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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

[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, 2003                                       

[  ]

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
(State or other jurisdiction of
incorporation or organization)
33-0964185
(I.R.S. Employer
Identification No.)
18201 Von Karman Ave., Suite 800
Irvine, California
(Address of principal executive offices)
92612
(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 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         No     
The number of shares outstanding of the Registrant's Common Stock, par value $.01 per share, as of April 25, 2003 was 10,933,509.


 

CALIFORNIA FIRST NATIONAL BANCORP

INDEX

PART I. FINANCIAL INFORMATION
PAGE
NUMBER
Item 1. Financial Statements
Consolidated Balance Sheets - March 31,
2003 and June 30, 2002
3

Consolidated Statements of Earnings - Three and nine
months ended March 31, 2003 and 2002

4

Consolidated Statements of Cash Flows - Nine months
ended March 31, 2003 and 2002

5
Notes to Consolidated Financial Statements
6
Item 2. Management's Discussion and Analysis of Financial
                            Condition and Results of Operations
7-13
Item 4. Controls and Procedures
14

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K
14
Signature
15
Certifications
16-17

 


 

CALIFORNIA FIRST NATIONAL BANCORP

CONSOLIDATED BALANCE SHEETS

ASSETS

(UNAUDITED)
March 31,
2003
June 30,
2002


Cash and due from banks

$   65,425,000

$  78,503,000

Federal funds sold and securities purchased under
     agreements to resell

6,480,000
9,890,000


          Total cash and cash equivalents

71,905,000

88,393,000

Security held to maturity

560,000

583,000

Net receivables

12,737,000

15,961,000

Property acquired for transactions in process

19,452,000

20,570,000

Net investment in capital leases

128,749,000

108,091,000

Income taxes receivable

-

1,142,000

Other assets

2,125,000

1,147,000

Discounted lease rentals assigned to lenders

46,703,000

72,754,000



$ 282,231,000

$ 308,641,000



LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:

     Accounts payable

$     929,000

$     1,422,000

     Accrued liabilities

3,439,000

3,996,000

     Demand and money market deposits

555,000

1,333,000

     Time certificates of deposit

6,707,000

7,636,000

     Lease deposits

6,843,000

7,608,000

     Nonrecourse debt

46,703,000

72,754,000

     Income taxes payable, including deferred taxes

21,576,000

22,501,000



86,752,000

117,250,000

 



Commitments and contingencies

Stockholders' equity:

     Preferred stock; 2,500,000 shares
          authorized; none issued

-

-

     Common stock; $.01 par value; 20,000,000 shares
          authorized; 10,960,909 (March 2003) and 11,179,728
          (June 2002) issued and outstanding

110,000

112,000

     Additional paid in capital

1,616,000

2,900,000

     Retained earnings

193,753,000

188,379,000



195,479,000

191,391,000



$ 282,231,000

$ 308,641,000



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

3


 

CALIFORNIA FIRST NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three months ended
March 31,

