CALIFORNIA FIRST NATIONAL BANCORP - FORM 10-Q

Attached files

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EX-32.1 - EXHIBIT 32.1 - CALIFORNIA FIRST NATIONAL BANCORP	exh_321.htm
EX-31.2 - EXHIBIT 31.2 - CALIFORNIA FIRST NATIONAL BANCORP	exh_312.htm
EX-31.1 - EXHIBIT 31.1 - CALIFORNIA FIRST NATIONAL BANCORP	exh_311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[Mark One]
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended		December 31, 2016


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

For the transition period from			to

	Commission File No.: 0-15641

California First National Bancorp
(Exact name of registrant as specified in charter)

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

	28 Executive Park
	Irvine, California		92614
	(Address of principal executive offices)		(Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller Reporting Company þ

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

Yes o No þ

The number of shares outstanding of the Registrant’s Common Stock, par value $.01 per share, as of January 27, 2017 was 10,279,807.

California First National Bancorp

INDEX

		PAGE
PART 1. FINANCIAL INFORMATION		NUMBER

Item 1.	Financial Statements

	Consolidated Balance Sheets - December 31, 2016 and June 30, 2016	3

	Consolidated Statements of Earnings - Three and six months ended December 31, 2016 and 2015	4

	Consolidated Statements of Comprehensive Income - Three and six months ended December 31, 2016 and 2015	5

	Consolidated Statements of Cash Flows - Six months ended December 31, 2016 and 2015	6

	Consolidated Statement of Stockholders’ Equity - Six months ended December 31, 2016 and 2015	7

	Notes to Consolidated Financial Statements	8 - 7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18 - 26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26 – 27

Item 4.	Controls and Procedures	27

PART 2. OTHER INFORMATION

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 6.	Exhibits	28

Signature		29

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, 2016			June 30, 2016
	(Unaudited)
ASSETS

Cash and due from banks	$	91,071		$	105,094
Securities available-for-sale		90,040			95,844
Investments		3,955			3,957
Receivables		1,463			1,333
Property acquired for transactions in process		34,388			30,932
Leases and loans:
Net investment in leases		204,514			239,964
Commercial loans		455,639			408,308
Allowance for credit losses		(7,765	)		(6,862	)
Net investment in leases and loans		652,388			641,410

Net property on operating leases		2,617			2,928
Income taxes receivable		98			121
Other assets		2,483			2,108
Discounted lease rentals assigned to lenders		1,841			4,449
Total Assets	$	880,344		$	888,176

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Demand and savings deposits	$	101,646		$	81,989
Time certificates of deposit		531,466			551,158
Short-term borrowings		40,000			40,000
Accounts payable		2,166			1,697
Accrued liabilities		2,588			3,622
Lease deposits		1,636			1,565
Non-recourse debt		1,841			4,449
Deferred income taxes, net		7,997			12,674
Total Liabilities		689,340			697,154

Commitments and contingencies

Stockholders' equity:
Preferred stock; 2,500,000 shares authorized; none issued		-			-
Common stock; $.01 par value; 20,000,000 shares authorized; 10,279,807 (December 2016) and 10,279,807 (June 2016) issued and outstanding		103			103
Additional paid in capital		2,242			2,240
Retained earnings		188,754			187,334
Accumulated other comprehensive (loss)/income, net of tax		(95	)		1,345
Total Stockholders’ Equity		191,004			191,022
Total Liabilities and Stockholders’ Equity	$	880,344		$	888,176

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

CALIFORNIA FIRST NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

(thousands, except for per share amounts)

	Three months ended December 31,				Six months ended December 31,
	2016		2015		2016		2015

Finance and loan income	$	7,846	$	6,055	$	14,429	$	11,831
Investment interest income		707		515		1,368		988
Total interest income		8,553		6,570		15,797		12,819

Interest expense
Deposits		1,896		1,395		3,792		2,651
Borrowings		52		44		94		80
Net interest income		6,605		5,131		11,911		10,088
Provision for credit losses		600		575		900		1,075

Net interest income after provision for credit losses		6,005		4,556		11,011		9,013

Non-interest income
Operating and sales-type lease income		855		110		1,439		254
Gain on sale of leases and leased property		2,464		525		2,698		1,212
Gain on sale of investment securities		-		-		-		23
Other income, net		86		73		183		115
Total non-interest income		3,405		708		4,320		1,604

Non-interest expenses
Compensation and employee benefits		1,769		1,942		3,656		3,683
Occupancy		174		169		348		338
Professional and IT services		205		281		493		544
FDIC and regulatory fees		118		127		272		245
Other general and administrative		218		194		400		433
Total non-interest expenses		2,484		2,713		5,169		5,243

Earnings before income taxes		6,926		2,551		10,162		5,374
Income taxes		2,736		993		4,014		2,091

Net earnings	$	4,190	$	1,558	$	6,148	$	3,283

Basic earnings per common share	$	0.41	$	0.15	$	0.60	$	0.31
Diluted earnings per common share	$	0.41	$	0.15	$	0.60	$	0.31

Dividends paid per common share outstanding	$	0.46	$	0.44	$	0.46	$	0.44
Weighted average common shares outstanding		10,280		10,460		10,280		10,460
Diluted common shares outstanding		10,280		10,460		10,280		10,460

The accompanying notes are an integral part

of these consolidated financial statements.

CALIFORNIA FIRST NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

	Three months ended December 31,						Six months ended December 31,
	2016			2015			2016			2015

Net earnings	$	4,190		$	1,558		$	6,148		$	3,283

Other comprehensive income (loss):

Unrealized (losses)/gains on securities available-for-sale		(2,049	)		(1,088	)		(2,379	)		(437	)

Reclassification adjustment of realized gain included in net income on securities available-for-sale		-			-			-			(23	)

Tax effect		809			423			939			179

Total other comprehensive (loss)/income		(1,240	)		(665	)		(1,440	)		(281	)

Total comprehensive income	$	2,950		$	893		$	4,708		$	3,002

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,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings	$	6,148		$	3,283
Adjustments to reconcile net earnings to cash flows provided by (used for) operating activities:
Provision for credit losses		900			1,075
Depreciation and net amortization (accretion)		(140	)		(71	)
Gain on sale of leased property and sales-type lease income		(1,613	)		(128	)
Net gain recognized on investment securities		-			(23	)
Deferred income taxes, including income taxes payable		(3,758	)		(2,422	)
Decrease in income taxes receivable		23			72
Net (decrease) increase in accounts payable and accrued liabilities		(1,034	)		326
Other, net		5			(566	)
Net cash provided by operating activities		531			1,546

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in leases, loans and transactions in process		(171,836	)		(201,648	)
Payments received on lease receivables and loans		126,370			117,062
Proceeds from sales of leased property and sales-type leases		5,036			1,812
Proceeds from sales and assignments of leases		27,746			12,123
Purchase of investment securities		-			(22,451	)
Pay down on investment securities		3,316			1,561
Proceeds from sale of investment securities		-			4,769
Net increase in other assets		(424	)		(89	)
Net cash used for investing activities		(9,792	)		(86,861	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in time certificates of deposit		(19,692	)		66,526
Net increase in demand and savings deposits		19,658			14,400
Net increase in short-term borrowings		-			15,000
Dividends to stockholders		(4,728	)		(4,603	)
Net cash (used for) provided by financing activities		(4,762	)		91,323

NET CHANGE IN CASH AND CASH EQUIVALENTS		(14,023	)		6,008
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		105,094			60,240
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	91,071		$	66,248

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Decrease in lease rentals assigned to lenders and related non-recourse debt	$	(2,608	)	$	(2,880	)

Estimated residual values recorded on leases	$	(254	)	$	(317	)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Net cash paid during the six month period for:
Interest	$	3,861		$	2,674
Income Taxes	$	7,749		$	4,441

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

California First National Bancorp

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

(in thousands, except for share amounts)

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

Six months ended December 31, 2015

Balance, June 30, 2015		10,459,924	$	105	$	3,376	$	184,506		$	231		$	188,218

Net earnings		-		-		-		3,283			-			3,283
Other comprehensive loss		-		-		-		-			(281	)		(281	)
Stock based compensation expense		-		-		3		-			-			3
Dividends declared		-		-		-		(4,603	)		-			(4,603	)

Balance, December 31, 2015		10,459,924	$	105	$	3,379	$	183,186		$	(50	)	$	186,620


Six months ended December 31, 2016

Balance, June 30, 2016		10,279,807	$	103	$	2,240	$	187,334		$	1,345		$	191,022

Net earnings		-		-		-		6,148			-			6,148
Other comprehensive loss		-		-		-		-			(1,440	)		(1,440	)
Stock based compensation expense		-		-		2		-			-			2
Dividends declared		-		-		-		(4,728	)		-			(4,728	)

Balance, December 31, 2016		10,279,807	$	103	$	2,242	$	188,754		$	(95	)	$	191,004

The accompanying notes are an integral part

of these consolidated financial statements.

