the Company will continue to expand its investment in securities with yield and risk profiles that are consistent with the Company’s policies and strategy.

Liquidity and Capital Resources

The Company funds its operating activities through internally generated funds, bank deposits, Federal Home Loan Bank advances and non-recourse debt. At December 31, 2008 and June 30, 2008, the Company’s cash and cash equivalents were $46.0 million and $71.8 million, respectively. Stockholders’ equity at December 31, 2008 was $187.4 million, or 43% of total assets, compared to $202.5 million, or 52% of total assets, at June 30, 2008. At December 31, 2008, the Company and the Bank exceeded their regulatory capital requirements and are considered “well-capitalized” under guidelines established by the FRB and OCC.

On July 21, 2008, the Company commenced a modified “Dutch Auction” tender offer to purchase up to 1,300,000 shares of its common stock. CalFirst Bancorp shareholders were given the opportunity to tender part or all of their shares to the Company at a price not greater than $13.00 and not less than $12.00 per share. On August 25, 2008, the Company announced that it accepted for purchase 1,300,000 shares of its common stock, representing approximately 11.4% of its outstanding shares, at a purchase price of $13.00 per share for a total cost of $16.9 million, excluding fees and expenses relating to the offer. The tender offer was funded through cash on hand.

Deposits at CalFirst Bank totaled $182.0 million at December 31, 2008, compared to $116.1 million at December 31, 2007 and $156.2 million at June 30, 2008. The $65.9 million increase from December 31, 2007 was used to fund leases, loans and the Bank’s growth in the investment portfolio, as well as maintain liquidity at the Bank. The following table presents average balances and average rates paid on deposits for the six months ended December 31, 2008 and 2007:

	Six months ended December 31,
	2008					2007
	Average		Average			Average		Average
	Balance		Rate Paid			Balance		Rate Paid
	(dollars in thousands)
Non-interest-bearing demand deposits	$	1,805		n/a		$	1,420		n/a
Interest-bearing demand deposits		257		0.50	%		95		0.47	%
Money market deposits		45,359		3.12	%		6,873		4.67	%
Time deposits less than $100,000		59,311		4.14	%		49,830		5.15	%
Time deposits, $100,000 or more	$	60,086		4.24	%	$	52,359		5.14	%

The following table shows the maturities of certificates of deposits at the dates indicated:

	December 31, 2008
	Less Than		Greater Than
	$100,000		$100,000
	(in thousands)
Under 3 months	$	19,789	$	15,750
3 - 6 months		11,772		12,992
6 - 12 months		17,897		31,632
Over 12 months		13,267		11,391
	$	62,725	$	71,765

During the second quarter ended December 31, 2008, the Bank entered into short-term borrowing agreements (borrowings with maturities of one year or less) with the Federal Home Loan Bank of San Francisco. The Bank had outstanding balances of $35.4 million under these agreements at December 31, 2008, with such advances collateralized by pledges of certain investment securities and loans of the Bank with an aggregate principal balance of approximately $42 million. The average annual interest rate was 0.59% at December 31, 2008.

In January 2009, CalFirst Bank received approval to borrow from the Federal Reserve Discount Window amounts secured by certain lease receivables, with the availability at December 31, 2008 estimated to be approximately $50 million. No borrowings were outstanding at such date. The Bank may elect from time-to-time to borrow from the Federal Reserve rather than the Federal Home Loan Bank of San Francisco to maintain an immediate secondary source of liquidity.

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, 2008, the Company had outstanding non-recourse debt aggregating $9.3 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.

As of December 31, 2008, the Leasing Companies had a $25 million line of credit with a bank (“Lender”). The purpose of the line is to provide resources as needed for investment in transactions in process and leases. The agreement provides for borrowings based on Lender’s prime rate or LIBOR, at the Leasing Companies’ option, requires a commitment fee on the unused line balance and allows for advances through March 31, 2009. The agreement is unsecured, however, the Leasing Companies’ obligations are guaranteed by the Company. No borrowings have been made under this line of credit as of December 31, 2008.

Contractual Obligations and Commitments

The following table summarizes various contractual obligations as of December 31, 2008. Commitments to purchase property for leases are binding and generally have fixed expiration dates or other termination clauses. Commercial loan commitments are agreements to lend to a customer or purchase a participation provided there is no violation of any condition in the contract. These commitments generally have fixed expiration dates or other termination clauses. Since the Company expects some of the commitments to expire without being funded, the total amounts do not necessarily represent the Company’s future liquidity requirements.