Nine months ended
March 31,



2003

2002

2003

2002

Direct finance income

$ 5,105,000

$ 4,439,000

$14,629,000

$13,170,000

Interest income on investments

190,000

309,000

807,000

1,193,000





Total direct finance and interest income

5,295,000

4,748,000

15,436,000

14,363,000

Interest expense on deposits

55,000

41,000

184,000

65,000

Provision for lease losses

120,000

1,568,000

338,000

4,004,000





Net direct finance and interest income after
     provision for lease losses

5,120,000

3,139,000

14,914,000

10,294,000





Other income

     Operating and sales type lease income

1,879,000

2,806,000

4,975,000

5,144,000

     Gain on sale of leases and leased property

1,176,000

3,856,000

5,816,000

11,614,000

     Other income

183,000

144,000

468,000

992,000





          Total other income

3,238,000

6,806,000

11,259,000

17,750,000





Gross profit

8,358,000

9,945,000

26,173,000

28,044,000

Selling, general and administrative expenses

4,639,000

3,681,000

12,805,000

11,079,000





Earnings before income taxes

3,719,000

6,264,000

13,368,000

16,965,000

Income taxes

1,432,000

2,412,000

5,147,000

6,532,000





Net earnings

$ 2,287,000

$ 3,852,000

$ 8,221,000

$ 10,433,000





Basic earnings per common share

$           .21

$           .34

$           .74

$            .93





Diluted earnings per common share

$           .21

$           .34

$           .73

$            .91





Dividends declared per common share outstanding

$           .04

$           .04

$           .12

$            .12





Weighted average common shares outstanding

10,993,000

11,199,000

11,070,000

11,220,000





Diluted common shares outstanding

11,138,000

11,399,000

11,291,000

11,435,000





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

4


CALIFORNIA FIRST NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
Nine Months Ended
March 31,
 
 
2003
2002
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net earnings
$ 8,221,000
$ 10,433,000
Adjustments to reconcile net earnings to cash flows used
     for operating activities:
   
     Interest accretion of estimated unguaranteed residual values
(1,515,000
)
(2,140,000
)
     Decrease in estimated unguaranteed residual values
4,944,000
9,723,000
     Provision for lease losses
338,000
4,004,000
     Net decrease in income taxes payable, including
       deferred taxes
(925,000 ) (2,046,000 )
     Net decrease (increase) in net receivables
3,224,000
 
(559,000
)
     Decrease in income taxes receivable
1,142,000
7,612,000
     Net decrease (increase) in property acquired for
       transactions in process
1,118,000 (1,794,000 )
     Net decrease in accounts payable and
       accrued liabilities
(1,050,000 ) (1,242,000 )
     Decrease in customer lease deposits (765,000 ) (946,000 )


Net cash provided by operating activities
14,732,000
23,045,000
 


CASH FLOWS FROM INVESTING ACTIVITIES:    
     Net increase in minimum lease payments receivable
(22,182,000
)
(1,218,000
)
     Proceeds from sale of security held to maturity
23,000
-
     Net (increase) decrease in other assets
(978,000
)
299,000
     Increase in estimated unguaranteed residual values
       recorded on leases
(2,243,000 ) (2,192,000 )


Net cash used for investing activities (25,380,000 ) (3,111,000 )


CASH FLOWS FROM FINANCING ACTIVITIES:    
     Net (decrease) increase in time certificates of deposit
(929,000
)
6,343,000
     Net (decrease) increase in demand and money market deposits
(778,000
)
255,000
     Payments to repurchase common stock
(3,000,000
)
(1,077,000
)
     Dividends to stockholders
(1,327,000
)
(1,345,000
)
     Proceeds from exercise of stock options
194,000
176,000


Net cash (used for) provided by financing activities
(5,840,000
)
4,352,000
 


NET CHANGE IN CASH AND CASH EQUIVALENTS
(16,488,000
)
24,286,000
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
88,393,000
59,089,000


CASH AND CASH EQUIVALENTS AT END OF PERIOD
$71,905,000
$83,375,000


SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
     Decrease in lease rentals assigned to lenders and
          related nonrecourse debt
($26,051,000 ) ($39,727,000 )


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
     Cash paid during the nine month period for:    
       Interest
$       61,000
$       50,000


       Income taxes
$  4,900,000
$     966,000


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

5


 

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's Annual Report on Form 10-K for the year ended June 30, 2002. 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 2002 Annual Report on Form 10-K, which contains Management's Discussion and Analysis of Financial Condition and Results of Operations as of June 30, 2002 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, 2003 and the statements of earnings and cash flows for the nine month periods ended March 31, 2003 and 2002. The results of operations for the nine month period ended March 31, 2003 are not necessarily indicative of the results of operations to be expected for the entire fiscal year ending June 30, 2003.

NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS

In June 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 addresses financial accounting and reporting costs associated with the exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity Including Certain Costs Incurred in Restructuring." The Company anticipates the adoption of FASB 146 will not have an impact on the financial statements.