California First National Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1- BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of California First National Bancorp (the “Company”) and its subsidiaries California First National Bank (“CalFirst Bank” or the “Bank”) and California First Leasing Corporation (“CalFirst Leasing”) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended June 30, 2016. 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 2016 Annual Report on Form 10-K, which contains Management’s Discussion and Analysis of Financial Condition and Results of Operations as of June 30, 2016 and for the year then ended.

In the opinion of management, the unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the consolidated balance sheet as of December 31, 2016 and the statements of earnings, comprehensive income, cash flows and stockholders’ equity for the six-month periods ended December 31, 2016 and 2015. The results of operations for the three and six month periods ended December 31, 2016 are not necessarily indicative of the results of operations to be expected for the entire fiscal year ending June 30, 2017.

Certain reclassifications have been made to the fiscal 2016 financial statements to conform to the presentation of the fiscal 2017 financial statements.

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 addresses diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact of this new requirement on the cash flows of the Company.

NOTE 3 – STOCK-BASED COMPENSATION

At December 31, 2016, the Company has one stock option plan, which is more fully described in Note 14 in the Company’s 2016 Annual Report on Form 10-K. Pursuant to ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”), compensation expense is recognized over the requisite service period using the fair-value based method for all new awards calculated at the grant date.

During the quarter and six months ended December 31, 2016, the Company recognized pre-tax stock-based compensation expense of $1,100 and $2,200, respectively. Such expense related to options granted during fiscal 2013. The Company has not awarded any new grants since fiscal 2013 and has calculated the stock-based compensation expense based upon the original grant date fair value as allowed under ASC 718. The valuation variables utilized at the grant dates are discussed in the Company’s 2013 Annual Report on Form 10-K, the year of the original grant. As of December 31, 2016, approximately $2,600 of total unrecognized compensation expense related to unvested shares is expected to be recognized over the next 7 months.

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

	For the six months ended
	December 31, 2016				December 31, 2015
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Options outstanding at beginning of period		10,000	$	16.00		10,000	$	16.00
Exercised		-		-		-		-
Granted		-		-		-		-
Options outstanding at end of period		10,000	$	16.00		10,000	$	16.00
Options exercisable at end of period		8,000				6,000

Stock options outstanding and exercisable are summarized below:

As of December 31, 2016
Options Outstanding									Options Exercisable
Range of Exercise prices			Number Outstanding		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$16.00	-	16.00		10,000		5.58	$	16.00		8,000	$	16.00

NOTE 4 – FAIR VALUE MEASUREMENT

ASC Topic 820: “Fair Value Measurements and Disclosures” defines fair value as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. ASC Topic 820 establishes a three-tiered value hierarchy that prioritizes inputs based on the extent to which inputs used are observable in the market and requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. If a value is based on inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. The three levels of inputs are defined as follows:

•	Level 1 - Valuation is based upon unadjusted quoted prices for identical instruments traded in active markets;
•	Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market;
•	Level 3 - Valuation is generated from model-based techniques that use inputs not observable in the market and based on the entity’s own judgment. Level 3 valuation techniques could include the use of option pricing models, discounted cash flow models and similar techniques, and rely on assumptions that market participants would use in pricing the asset or liability.

ASC 820 applies whenever other accounting pronouncements require presentation of fair value measurements, but does not change existing guidance as to whether or not an instrument is carried at fair value. As such, ASC 820 does not apply to the Company’s investment in leases. The Company’s financial assets measured at fair value on a recurring basis include primarily securities available-for-sale and at December 31, 2016 and June 30, 2016, there were no liabilities subject to ASC 820.

Securities available-for-sale include U.S. Treasury notes, corporate bonds, U.S. government agency (“Agency”) mortgaged-backed securities (“MBS”), and a mutual fund investment and generally are reported at fair value utilizing Level 1 and Level 2 inputs. The fair value of corporate bonds and the Agency MBS are obtained from independent quotation bureaus that use computerized valuation formulas to calculate current values based on observable transactions, but not a quoted bid, or are valued using prices obtained from the custodian, who uses third party data service providers (Level 2 inputs). U.S. Treasury notes and the mutual fund 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 inputs).

The Company’s assets, which are measured at fair value on a recurring basis as of December 31, 2016 and June 30, 2016 are summarized as follows:

Description of Assets / Liabilities	Total Fair Value		Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
As of December 31, 2016
U.S. Treasury notes	$	47,740	$	47,740	$	-	$	-
Corporate debt securities		13,237		-		13,237		-
Agency MBS		27,772		-		27,772		-
Mutual fund investment		1,291		1,291		0		-
	$	90,040	$	49,031	$	41,009	$	-

As of June 30, 2016
U.S. Treasury notes	$	48,774	$	48,774	$	-	$	-
Corporate debt securities		13,385		-		13,385		-
Agency MBS		32,223		-		32,223		-
Mutual fund investment		1,462		1,462		-		-
	$	95,844	$	50,236	$	45,608	$	-

Certain financial assets, such as collateral dependent impaired loans and repossessed or returned assets are measured at fair value on a nonrecurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. During the year ended June 30, 2016, the equipment subject to a lease rejected in bankruptcy was transferred from lease receivables and recorded as repossessed equipment in other assets.

The fair value of repossessed equipment is based on available market information, including independent appraisal and sales results, less estimated selling costs. The equipment repossessed was initially recorded at the estimated fair value less estimated selling costs at the time of transfer to repossessed assets and subsequently written down based on an updated appraisal.

The following table summarizes the Company’s assets which are measured at fair value on a non-recurring basis as of December 31, 2016 and June 30, 2016.

Description of Assets / Liabilities	Total Fair Value		Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
As of December 31, 2016
Repossessed asset	$	1,300	$	-	$	-	$	1,300
As of June 30, 2016
Repossessed asset	$	1,300	$	-	$	-	$	1,300

NOTE 5 – fair value of Financial Instruments

In accordance with ASC 825-50, the following table summarizes the estimated fair value of financial instruments as of December 31, 2016, and June 30, 2016, and includes financial instruments that are not accounted for or carried at fair value. In accordance with disclosure guidance, certain financial instruments, including all lease related assets and liabilities and all non-financial instruments are excluded from fair value of financial instrument disclosure requirements. Accordingly, the aggregate of the fair values presented does not represent the total underlying value of the Company. These fair value estimates are based on relevant market information and data, however, given there is no active market or observable market transactions for certain financial instruments, the Company has made estimates of fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values.