	Due by Period
			Less Than				After
Contractual Obligations	Total		1 Year		1-5 Years		5 Years
	(dollars in thousands)
Commercial loan commitments	$	1,000	$	1,000	$	-	$	-
Lease property purchases (1)		24,736		24,736		-		-
FHLB Borrowings		35,444		35,444
Operating lease rental expense		4,518		565		3,953		-
Total contractual commitments	$	65,698	$	61,745	$	3,953	$	-

______________________________________________

(1)

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

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss in a financial instrument arising from changes in market indices such as interest rates and credit spreads. The Company’s principal market risk exposure is interest rate risk, which is the exposure due to differences in the repricing characteristics of interest-earning assets and interest-bearing liabilities. Market risk also arises from the impact that fluctuations in interest rates may have on security prices that may result in changes in the values of financial instruments, such as available-for-sale securities that are accounted for at fair value. As the banking operations of the Company have grown and the Bank’s deposits represent a greater portion of the Company’s liabilities, the Company is subject to increased interest rate risk. The Bank has an Asset/Liability Management Committee and policies established to manage its interest rate risk.

At December 31, 2008, the Company had $49.7 million invested in securities of very short duration, including $7.9 million in federal funds sold and securities purchased under agreements to resell. The Company’s investment in lease payments receivable and loan principal of $303.4 million consists of leases with fixed rates and loans with variable rates, however, $164.9 million of such investment is due within one year of December 31, 2008. This compares to the Bank’s interest bearing deposit liabilities and FHLB borrowings of $217.4 million, of which $192.2 million 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, 2008, the Company had assets of $218.0 million subject to changes in interest rates over the next twelve months, compared to repricing liabilities of $192.2 million.

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

Consolidated Interest Rate Sensitivity

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

Rate Sensitive Assets (RSA):

Cash due from banks	$	38,113		$	-		$	-		$	-		$	-		$	38,113
Fed funds sold		7,875			-			-			-			-			7,875
Investment securities		3,668			-			-			60,118			292			64,078
Net investment in leases		24,688			87,073			136,763			-			(29,867	)		218,657
Commercial loans		56,623			-			9,577			-			(3,814	)		62,386
Non-interest earning assets		-			-			-			-			42,147			42,147
Totals	$	130,967		$	87,073		$	146,340		$	60,118		$	8,758		$	433,256
Cumulative total for RSA	$	130,967		$	218,040		$	364,380		$	424,498

Rate Sensitive Liabilities (RSL):

Demand and savings deposits	$	46,961		$	-		$	-		$	-		$	502		$	47,463
Time deposits		35,539			74,293			24,658			-			-			134,490
Borrowings		35,444			-			-			-			-			35,444
Non-interest bearing liabilities		-			-			-			-			28,432			28,432
Stockholders' equity		-			-			-			-			187,427			187,427
Totals	$	117,944		$	74,293		$	24,658		$	-		$	216,361		$	433,256
Cumulative total for RSL	$	117,944		$	192,237		$	216,895		$	216,895

Interest rate sensitivity gap	$	13,023		$	12,780		$	121,682		$	60,118
Cumulative GAP	$	13,023		$	25,803		$	147,485		$	207,603

RSA divided by RSL (cumulative)		111.04	%		113.42	%		168.00	%		195.72	%
Cumulative GAP / total assets		3.01	%		5.96	%		34.04	%		47.92	%

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, 2008 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, 2008.

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

The following table summarizes share repurchase activity for the quarter ended December 31, 2008:

					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, 2008 – October 31, 2008		-	$	-		429,335
November 1, 2008 - November 30, 2008		-	$	-		429,335
December 1, 2008 - December 31, 2008		-	$	-		429,335
		-	$	-

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	25

31.2	Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial Officer	26

32.1	Section 1350 Certifications by Principal Executive Officer and Principal Financial Officer	27

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 13, 2009	By:	/s/ S. LESLIE JEWETT
		S. LESLIE JEWETT
		Chief Financial Officer
		(Principal Financial and
		Accounting Officer)