In June 2002, FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions" (SFAS 147). SFAS 147 removes acquisition of financial institutions from the scope of both SFAS No. 72, "Accounting for Certain Acquisitions of Banking and Thrift Institutions," and FASB Interpretation No. 9, "Applying APB Opinion No. 16 and 17 When a Savings and Loan Association or Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method" and requires those transactions be accounted for in accordance with SFAS Statements No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." In addition, SFAS 147 amends SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets" to include in its scope long-term customer-relationship intangible assets of financial institutions. The Company anticipates the adoption of FASB 147 will not have an impact on the financial statements.

NOTE 3 - STOCK-BASED COMPENSATION

At March 31, 2003, the Company had two stock option plans which are more fully described in Note 5 in the Company's 2002 Annual Report on form 10-K. The Company accounts for these Plans under APB Opinion No. 25, "Accounting for Stocks Issued to Employees," under which no compensation cost has been recognized. In accordance with Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," (SFAS No. 148) the Company adopted the disclosure requirements of SFAS No. 148. Had compensation cost for these plans been determined consistent with SFAS No. 123, the Company's net income and earnings per share would have been reduced to the following proforma amounts:

Three months ended March 31,
Nine months ended March 31,
 
 
2003     
2002     
2003     
2002     
Net earnings
$2,287,000
$3,852,000
$8,221,000
$10,433,000
Proforma compensation cost
   (111,000)
   (121,000)
   (333,000)
     (363,000)
Proforma net earnings
$2,176,000
$3,731,000
$7,888,000
$10,070,000
 
Proforma basic EPS
$          0.20
$          0.33
$          0.71
$            0.90
 
Proforma diluted EPS
$          0.20
$          0.33
$          0.70
$            0.88
               

Since the SFAS No. 123 method of accounting has not been applied to options granted prior to July 1, 1995, the resulting pro forma compensation cost may not be indicative of that to be expected in future periods.

6


CALIFORNIA FIRST NATIONAL BANCORP

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

GENERAL

California First National Bancorp (the "Company") is a bank holding company. The Company has two leasing subsidiaries, Amplicon, Inc. ("Amplicon") and California First Leasing Corporation ("CFLC", collectively the "Leasing Companies") that are involved in the leasing and financing of computers, computer networks and other high technology assets. The leasing subsidiaries are also engaged in the re-marketing of leased assets at lease expiration. The operations of CFLC commenced on July 2, 2001. California First National Bank ("CalFirst Bank" or the "Bank"), another subsidiary, which commenced operations on May 23, 2001, is a FDIC-insured national bank that gathers deposits using the telephone, the Internet, and direct mail, and leases capital assets to businesses and organizations and provides business loans to fund the purchase of assets leased by third parties.

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 off-lease property ("lease extensions") and new lease transactions that qualify as sales-type leases, generally where the fair value of the property subject to the lease differs from the Company's carrying cost. Income from operating leases generally involves the short-term rental of leased property.

The Company's operating results are subject to quarterly fluctuations resulting from a variety of factors, including the volume of new lease originations, the volume and profitability of leased property being re-marketed through re-lease or sale, variations in the mix of lease originations, the size and credit quality of the lease portfolio, interest rates and economic conditions in general. The Company has insignificant interest bearing liabilities, and therefore, reductions in interest rates in general can reduce the yield earned on the investment in lease receivables and on the investment in securities and other interest earning assets.

The Company conducts its leasing business in a manner designed to minimize risks. However, the assumption of risk is a key source of earnings in the leasing and banking industry 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 mitigate 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 10K for the year ended June 30, 2002.