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

The estimated fair values of financial instruments were as follows:

	December 31, 2016				June 30, 2016
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(in thousands)
Financial Assets:
Cash and cash equivalents	$	91,071	$	91,071	$	105,094	$	105,094
Investments		3,955		3,968		3,957		3,972
Securities available-for-sale		90,040		90,040		95,844		95,844
Commercial loan participations		436,760		439,134		389,511		388,781
Other loans		13,407		13,329		14,225		14,512
Financial Liabilities:
Demand and savings deposits		101,646		101,646		81,989		81,989
Time certificate of deposits		531,466		531,546		551,158		551,508
Short-term borrowings	$	40,000	$	40,000	$	40,000	$	40,001

NOTE 6 – INVESTMENTS:

Investments are carried at cost and consist of the following:

	December 31, 2016				June 30, 2016
	Carrying Cost		Fair Value		Carrying Cost		Fair Value
	(in thousands)
Federal Reserve Bank Stock	$	1,955	$	1,955	$	1,955	$	1,955
Federal Home Loan Bank Stock		1,886		1,886		1,886		1,886
Mortgage-backed investment		114		127		116		131
	$	3,955	$	3,968	$	3,957	$	3,972

The investment in Federal Home Loan Bank of San Francisco (“FHLB”) stock is a required investment related to CalFirst Bank’s borrowing relationship with the FHLB. The FHLB obtains its funding primarily through issuance of consolidated obligations of the Federal Home Loan Bank system. The U.S. Government does not guarantee these obligations, and each of the twelve FHLB’s are generally jointly and severally liable for repayment of each other’s debt. Therefore, the Company’s investment could be adversely impacted by the financial operations of the FHLB and actions by the Federal Housing Finance Agency. These investments have no stated maturity.

CalFirst Bank is required to hold Federal Reserve Bank stock equal to 6% of its capital surplus, which is defined as additional paid-in capital stock, less any gains (losses) on available for sale securities as of the current period end.

The mortgage-backed investment consists of one U.S. agency issued security. The Company has determined that it has the ability to hold this investment until maturity and, given the Company’s intent to do so, anticipates that it will realize the full carrying value of its investment and carries the security at amortized cost.

NOTE 7 – SECURITIES AVAILABLE FOR SALE:

The amortized cost and fair value of securities available for sale at December 31, 2016 were as follows:

(in thousands)	Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value
U.S. Treasury notes	$	47,391	$	349	$	-		$	47,740
Corporate debt securities		13,215		24		(2	)		13,237
Agency MBS		28,376		-		(604	)		27,772
Mutual fund investment		1,215		76		-			1,291
Total securities available-for-sale	$	90,197	$	449	$	(606	)	$	90,040

The amortized cost and fair value of securities available for sale at June 30, 2016 were as follows:

(in thousands)	Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value
U.S. Treasury notes	$	47,355	$	1,419	$	-		$	48,774
Corporate debt securities		13,291		97		(3	)		13,385
Agency MBS		31,782		441		-			32,223
Mutual fund investment		1,215		247		-			1,462
Total securities available-for-sale	$	93,643	$	2,204	$	(3	)	$	95,844

The available-for-sale securities amortized cost and estimated fair value at December 31, 2016, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Fair Value
	(in thousands)
Due in one year or less	$	-	$	-
Due after one year but less than 5 years		60,606		60,977
Due after five years		28,376		27,772
No stated maturity		1,215		1,291
Total securities available-for-sale	$	90,197	$	90,040

For the six months ended December 31, 2016, the Company had no realized gains or losses from the sale of available-for-sale securities. During the six months ended December 31, 2015, the Company realized a gain of $23,000 from an early call of a corporate debt security for proceeds of $4.8 million. The following table presents the fair value and associated gross unrealized loss on available-for-sale securities at December 31, 2016 and June 30, 2016.

	Less than 12 Months					12 Months or More				Total
	Unrealized Loss			Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss			Estimated Fair Value
	(in thousands)
At December 31, 2016
Corporate debt securities	$	(2	)	$	5,003	$	-	$	-	$	(2	)	$	5,003
Agency MBS		(604	)		27,772		-		-		(604	)		27,772
Total	$	(606	)	$	32,775	$	-	$	-	$	(606	)	$	32,775

	Less than 12 Months					12 Months or More				Total
	Unrealized Loss			Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss			Estimated Fair Value
	(in thousands)
At June 30, 2016
Corporate debt securities	$	(3	)	$	3,266	$	-	$	-	$	(3	)	$	3,266
Total	$	(3	)	$	3,266	$	-	$	-	$	(3	)	$	3,266

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, the intent of the Company to retain its investment for a period of time sufficient to allow for any anticipated recovery and whether it is more likely than not the Company will be required to sell the security before recovery to its amortized cost. The $606,000 unrealized losses at December 31, 2016 are related to changes in interest rates and not credit quality. The Company has the intent and the ability to hold these securities to recovery or maturity and more likely than not, will not need to sell them. The Company does not consider these securities to be other-than-temporarily impaired at December 31, 2016 or June 30, 2016.

At December 31, 2016 and at June 30, 2016, U.S. Treasury notes and Agency MBS with an amortized cost of $75.8 million and $79.1 million, respectively, were pledged to secure borrowings from the FHLB (see Note 11).

NOTE 8 – NET INVESTMENT IN LEASES

Net investment in leases consists of the following:

	December 31, 2016			June 30, 2016
	(in thousands)
Minimum lease payments receivable	$	211,092		$	248,527
Estimated residual value		7,702			10,871
Less unearned income		(14,280	)		(19,434	)
Net investment in leases before allowances		204,514			239,964
Less allowance for lease losses		(2,231	)		(2,228	)
Less valuation allowance for estimated residual value		(62	)		(62	)
Net investment in leases	$	202,221		$	237,674

The minimum lease payments receivable and estimated residual value are discounted using the internal rate of return method related to each specific capital lease. Unearned income includes the offset of initial direct costs of $2.6 million at December 31, 2016 and at June 30, 2016.

NOTE 9 – COMMERCIAL LOANS

Commercial loans consist of the following:

	December 31, 2016			June 30, 2016
	(in thousands)
Commercial term loans	$	446,321		$	399,239
Commercial real estate loans		6,465			6,682
Revolving lines of credit		3,699			3,405
Total commercial loans		456,485			409,326
Less unearned income and discounts		(846	)		(1,018	)
Less allowance for loan losses		(5,472	)		(4,572	)
Net commercial loans	$	450,167		$	403,736

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.

In addition to the amount outstanding on revolving lines of credit set forth above, the Company had additional unused commitments on revolving lines of credit in the amount of $2.7 million at December 31, 2016 and $524,000 at June 30, 2016. The Company has a recorded liability for unfunded loan commitments of $50,000 at December 31, 2016 and at June 30, 2016 related to such commitments.

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

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

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

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

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

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

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

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

(dollars in thousands)	Commercial Leases		Education Government Non-profit Leases		Commercial & Industrial Loans		Commercial Real Estate Loans		Total Financing Receivable
As of December 31, 2016:
Pass	$	145,529	$	54,142	$	449,175	$	6,464	$	655,310
Special Mention		4,583		256		-		-		4,839
Substandard		-		-		-		-		-
Doubtful		2		2		-		-		4
	$	150,114	$	54,400	$	449,175	$	6,464	$	660,153
Non-accrual	$	2	$	2	$	-	$	-	$	4

As of June 30, 2016:
Pass	$	174,679	$	58,344	$	397,910	$	6,679	$	637,612
Special Mention		6,308		380		3,719		-		10,407
Substandard		241		-		-		-		241
Doubtful		10		2		-		-		12
	$	181,238	$	58,726	$	401,629	$	6,679	$	648,272
Non-accrual	$	10	$	2	$	-	$	-	$	12

The accrual of interest income on leases and loans will be discontinued when the customer becomes ninety days or more past due on its lease or loan payments with the Company, unless the Company believes the investment is otherwise recoverable. Leases and loans may be placed on non-accrual earlier if the Company has significant doubt about the ability of the customer to meet its lease or loan obligations, as evidenced by consistent delinquency, deterioration in the customer’s financial condition or other relevant factors. Payments received while on non-accrual are applied to reduce the Company’s recorded value.

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

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

As of December 31, 2016:
Commercial Leases	$	-	$	2	$	2	$	150,112	$	150,114	$	-
Education, Government, Non-profit Leases		-		2		2		54,398		54,400		-
Commercial and Industrial Loans		-		-		-		449,175		449,175		-
Commercial Real Estate Loans		-		-		-		6,464		6,464		-
	$	-	$	4	$	4	$	660,149	$	660,153	$	-

As of June 30, 2016:
Commercial Leases	$	-	$	10	$	10	$	181,228	$	181,238	$	-
Education, Government, Non-profit Leases		-		2		2		58,724		58,726		-
Commercial and Industrial Loans		-		-		-		401,629		401,629		-
Commercial Real Estate Loans		-		-		-		6,679		6,679		-
	$	-	$	12	$	12	$	648,260	$	648,272	$	-

The allowance balances and activity in the allowance related to financing receivables, by portfolio segment for the three and six months ended December 31, 2016 and 2015 are presented in the following table:

(dollars in thousands)	Commercial Leases			Education Government Non-profit Leases			Commercial & Industrial Loans		Commercial Real Estate Loans			Total Allowance
For the three months ended December 31, 2016:
Balance beginning of period	$	1,828		$	465		$	4,811	$	61		$	7,165
Charge-offs		-			-			-		-			-
Recoveries		-			-			-		-			-
Provision		-			-			600		-			600
Balance end of period	$	1,828		$	465		$	5,411	$	61		$	7,765

For the three months ended December 31, 2015:
Balance beginning of period	$	2,791		$	817		$	3,236	$	111		$	6,955
Charge-offs		(1,028	)		-			-		-			(1,028	)
Recoveries		1			-			-		-			1
Provision		500			(400	)		525		(50	)		575
Balance end of period	$	2,264		$	417		$	3,761	$	61		$	6,503

For the six months ended December 31, 2016:
Balance beginning of period	$	1,825		$	465		$	4,511	$	61		$	6,862
Charge-offs		-			-			-		-			-
Recoveries		3			-			-		-			3
Provision		-			-			900		-			900
Balance end of period	$	1,828		$	465		$	5,411	$	61		$	7,765

For the six months ended December 31, 2015:
Balance beginning of period	$	2,592		$	817		$	2,936	$	111		$	6,456
Charge-offs		(1,029	)		-			-		-			(1,029	)
Recoveries		1			-			-		-			1
Provision		700			(400	)		825		(50	)		1,075
Balance end of period	$	2,264		$	417		$	3,761	$	61		$	6,503

The following table presents the recorded investment in loans and leases and the related allowance based on impairment method as of December 31, 2016 and June 30, 2016 by portfolio segment.

(dollars in thousands)	Commercial Leases		Education Government Non-profit Leases		Commercial & Industrial Loans		Commercial Real Estate Loans		Total Financing Receivable
As of December 31, 2016:
Allowance for lease and loan losses
Individually evaluated for impairment	$	180	$	2	$	-	$	-	$	182
Collectively evaluated for impairment		1,648		463		5,411		61		7,583
Total ending allowance balance	$	1,828	$	465	$	5,411	$	61	$	7,765

Finance receivables
Individually evaluated for impairment	$	3,570	$	2	$	-	$	-	$	3,572
Collectively evaluated for impairment		146,544		54,398		449,175		6,464		656,581
Total ending finance receivable balance	$	150,114	$	54,400	$	449,175	$	6,464	$	660,153

As of June 30, 2016:
Allowance for lease and loan losses
Individually evaluated for impairment	$	37	$	2	$	-	$	-	$	39
Collectively evaluated for impairment		1,788		463		4,511		61		6,823
Total ending allowance balance	$	1,825	$	465	$	4,511	$	61	$	6,862

Finance receivables
Individually evaluated for impairment	$	242	$	2	$	-	$	-	$	244
Collectively evaluated for impairment		180,996		58,724		401,629		6,679		648,028
Total ending finance receivable balance	$	181,238	$	58,726	$	401,629	$	6,679	$	648,272

NOTE 11 – BORROWINGS

CalFirst Bank is a member of the Federal Home Loan Bank of San Francisco and can take advantage of FHLB programs for overnight and term advances at published rates. Under terms of a blanket collateral agreement, advances from the FHLB are collateralized by qualifying real estate loans and investment securities. The Bank also has authority to borrow from the Federal Reserve Bank (“FRB”) discount window amounts secured by certain lease receivables. Borrowing capacity from the FHLB or FRB may fluctuate based upon the acceptability and risk rating of securities, loan and lease collateral and both the FRB and FHLB could adjust advance rates applied to such collateral at their discretion.

The borrowings from the FHLB and weighted average interest rates at December 31, 2016 and June 30, 2016 were as follows:

	December 31, 2016					June 30, 2016
(dollars in thousands)	Amount		Weighted Average Rate			Amount		Weighted Average Rate

Short-term borrowings
FHLB advances	$	40,000		0.59	%	$	40,000		0.42	%

At December 31, 2016, there was available borrowing capacity from the FHLB of $33.0 million related to qualifying real estate loans of $6.5 million and securities pledged with an amortized cost of $75.8 million. There were no borrowings from the FRB at December 31, 2016 and 2015. Borrowing availability from the FRB at December 31, 2016 was approximately $89.7 million secured by $115.6 million of lease receivables.

NOTE 12 – SEGMENT REPORTING

The Company’s two subsidiaries, CalFirst Bank, an FDIC-insured national bank, and CalFirst Leasing are considered to be two different business segments. Below is a summary of each segment’s financial results for the quarters and six months ended December 31, 2016 and 2015:

	CalFirst Bank		CalFirst Leasing		Bancorp and Eliminating Entries			Consolidated
			(in thousands)
Quarter ended December 31, 2016
Total interest income	$	8,321	$	228	$	4		$	8,553
Net interest income after provision for credit losses		5,728		273		4			6,005
Other income		2,152		1,253		-			3,405
Net income	$	3,705	$	886	$	(401	)	$	4,190

Quarter ended December 31, 2015
Total interest income	$	6,237	$	331	$	2		$	6,570
Net interest income after provision for credit losses		4,163		391		2			4,556
Other income		474		234		-			708
Net income	$	1,444	$	325	$	(211	)	$	1,558

Six months ended December 31, 2016
Total interest income	$	15,287	$	502	$	8		$	15,797
Net interest income after provision for credit losses		10,425		578		8			11,011
Other income		2,898		1,422		-			4,320
Net income	$	5,713	$	1,120	$	(685	)	$	6,148

Six months ended December 31, 2015
Total interest income	$	12,096	$	720	$	3		$	12,819
Net interest income after provision for credit losses		8,099		911		3			9,013
Other income		925		679		-			1,604
Net income	$	2,832	$	862	$	(411	)	$	3,283

Total assets at December 31, 2016	$	846,164	$	70,509	$	(36,329	)	$	880,344
Total assets at December 31, 2015	$	777,326	$	82,695	$	(40,625	)	$	819,396

California First National Bancorp

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

General

California First National Bancorp, a California corporation (the “Company”), is a bank holding company headquartered in Orange County, California with a bank subsidiary, California First National Bank (“CalFirst Bank” or the “Bank”) and a leasing subsidiary, California First Leasing Corp (“CalFirst Leasing”). The primary business of the Company is secured financing provided through leasing and financing capital assets, commercial loans acquired through participation in the syndicated commercial loan market, by providing non-recourse loans to third parties secured by leases and equipment, and direct commercial loans. CalFirst Bank, now responsible for substantially all lease and loan origination, has migrated from predominately leasing toward over 50% commercial loans, with a lease and loan portfolio diversified geographically and across industries. The Bank gathers deposits through posting rates on the Internet and conducts all banking and other operations from one central location.