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


CONSOLIDATED STATEMENT OF EARNINGS ANALYSIS

          Summary -- For the third quarter ended March 31, 2003, net earnings of $2.3 million decreased $1.6 million, or 40.6%, compared to $3.9 million for the third quarter ended March 31, 2002. Diluted earnings per share decreased 38.2% to $0.21 per share for the third quarter of fiscal 2003 compared to $0.34 per share for the third quarter of the prior year. Third quarter results of fiscal 2003 reflect the impact of a significant decrease in income from end of term transactions and higher selling, general and administrative ("SG&A") expenses. These factors offset the benefit of a significant decrease in the provision for lease losses, and higher income from the lease portfolio. The volume of new lease transactions booked during the third quarter of fiscal 2003 was $29.2 million, a 24.4% increase from the same quarter of the prior year.

7


          For the nine months ended March 31, 2003, net earnings of $8.2 million decreased $2.2 million, or 21.2%, compared to the nine months ended March 31, 2002. Diluted earnings per share decreased 19.8% to $0.73 for the first nine months of fiscal 2003 compared to $0.91 for the same period of the prior year. The results of the first nine months of fiscal 2003 reflect the impact of a significant decrease in income from sales of leased property and a 16% increase in SG&A expense levels, which offset the benefit of a significant decrease in the provision for lease losses and higher income from the lease portfolio . The volume of new lease transactions booked during the first nine months ended March 31, 2003 was $90.8 million, a 24.9% increase from the same period of the prior year.

          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.

          Net direct finance and interest income was $5.2 million for the quarter ended March 31, 2003, a $533,000, or 11.3% increase compared to the same quarter of the prior year. Direct finance income of $5.1 million increased by $666,000 largely as a result of a larger average investment in capital leases. Interest income on investments declined by $119,000 due to declines in interest rates and the average balances of cash and cash equivalents during the period. Interest expense on deposits was $55,000 for the third quarter of fiscal 2003 compared to $41,000 for the same quarter of the prior year, reflecting an increase in the average balances offset slightly by a decline in rates.

          For the nine months ended March 31, 2003, net direct finance and interest income was $15.3 million, a $954,000, or 6.7%, increase compared to the same period of the prior year. Direct finance income of $14.6 million increased by $1.5 million as a result of higher yields on a larger average investment in capital leases outstanding. Interest income on investments declined by $386,000 due primarily to a decline in interest rates, which offset an increase in average balances of cash and cash equivalents during the period. Interest expense on deposits was $184,000 for the first nine months of fiscal 2003 compared to $65,000 for the same period of the prior year, reflecting an increase in the average balances.

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

   

Nine Months Ended March 31, 2003 compared to 2002

     Volume

 

     Rate

 

     Total

Direct Finance and Interest income

  Net investment in capital leases

$     933,525

$  525,498

$  1,459,023

  Discounted lease rentals (1)

(2,846,533)

(25,253)

(2,871,786)

  Federal funds sold

(175,974)

(40,132)

(216,106)

  Interest-bearing deposits with banks

     296,851

 

 (466,872)

 

      (170,021)

    Total finance and interest income

(1,792,131)

 

    (6,759)

 

 (1,798,890)

Interest expense

  Nonrecourse debt (1)

(2,846,533)

(25,253)

(2,871,786)

  Demand and money market deposits

2,725

237

2,962

  Time certificates of deposit

      152,791

 

   (36,716)

 

      116,075

    Total interest expense

 (2,691,017)

 

   (61,732)

 

 (2,752,749)

Net direct finance and interest income

$     898,886

 

$    54,973

 

$     953,859

         (1) Direct finance income and interest expense on discounted lease rentals and nonrecourse debt offset each other, and do not contribute to the Company's net direct finance and interest income.

8


          The following table presents 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.