The Company’s finance, loan and interest income includes interest income earned on the Company’s investment in lease receivables and residuals, commercial loans and investment securities. Non-interest income primarily includes gains realized on the sale of leased property and leases, income from sales-type and operating leases, gains and losses realized on investments, and other income. Income from sales-type leases relates to the re-lease of lease property (“lease extensions”) while income from operating leases generally involves lease extensions that are accounted for as an operating lease rather than as a sales-type lease.

The Company's operating results are subject to quarterly fluctuations resulting from a variety of factors, including the size and credit quality of the lease and loan portfolios, the volume and profitability of leased property being re-marketed through re-lease or sale, the interest rate environment, the market for investment securities, the volume of new lease or loan originations, including variations in the mix and funding of such originations, and economic conditions in general. The Company’s principal market risk exposure currently is related to interest rates and the impact the interest rate environment has on its net interest margin. The Company’s current balance sheet structure is short-term in nature, with over 73% of interest-earning assets, $628.3 million, and 84% of interest bearing liabilities, $565.2 million, repricing within one year. The Company’s interest margin is susceptible to the disparate impact of varying movements in market interest rates as many of the Company’s leases, loans and liquid investments are tied to U.S. Treasury rates and Libor that often do not move in step with bank deposit rates. As a result, this can cause a greater change in net interest income than indicated by the repricing asset and liability comparison.

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

Critical Accounting Policies and Estimates

The preparation of the Company’s financial statements requires management to make certain critical accounting estimates that impact the stated amount of assets and liabilities at a financial statement date and the reported amount of income and expenses during a reporting period. These accounting estimates are based on management’s judgment and are considered to be critical because of their significance to the financial statements and the possibility that future events may differ from current judgments, or that the use of different assumptions could result in materially different estimates. The critical accounting policies and estimates have not changed from and should be read in conjunction with the Company’s Annual Report filed on Form 10-K for the year ended June 30, 2016.

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 $4.2 million for the second quarter ended December 31, 2016 were up 169% from the second quarter of fiscal 2016 due to a $2.7 million increase in non-interest income related to strong gains on the sale of leases and leased property and a $1.4 million increase in net interest income after provision for credit losses. Growth in interest income reflected 46% growth in commercial loan income and 15% growth in finance income resulting from the acceleration of income on terminated lease transactions.

Second quarter 2017 commercial loan bookings of $61.5 million decreased 1.3% from $62.4 million booked during the second quarter of fiscal 2016, while commercial loan bookings of $113.0 million for the first six months of fiscal 2017 were down 11.9% from the prior year period. Lease bookings of $23.8 million for the second quarter of fiscal 2017 were down 36.9% from the second quarter of fiscal 2016, while six month lease bookings of $54.3 million were down 14.4%. Total lease and loan bookings for the first six months of fiscal 2017 of $167.3 million were down 12.7% from $191.7 million booked during the first six months of fiscal 2016. As a result, the Company’s net investment in leases and loans of $652.4 million at December 31, 2016 is up 7.9% from December 31, 2015 and 1.7% from $641.4 million at June 30, 2016. Transactions in process increased 11.2% since June 30, 2016 to $34.4 million.

The Company’s available-for-sale securities decreased to $90.0 million at December 31, 2016 from $95.9 million at June 30, 2016. The decrease during the first six months of fiscal 2017 includes $3.4 million of payments made on mortgage backed securities as well as a $2.4 million decline in the fair value resulting from the rise in long term interest rates.

Consolidated Statement of Earnings Analysis

Summary – For the second quarter ended December 31, 2016, net earnings of $4.2 million increased $2.6 million, or 168.8%, from $1.6 million for the second quarter ended December 31, 2015. For the six months ended December 31, 2016, net earnings increased $2.9 million, or 87.3% to $6.1 million from $3.3 million for the first six months of fiscal 2016. Diluted earnings per share of $0.41 for the second quarter of fiscal 2017 were up 173.5% from the $0.15 per share for the second quarter of fiscal 2016. For the six months ended December 31, 2016, diluted earnings per share of $0.60 increased 90.5%, compared to $0.31 per share for the same prior year period.

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

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

	Quarter ended							Six Months ended
	December 31, 2016 vs 2015							December 31, 2016 vs 2015
	Volume			Rate		Total		Volume			Rate		Total
	(in thousands)
Interest income
Net investment in leases	$	(624	)	$	1,109	$	485	$	(1,392	)	$	1,213	$	(179	)
Commercial loans		1,169			137		1,306		2,483			294		2,777
Investment securities		19			80		99		95			73		168
Interest-earning deposits with banks		14			79		93		36			176		212
		578			1,405		1,983		1,222			1,756		2,978
Interest expense
Demand and savings deposits		25			107		132		39			181		220
Time deposits		258			111		369		652			269		921
Borrowings		(8	)		16		8		(9	)		23		14
		275			234		509		682			473		1,155
Net interest income	$	303			1,171		1,474	$	540		$	1,283	$	1,823

Net interest income was $6.6 million for the quarter ended December 31, 2016, a $1.5 million, or a 28.7% increase compared to the same quarter of the prior year. Total interest income for the second quarter of fiscal 2017 increased 30.2% to $8.6 million from $6.6 million during the second quarter of the prior year. This increase includes a $1.3 million, or 46.4%, increase in commercial loan income that reflected a 41.6% increase in average loan balances to $432.1 million and a 13 basis point increase in average rates earned to 3.81%. Finance income increased by $484,700 or 15.0%, despite a 19.2% decrease in the average investment in leases to $219.6 million, as the result of the recognition of $1.1 million of finance income related to a transaction in process that was unwound in bankruptcy and other early lease terminations. This boosted the reported yield by 202 basis points to 6.79%. Without this benefit, the average lease yield in the quarter would have been 4.79% and the yield on all interest-earning assets would have been 3.56%. Investment income increased by 37.2%, or $191,500, as average cash and investment balances increased 16.8% to $186.7 million and average yield increased by 23 basis points to 1.52%. The increase in yield on investments benefitted from a large FHLB dividend in the quarter that increased the yield by 45 basis points to 2.41%. Interest expense paid on deposits and borrowings during the second quarter of fiscal 2017 increased by $509,100, or 35.4%, reflecting a 17.8% increase in average balances to $669.4 million while the average rate paid increased 15 basis points from 1.01% to 1.16%.

	Quarter ended							Quarter ended
(dollars in thousands)	December 31, 2016							December 31, 2015
	Average				Yield/			Average				Yield/
Assets	Balance (1)		Interest		Rate			Balance (1)		Interest		Rate
Interest-earning assets
Interest-earning deposits with banks	$	91,491	$	134		0.59	%	$	68,228	$	41		0.24	%
Investment securities		95,172		573		2.41	%		91,575		474		2.07	%
Commercial loans		432,112		4,119		3.81	%		305,256		2,813		3.69	%
Net investment in leases		219,597		3,727		6.79	%		271,927		3,242		4.77	%
Total interest-earning assets		838,372		8,553		4.08	%		736,986		6,570		3.57	%
Other assets		42,555							52,052
	$	880,927						$	789,038

Liabilities and Shareholders' Equity
Interest-bearing liabilities
Demand and savings deposits	$	89,091		217		0.97	%	$	68,837		85		0.49	%
Time deposits		540,270		1,679		1.24	%		451,336		1,310		1.16	%
Other borrowings		40,000		52		0.52	%		48,250		44		0.36	%
Total interest-bearing liabilities		669,361		1,948		1.16	%		568,423		1,439		1.01	%
Non-interest bearing demand deposits		2,295							2,242
Other liabilities		18,971							30,974
Shareholders' equity		190,300							187,399
	$	880,927						$	789,038
Net interest income			$	6,605						$	5,131
Net interest spread (2)						2.92	%						2.55	%
Net interest margin (3)						3.15	%						2.78	%
Average interest earning assets over average interest bearing liabilities						125.2	%						129.7	%

(1)	Average balances are based on month-end balances, include non-accrual leases, and are presented net of unearned income.
(2)	Net interest spread is the difference between the average rates on interest-earning assets and interest-bearing liabilities.
(3)	Net interest margin represents net interest income as a percent of average interest earning assets.