Nine months ended
March 31, 2003
Nine months ended
March 31, 2002
Assets
Average
Balance
Interest
Yield/
Rate 
Average
Balance
Interest
Yield/
Rate 
Interest-earning assets
   Interest-bearing deposits with banks
$  69,204,219
$    731,219
1.4%
$  52,057,491
$     901,240
2.3%
   Federal funds sold
5,966,875
76,028
1.7%
15,006,250
292,134
2.6%
   Net investment in capital leases
     including discounted lease rentals (1,2)
179,068,334
18,324,783
13.6%
214,230,299
19,737,547
12.3%
Total interest-earning assets
254,239,428
19,132,030
10.0%
281,294,040
20,930,921
9.9%
Other assets
  37,446,838
  38,003,096
$291,686,266
$319,297,136
Liabilities and Stockholders' Equity
Interest-bearing liabilities
   Demand and money market deposits
$      253,219
3,655
1.9%
$         51,341
693
1.8%
   Time certificates of deposit
6,992,543
180,797
3.4%
2,048,519
63,722
4.1%
   Nonrecourse debt (1)
56,571,262
 3,696,270
8.7%
99,841,708
 6,568,056
8.8%
Total interest bearing liabilities
63,817,024
 3,880,722
8.1%
101,941,568
 6,632,471
8.7%
Other liabilities
34,116,676
34,019,770
Stockholders' equity
193,752,566
183,335,798
$291,686,266
$319,297,136
Net direct finance and interest income
$15,251,308
1.9%
$14,298,450
1.2%
Net direct finance and interest income to
average interest-earning assets
8.0%
6.8%
Average interest-earning assets over
average interest bearing liabilities
398.4%
275.9%

(1) Direct finance income and interest expense on discounted lease rentals and nonrecourse debt of $46,703,000 and $81,273,000 at March 31, 2003 and 2002, respectively, offset each other and do not contribute to the Company's net direct finance and interest income.

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

          Provision for Lease Losses -- The Company's provision for lease losses in the third quarter and nine months ended March 31, 2003 was $120,000 and $338,000, respectively, compared to $1,568,000 and $4,004,000, respectively, for the same periods of the prior fiscal year. The reduction in the provision reflects the fact that the volume of problem leases remained relatively unchanged during the period. The prior fiscal year periods include a provision for the deterioration in the underlying credit of two large lease transactions, which was not required during the first nine months of this year.

          Other Income -- Other income is a significant source of income for the Company, accounting for 39% of the Company's gross profit during the quarter ended March 31, 2003 and 68% during the third quarter of fiscal 2002. Total other income for the quarter ended March 31, 2003 decreased by $3.6 million, or 52%, to $3.2 million, compared to $6.8 million for the same quarter of the prior fiscal year. The decrease in other income is primarily due to a 70% decrease in gain on sale of leases and leased property to $1.2 million for the third quarter of fiscal 2003 from $3.9 million for the same period of the prior year. This primarily reflected a lower volume of leased property sales. Operating and sales type lease income decreased $927,000 to $1.9 million in the third quarter of fiscal 2003 compared to $2.8 million in the same quarter of fiscal 2002. These decreases reflect a reduction in the volume of leases reaching their end of term.

9


          For the nine months ended March 31, 2003, other income accounted for 43% of the Company's gross profit compared to 63% for the comparable period of the prior fiscal year. Total other income for the first nine months of fiscal 2003 decreased $6.5 million, or 37%, to $11.3 million from $17.8 million for the same period of the prior fiscal year. The decrease in other income is primarily due to a $5.8 million, or 50%, decrease in gain on sale of leases and leased property to $5.8 million for the nine months ended March 31, 2003 from $11.6 million for the same period of the prior year. This primarily reflected a lower volume of leased property sales. Operating and sales type income of $5.0 million decreased $169,000, or 3%, during the first nine months of fiscal 2003 compared to $5.1 million for the same period of fiscal 2002.

          Selling, General, and Administrative Expenses -- S,G&A expenses increased by $958,000, or 26%, to $4.6 million during the third quarter of fiscal 2003 compared to $3.7 million during the third quarter of fiscal 2002. For the first nine months of fiscal 2003, S,G&A expenses increased 16% to $12.8 million from $11.1 million reported for the first nine months of the prior fiscal year. The increase in S,G&A for both periods is due to higher costs related to an expansion of the sales organization.