Net interest income for the six months ended December 31, 2016 was $11.9 million, a $1.8 million, or 18.1% increase from $10.1 million for the six months ended December 31, 2015. Total interest income for the first six months of fiscal 2017 increased 23.2% to $15.8 million from $12.8 million for first six months of the prior year as a result of a $2.8 million increase in commercial loan income that reflected a 48.4% increase in average loan balances to $418.9 million, while average rates earned increased 14 basis points to 3.78%. For the first six months of fiscal 2017, finance income decreased $179,600 or 2.7%, to $6.5 million as the average investment in leases declined 20.8% to $221.5 million while the average yield earned increased by 110 basis points to 5.89%. The increase in average yield benefitted from accelerated finance income from the early terminated leases. Without that benefit, the average lease yield for the first six months of fiscal 2017 would have decreased by 7 basis points. Investment income increased by 38.4%, or $379,400, to $1.4 million as average cash and investment balances increased 27.5% to $198.6 million and average yields increased by 11 basis points to 1.38%. For the first six months of fiscal 2017, the Company’s average interest earning deposits with banks increased 49.4% to $102.4 million and the average yield increased 34 basis points to 0.56% related to the increase in rates on deposits held at the FRB. The increase in yield on investments included the benefit from a large FHLB dividend during the second quarter that increased the yield by 23 basis points to 2.25%. For the six months ended December 31, 2016, interest expense on deposits and borrowings increased by $1.2 million, or 42.3%, to $3.9 million on a 22.7% increase in average deposits and borrowings to $670.4 million compared to the first six months of the prior year. The average rate paid increased from 1.00% to 1.16% as FHLB borrowings at 0.47% helped offset the increase in average deposit costs from 1.06% to 1.20%.

	Six months ended							Six months ended
(dollars in thousands)	December 31, 2016							December 31, 2015
	Average				Yield/			Average				Yield/
Assets	Balance (1)		Interest		Rate			Balance (1)		Interest		Rate
Interest-earning assets
Interest-earning deposits with banks	$	102,448	$	285		0.56	%	$	68,584	$	73		0.21	%
Investment securities		96,142		1,083		2.25	%		87,161		915		2.10	%
Commercial loans		418,903		7,907		3.78	%		282,264		5,130		3.63	%
Net investment in leases		221,545		6,522		5.89	%		279,658		6,701		4.79	%
Total interest-earning assets		839,038		15,797		3.77	%		717,667		12,819		3.57	%
Other assets		44,820							50,691
	$	883,858						$	768,358

Liabilities and Shareholders' Equity
Interest-bearing liabilities
Demand and savings deposits	$	84,225		388		0.92	%	$	68,443		168		0.49	%
Time deposits		546,126		3,404		1.25	%		432,577		2,483		1.15	%
Other borrowings		40,000		94		0.47	%		45,125		80		0.36	%
Total interest bearing liabilities		670,351		3,886		1.16	%		546,145		2,731		1.00	%
Non-interest bearing demand deposits		2,214							2,243
Other liabilities		20,620							31,939
Shareholders' equity		190,673							188,031
	$	883,858						$	768,358
Net interest income			$	11,911						$	10,088
Net interest spread (2)						2.61	%						2.57	%
Net interest margin (3)						2.84	%						2.81	%
Average interest earning assets over average interest bearing liabilities						125.2	%						131.4	%

(1)	Average balances are based on month-end balances, include non-accrual leases, and are presented net of unearned income.
(2)	Net interest spread is the difference between the average rates on interest-earning assets and interest-bearing liabilities.
(3)	Net interest margin represents net interest income as a percent of average interest earning assets.

For the first six months of fiscal 2017, the average yield on all interest earning assets increased by 20 basis points to 3.77% from 3.57%, while the average rate paid on all interest-bearing liabilities increased by 16 basis points to 1.16%. As a result, the net interest margin increased to 2.84% in the first six months of fiscal 2017 from 2.81% for the first six months of fiscal 2016. The increase in net interest spread and margin in fiscal 2017 is largely due to the benefit of accelerated finance income discussed above that increased the margin and spread by about 30 basis points for the six month period. Without that benefit, the spread and margin were below the first six months of the prior year due to lower yielding commercial loans increasing to 50% of interest earning assets from 39% for the first six months of fiscal 2016, and higher rates paid on deposits. The average yield on interest earnings assets can fluctuate from quarter to quarter due to transaction activity in both the lease and loan portfolio.

Provision for Credit Losses – The Company recorded a $600,000 provision for credit losses during the second quarter of fiscal 2017, which compared to a $575,000 provision made during the second quarter ending December 31, 2015. The second quarter 2017 provision related to the growth in the loan portfolio and enhanced risk assessment of the loan portfolio. During the first six months of fiscal 2017, the Company made a provision for credit losses of $900,000, compared to a $1.075 million provision recorded during the first six months of fiscal 2016. At December 31, 2016, the allowance for credit losses of $7.8 million, 1.2% of the investment in leases and loans, is considered to be consistent with the credit profile of the consolidated portfolio.

Non-interest Income – Total non-interest income of $3.4 for the second quarter of fiscal 2017 was up 380.9% from $708,100 for the same period of the prior year. The increase reflects a gain on sale of leases in the second quarter of fiscal 2017 of $1.7 million compared to $322,800 in the comparable quarter of the prior year. Income from leases reaching their end-of-term increased to $1.6 million from $312,200.

Total non-interest income of $4.3 million for the first six months of fiscal 2017 was up 169.3% from $1.6 million reported for the first six months of fiscal 2016. The increase includes a $1.5 million increase in income recognized on leases reaching the end of term, and a $1.2 million increase in the gain on sale of leases.

Non-interest Expenses – During the second quarter of fiscal 2017, non-interest expenses of $2.5 million were down 8.4% from $2.7 million for second quarter of fiscal 2016. For the six months ended December 31, 2016, non-interest expenses of $5.2 million declined slightly from the same period of the prior year. The decrease in expenses during the second quarter is due primarily to lower compensation expense recognized in the period.

Taxes – Income taxes were accrued at a tax rate of 39.50% for the three and six months ended December 31, 2016, compared to 38.91% for the same periods of the prior year, representing the estimated annual tax rate at the end of each respective period. The increase in the fiscal 2017 tax rate relates primarily to state apportionment changes.

Financial Condition Analysis

Consolidated total assets at December 31, 2016 of $880.3 million decreased 0.9% from $888.2 million at June 30, 2016. The decline in total assets is due to a $35.5 million decrease in the net investment in leases and $19.8 million decline in cash and investment balances which were offset by a $46.4 million increase in the commercial loan portfolio and $3.5 million increase in property acquired for transaction in process.

Lease Portfolio

During the first six months of fiscal 2017, 89.9% of the direct leases booked by the Company were held in its own portfolios, with 10.1% sold to other financial institutions. In addition, the Company sold $18.7 million of lease receivables held at June 30, 2016. As a result, the Company’s net investment in leases at December 31, 2016 of $202.2 million was down 14.9% from $237.7 million at June 30, 2016 and 27.2% from $277.6 million at December 31, 2015.

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, 2016, the Company’s investment in property acquired for transactions in process of $34.4 million was up 11.2% from $30.9 million at June 30, 2016, but down 2.8% from $35.4 million at December 31, 2015.

Commercial Loan Portfolio

The Company’s commercial loan portfolio increased by $46.4 million, or 11.5%, to $450.2 million at December 31, 2016 from $403.7 million at June 30, 2016. The increase in the Company’s commercial loan portfolio included the investment of $113.0 million in new commercial loan participations offset by loan payoffs and repayments aggregating to $66.6 million. In addition, at December 31, 2016 the Company had unfunded commercial loan commitments of $17.7 million compared to $15.0 million at June 30, 2016.