          Taxes -- Taxes were accrued at a tax rate of 38.5% for the nine months ended March 31, 2003 and 2002, representing the estimated annual tax rate for the years ending June 30, 2003 and 2002, 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. A portion of lease originations are discounted to banks or finance companies on a nonrecourse basis at fixed interest rates. Leases that are not assigned to financial institutions are held in internal portfolios. Over the past two fiscal years, the Company has funded a significantly greater percentage of new lease transactions internally. During the nine months ended March 31, 2003, approximately 92% of the total dollar amount of new leases booked by the Company were held in its own portfolio, compared to 70% during the first nine months of fiscal 2002. During the nine months ended March 31, 2003, the Company's net investment in capital leases increased by $19.1 million. This increase includes a $21.8 million increase in the Company's investment in lease receivables, and a $1.2 million reduction in the investment in estimated residual values. The increase in the investment in capital leases is primarily due to the higher volume of new lease transactions booked and retained in the Company's portfolio as compared to the volume of lease transactions coming to their end of term during the period.

          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 is generally obligated to reimburse the Company for all disbursements under certain circumstances. At March 31, 2003, the Company's investment in property acquired for transactions in process was $19.5 million, compared to $20.6 million at June 30, 2002 and $19.5 million at March 31, 2002.

          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 the lease. An ongoing review of all leases 10 or more days delinquent is conducted. Lessees that are delinquent with the Company or an assignee are coded in the Company's accounting and tracking systems in order to provide management visibility, periodic reporting, and appropriate reserves. The accrual of interest income on leases will generally be discontinued when the lease becomes 90 days or more past due on its lease payments with the Company, unless the Company believes the investment is otherwise recoverable. Leases may be placed on non accrual earlier if the Company has significant doubt about the ability of the lessee to meet its lease obligations, as evidenced by consistent delinquency, deterioration in the lessee's financial condition or other relevant factors.

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

March 31, 2003

June 30, 2002

Non-Performing Capital Leases

Non-accrual leases

$ 3,439,109

$ 1,293,594

Restructured leases

                   -

        90,150

Leases past due 90 days (other than above)

                   -

      278,172

     Total non-performing capital leases

$ 3,439,109

$ 1,661,916

Non-performing assets as % of
   total investment in capital leases

2.3%

1.3%

          In addition to the non-performing capital leases identified above, there was $5.4 million of investment in capital leases at March 31, 2003 for which management has concerns regarding the ability of the lessees to continue to meet existing lease obligations, compared with $6.8 million at June 30, 2002. 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.

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,   
             (dollars in 000's)
2003
2002

Allowance for lease losses at beginning of period

$ 5,502

$ 3,401

Charge-off of lease receivables

(592)

(319)

Recovery of amounts previously written off

283

186

Provision for lease losses

      338

    4,004

Allowance for lease losses at end of period

$ 5,531

$ 7,272

Net investment in capital leases at end of period

$128,749

$110,861

Allowance for lease losses as percent of net investment
   in capital leases at end of period

4.3%

6.6%

          The allowance for lease losses remained flat at $5.5 million (4.3% of net investment in capital leases) at March 31, 2003 compared to $5.5 million (5.1% of net investment in capital leases) at June 30, 2002. This allowance consisted of $3.8 million allocated to specific accounts and $1.7 million that was unallocated. During the first nine months of fiscal 2003, the aggregate amount of specifically identified problem assets increased $75,000 from June 30, 2002. The Company considers the allowance for doubtful accounts of $5.5 million at March 31, 2003 adequate to cover losses specifically identified as well as inherent in the lease portfolios at such date. 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 loan and lease losses. Among other factors, a continued economic slowdown 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.

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Liquidity and Capital Resources

          The Company funds it's operating activities through internally generated funds, nonrecourse debt and bank deposits. The Leasing Companies' capital expenditures for leased property purchases are occasionally financed by assigning certain base 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, 2003, the Company had outstanding nonrecourse debt aggregating $46.7 million relating to property under capital leases. In the past, the Company has been able to obtain adequate nonrecourse funding commitments, and the Company believes it will be able to do so in the future.

          Deposits have not been an important source of funds for the Company. Deposits totaled $7.3 million at March 31, 2003, compared to $6.7 million at March 31, 2002. The following table presents average balances and average rates paid on deposits for the nine months ended March 31, 2003 and 2002:

Nine months ended March 31,

2003

2002

Average
Balance

Average
Rate Paid

Average
Balance

Average
Rate Paid

Non-interest bearing demand deposits

$1,036,084

n/a

$ 477,256

n/a

Interest-bearing demand deposits

20,529

0.49%

13,714

0.50%

Savings deposits

232,690

2.05%

37,627

2.27%

Time deposits less than $100,000

4,344,837

3.41%

1,465,741

4.08%

Time deposits, $100,000 or more

$2,647,706

3.50%

$ 582,778

4.29%

          In April 2001, the Board of Directors authorized management, at its discretion, to repurchase up to 1,000,000 shares of common stock. During the nine months ended March 31, 2003 the Company purchased 241,500 shares at $3.0 million. As of April 25, 2003, 612,956 shares remain available under this authorization.

          At March 31, 2003, the Company's cash and cash equivalents were $71.9 million. The need for cash used 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 nonrecourse basis) of lease payments will be sufficient to meet its foreseeable financing needs.

          Stockholders' equity at March 31, 2003 was $195.5 million, or 69% of total assets, compared to $191.4 million, or 62% of total assets, at June 30, 2002. At March 31, 2003, the Company and the Bank exceed their regulatory capital requirements and are considered "well-capitalized" under guidelines established by the FRB and the OCC.

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

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FORWARD LOOKING STATEMENTS

          This document contains forward-looking statements. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. Factors that might affect forward-looking statements include, among other things:

The result of these and other factors could cause a difference from expectations of the risk characteristics of the lease portfolio, the level of defaults and a change in the provision for loan and lease losses. Forward-looking statements speak only as of the date made. The Company undertakes no obligations to update any forward-looking statements to reflect events or circumstances arising after the date on which they are made.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

          The Company's principal executive officer and its principal financial officer, based on their evaluation of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a -14 (c)) as of a date within 90 days prior to the filing of this Quarterly Report on Form 10-Q, have concluded that the Company's disclosure controls and procedures are adequate and effective for the purposes set forth in the definition in Exchange Act rules.

Changes in internal controls.

          There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls subsequent to the date of their evaluation.

 

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

There was one report on Form 8-K filed during the three months ended March 31, 2003. The report filed on January 24, 2003 related to the release of the Company's earnings for the quarter and six months ended December 31, 2002.

(a) Exhibits

Exhibit Description
Page  
Number
     
10.8 Office Lease dated January 30, 2003, between California First National Bancorp and World Trade Center Building, Inc.
18-68
   
99 Additional exhibit - Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
69

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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 14, 2003 BY: S. LESLIE JEWETT /s/
    S. LESLIE JEWETT
   

Chief Financial Officer
(Principal Financial and
Accounting Officer)

 

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CERTIFICATIONS

I, Patrick E. Paddon, certify that:

  1. I have reviewed this quarterly report on Form 10-Q of California First National Bancorp;
  2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and
  3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

  1. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

    1. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
    2. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
    3. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

  1. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

    1. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
    2. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

  1. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date: May 14, 2003

PATRICK E PADDON /S/


Patrick E. Paddon
Chief Executive Officer

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I, S. Leslie Jewett, certify that:

  1. I have reviewed this quarterly report on Form 10-Q of California First National Bancorp;
  2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and
  3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

  1. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

    1. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
    2. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
    3. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

  1. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

    1. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
    2. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

  1. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date: May 14, 2003

S. LESLIE JEWETT /S/


S. Leslie Jewett
Chief Financial Officer

17