Asset Quality

The Company monitors the performance of all leases and loans held in its own portfolio, transactions in process, as well as lease transactions assigned to lenders, if the Company retains a residual investment in the leased property subject to those leases. An ongoing review of all leases and loans ten or more day’s delinquent is conducted. Leases and loans that are delinquent with the Company or an assignee are coded in the Company’s accounting and tracking systems in order to provide management visibility, periodic reporting, and appropriate reserves. The accrual of interest income on leases and loans generally will be discontinued when the lease or loan becomes ninety days or more past due on its payments with the Company, unless the Company believes the investment is otherwise recoverable. Leases and loans may be placed on non-accrual earlier if the Company has significant doubts about the ability of the customer to meet its obligations, as evidenced by consistent delinquency, deterioration in the customer’s financial condition or other relevant factors.

The following table summarizes the Company’s non-performing leases and loans.

	December 31,			June 30,
	2016			2016
Non-performing Leases and Loans	(dollars in thousands)
Non-accrual leases	$	4		$	12
Restructured leases		-			-
Leases past due 90 days (other than above)		-			-
Total non-performing leases		4			12
Repossessed equipment		1,300			1,300
Total non-performing assets	$	1,304		$	1,312
Non-performing leases as % of net investment in leases and loans before allowances		0.00	%		0.00	%
Non-performing assets as % of total assets		0.15	%		0.15	%

The change in non-performing leases at December 31, 2016 as compared to June 30, 2016 reflects a payment received on one old problem lease with no new problems added. In addition to the non-performing leases identified above, there was $3.57 million of investment in leases at December 31, 2016 classified as substandard or with credits that currently are experiencing financial difficulties or that management believes may experience financial difficulties in the future. This amount compared to $3.96 million at June 30, 2016 and $4.7 million at December 31, 2015. Although these credits have been identified as potential problems, 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 estimable losses in the Company’s lease and loan portfolios. The allowance recorded is based on a quarterly review of all leases and loans outstanding and transactions in process. Lease receivables, loans or residuals are charged off when they are deemed completely uncollectible. The determination of the appropriate amount of any provision is based on management’s judgment at that time and takes into consideration all known relevant internal and external factors that may affect the portfolios.

	Six months ended
	December 31,
	2016			2015
	(dollars in thousands)

Property acquired for transactions in process before allowance	$	34,388		$	35,370
Net investment in leases and loans before allowance		660,153			610,941
Net investment in “risk assets”	$	694,541		$	646,311

Allowance for credit losses at beginning of period	$	6,862		$	6,456
Charge-off of lease receivables		-			(1,029	)
Recovery of amounts previously written off		3			1
Provision for credit losses		900			1,075
Allowance for credit losses at end of period	$	7,765		$	6,503

Components of allowance for credit losses:
Allowance for lease losses	$	2,231		$	2,611
Residual valuation allowance		62			70
Allowance for loan losses		5,472			3,822
	$	7,765		$	6,503
Allowance for credit losses as a percent of net investment in leases and loans before allowances		1.18	%		1.06	%
Allowance for credit losses as a percent of net investment in “risk assets”		1.12	%		1.01	%

The allowance for credit losses increased $903,000 to $7.77 million (1.18% of net investment in leases and loans before allowances) at December 31, 2016 from $6.86 million (1.06% of net investment in leases and loans before allowances) at June 30, 2016. This allowance consisted of $190,100 allocated to specific accounts that were identified as problems and $7.58 million that was available to cover losses inherent in the portfolio. This compared to $39,000 allocated to specific accounts at June 30, 2016 and $6.82 million available for losses inherent in the portfolio at that time.

The increase in the specific allowance at December 31, 2016 primarily relates to the downgrade of the credit of one lease that was offset in part by the upgrade of another. The Company considers the allowance for credit losses of $7.77 million at December 31, 2016 adequate to cover losses specifically identified as well as inherent in the lease and loan portfolios. However, no assurance can be given that the Company will not, in any particular period, sustain lease and loan losses that are sizeable in relation to the amount reserved, or that subsequent evaluations of the lease and loan portfolio, in light of factors then prevailing, including economic conditions and the on-going credit review process, will not require significant increases in the allowance for credit losses. Among other factors, economic and political events may have an adverse impact on the adequacy of the allowance for credit losses by increasing credit risk and the risk of potential loss even further.

Investment Securities Available-for-sale

Total available-for-sale investment securities were $90.0 million as of December 31, 2016, compared with $95.8 million at June 30, 2016. The amortized cost and fair value of the Company’s securities portfolio available-for-sale at December 31, 2016 and June 30, 2016 are as follows:

	As of December 31, 2016				As of June 30, 2016
(in thousands)	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Available-for-sale
U.S. Treasury Notes	$	47,391	$	47,740	$	47,355	$	48,774
Corporate debt securities		13,215		13,237		13,291		13,385
Agency MBS		28,376		27,772		31,782		32,223
Mutual fund investment		1,215		1,291		1,215		1,462
Total securities available-for-sale	$	90,197	$	90,040	$	93,643	$	95,844

During the first six months of fiscal 2017, the Company’s portfolio of securities available-for-sale decreased $5.8 million through pay downs of $3.4 million and a $2.4 decrease in the fair value of securities that swung an unrecognized net gain of $2.2 million at June 30, 2016 to an unrealized net loss of $157,000 at December 31, 2016. The weighted average maturity of the portfolio at December 31, 2016, is 5.2 years and the corresponding weighted average yield was 1.92%.

Liquidity and Capital Resources

The Company funds its operating activities through internally generated funds, bank deposits, FHLB borrowings and non-recourse debt. At December 31, 2016 and June 30, 2016, the Company’s cash and due from banks were $91.1 million and $105.1 million, respectively.

Deposits at CalFirst Bank of $633.1 million at December 31, 2016 were up 14.5% from $552.8 million at December 31, 2015 but unchanged from $633.1 million at June 30, 2016. The $80.3 million increase from December 31, 2015 was used primarily to fund the growth in the Bank’s loan portfolio and maintain liquidity. The following table presents average balances and average rates paid on deposits for the six months ended December 31, 2016 and 2015:

	Six months ended December 31,
	2016							2015
	Ending		Average		Average			Ending		Average		Average
	Balance		Balance		Rate Paid			Balance		Balance		Rate Paid
	(in thousands)
Non-interest bearing demand deposits	$	1,866	$	2,214		n/a		$	5,081	$	2,243		n/a
Interest-bearing demand deposits		1,164		1,159		0.20	%		2,702		2,698		0.20	%
Money market deposits		98,616		83,066		0.93	%		77,063		65,745		0.50	%
Time deposits, less than $100,000		98,174		99,759		1.23	%		80,882		74,887		1.15	%
Time deposits, $100,000 or more	$	433,292	$	446,367		1.25	%	$	387,103	$	357,690		1.15	%

The following table shows the maturities of certificates of deposits at December 31, 2016:

	$250,000		More than
	or less		$250,000
		(in thousands)
Under 3 months	$	103,677	$	37,105
3 – 6 months		98,434		27,742
7 – 12 months		120,348		38,109
13 – 24 months		65,731		22,307
25 – 36 months		14,385		3,628
	$	402,575	$	128,891

The Bank has borrowing agreements with the Federal Home Loan Bank of San Francisco (“FHLB”) and as such, can take advantage of FHLB programs for overnight and term advances at published daily rates. The Bank had short-term borrowings outstanding of $40.0 million at December 31, 2016 at an average rate of 0.47% and an outstanding balance of $57.0 million at December 31, 2015 at an average rate of 0.36%. Under terms of the blanket collateral agreement, advances from the FHLB are collateralized by qualifying securities and real estate loans, with $33.0 million available under the agreement as of December 31, 2016. The Bank also has the authority to borrow from the Federal Reserve Bank (“FRB”) discount window amounts secured by certain lease receivables with unused borrowing availability at December 31, 2016 of approximately $89.7 million.

An additional source of liquidity for financing and managing the lease portfolio comes from selling, participating or assigning certain lease term payments to banks or other financial institutions. If the transaction is characterized as a sale of the financial asset or meets the parameters of a participating interest, the lease is removed from the balance sheet and a resulting gain or loss recognized. If the Company retains a controlling interest in the lease, the assignment is considered a secured borrowing with the associated financing characterized as non-recourse debt. The assigned lease payments are discounted at fixed rates such that the lease payments are sufficient to fully amortize the aggregate outstanding debt. At December 31, 2016, the Company had outstanding non-recourse debt of $1.8 million relating to discounted lease rentals assigned to unaffiliated lenders, down from $4.4 million at June 30, 2016 and $7.3 million at December 31, 2015. In the past, the Company has been able to obtain adequate non-recourse funding commitments, and the Company believes it will be able to do so in the future.

The following table presents capital and capital ratio information for the Company and CalFirst Bank as of December 31, 2016 and June 30, 2016 and reflects the transition to the Basel III capital standard from previous regulatory capital adequacy guidelines under the Basel I framework. The Basel III capital standard phases in through 2019 and revises the definition of capital, increases minimum capital ratios, introduces regulatory capital buffers above those minimums, introduces a common equity Tier 1 capital ratio and revises the rules for calculating risk-weighted assets. Under Basel III, the Bank made a one-time election to opt out of the requirement to include components of accumulated other comprehensive income (loss) in common equity Tier 1 capital. The adoption of the new capital standard had an immaterial impact on capital levels and related ratios and the Company and Bank continue to exceed regulatory capital requirements and are considered “well-capitalized” under guidelines established by the FRB and OCC.

	December 31,					June 30,
	2016					2016
	(dollars in thousands)
California First National Bancorp	Amount		Ratio			Amount		Ratio
Common equity Tier 1 capital	$	191,099		24.66	%	$	189,677		25.12	%
Tier 1 risk-based capital	$	191,099		24.66	%	$	189,677		25.12	%
Total risk-based capital	$	198,914		25.66	%	$	196,589		26.04	%
Tier 1 leverage capital	$	191,099		21.71	%	$	189,677		21.67	%

California First National Bank
Common equity Tier 1 capital	$	122,092		16.05	%	$	116,379		15.88	%
Tier 1 risk-based capital	$	122,092		16.05	%	$	116,379		15.88	%
Total risk-based capital	$	129,704		17.05	%	$	123,091		16.79	%
Tier 1 leverage capital	$	122,092		14.52	%	$	116,379		13.94	%

Contractual Obligations and Commitments

The following table summarizes various contractual obligations as of December 31, 2016. 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
	(in thousands)
Lease property purchases (1)	$	52,467	$	52,467	$	-	$	-
Commercial loan and lease purchase commitments		15,000		15,000		-		-
FHLB Borrowings		40,000		40,000		-		-
Operating lease rental payments		1,188		705		483		-
Total contractual commitments	$	108,655	$	108,172	$	483	$	-

____________________________________________

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

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss of value in a financial instrument arising from changes in market indices such as interest rates, credit spreads and securities prices. The Company’s principal market risk exposure is interest rate risk, which is the exposure due to differences in the repricing characteristics of interest-earning assets and interest-bearing liabilities. Market risk also arises from the impact that fluctuations in interest rates may have on security prices that may result in changes in the values of financial instruments, such as available-for-sale securities that are accounted for at fair value. As the banking operations of the Company have grown and CalFirst Bank’s deposits have increased significantly, the Company is subject to greater interest rate risk. The Bank has an Asset/Liability Management Committee and policies established to manage its interest rate risk. CalFirst Leasing has no interest-bearing debt, and non-recourse debt does not represent an interest rate risk to the Company because it is fully amortized through direct payments from lessees to the purchaser of the lease receivable.

At December 31, 2016, the Company had $92.4 million of cash or invested in securities of very short duration, but only $1.3 million of the $94.0 million investment in securities matures within twelve months.. The Company’s investment in gross lease payments receivable and commercial loans of $675.3 million consists of leases with fixed rates and loans with variable rates, however, $535.9 million of such investment matures or reprices within one year of December 31, 2016. This compares to interest bearing deposit and borrowing liabilities of $671.2 million, of which $565.2 million, or 84.2%, mature within one year. Based on the foregoing, at December 31, 2016 the Company had assets of $628.3 million subject to changes in interest rates over the next twelve months, compared to repricing liabilities of $565.2 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	$	91,071		$	-		$	-		$	-		$	-		$	91,071
Investment securities		1,291			-			60,978			31,726			-			93,995
Net investment in leases		21,247			69,601			124,573			3,373			(16,573	)		202,221
Commercial loans		443,423			1,618			8,268			3,176			(6,318	)		450,167
Non-interest earning assets		-			-			-			-			42,890			42,890
Totals		557,032			71,219			193,819			38,275			19,999		$	880,344
Cumulative total for RSA	$	557,032		$	628,251		$	822,070		$	860,345

Rate Sensitive Liabilities (RSL):
Demand and savings deposits	$	99,780		$	-		$	-		$	-		$	1,866		$	101,646
Time deposits		140,782			284,632			106,052			-			-			531,466
Borrowings		40,000			-			-			-			-			40,000
Non-interest bearing liabilities		-			-			-			-			16,228			16,228
Stockholders' equity		-			-			-			-			191,004			191,004
Totals	$	280,562		$	284,632		$	106,052		$	-		$	209,098		$	880,344
Cumulative total for RSL	$	280,562		$	565,194		$	671,246		$	671,246

Interest rate sensitivity gap	$	276,470		$	(213,413	)	$	87,767		$	38,275
Cumulative GAP	$	276,470		$	63,057		$	150,824		$	189,099

RSA divided by RSL (cumulative)		198.54	%		111.16	%		122.47	%		128.17	%
Cumulative GAP / total assets		31.40	%		7.16	%		17.13	%		21.48	%

In addition to the consolidated gap analysis, the Bank measures its asset/liability position through duration measures and sensitivity analysis, and calculates the potential effect on earnings using maturity gap analysis. The interest rate sensitivity modeling includes the creation of prospective twelve month "baseline" and "rate shocked" net interest income simulations. After a "baseline" net interest income is determined, using assumptions that the Bank deems reasonable, market interest rates are raised or lowered by 100 to 300 basis points instantaneously, parallel across the entire yield curve, and a "rate shocked" simulation is run. Interest rate sensitivity is then measured as the difference between calculated "baseline" and "rate shocked" net interest income.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

As of the end of the period covered by this report, the Company's management, including its principal executive officer and its principal financial officer, evaluated the effectiveness of the Company's disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on that evaluation, the Company’s Chief Executive Officer and Executive Vice President concluded that the Company's disclosure controls and procedures were effective as of December 31, 2016 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, 2016.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes share repurchase activity for the quarter ended December 31, 2016:

					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, 2016 - October 31, 2016		-	$	-		188,237
November 1, 2016 - November 30, 2016		-	$	-		188,237
December 1, 2016 - December 31, 2016		-	$	-		188,237
		-	$	-

In April 2001, the Board of Directors authorized management, at its discretion, to repurchase up to 1,000,000 shares of common stock.

ITEM 6. EXHIBITS

(a) Exhibits		Page
31.1	Rule 13a-14(a)/15d-14(a) Certifications of Principal Executive Officer	30
31.2	Rule 13a-14(a)/15d-14(a) Certifications of Principal Financial Officer	31
32.1	Section 1350 Certifications by Principal Executive Officer and Principal Financial Officer	32

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:	January 30, 2017	BY:	/s/ S. Leslie Jewett
			S. Leslie Jewett
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

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