Filed 2017-09-27 · Period ending 2017-06-30 · 57,906 words · SEC EDGAR
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# CALIFORNIA FIRST LEASING CORP (CFNB) — 10-K
**Filed:** 2017-09-27
**Period ending:** 2017-06-30
**Accession:** 0001171843-17-005747
**Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/803016/000117184317005747/)
**Origin leaf:** 9a959fec007b5b4ecf0654221e9839252a8e9290d108345a354b1c6cb6e2bcdf
**Words:** 57,906
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10-K
1
f10k_092617p.htm
FORM 10-K
**
UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
**Washington, D.C. 20549**
**FORM 10-K**
** **
(Mark One)
|
[X] | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
| | For the fiscal year
ended June
30, 2017 |
|
|
[ ] | | TRANSITION REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
| | For the transition period from ______________ to ______________ |
|
Commission File number 0-15641
**CALIFORNIA FIRST NATIONAL BANCORP**
(Exact name of registrant as specified in its charter)
|
California |
33-0964185 | |
|
(State or other jurisdiction of Incorporation or organization) |
(I.R.S. Employer Identification No.) | |
**28 Executive Park, Irvine, CA 92614**
(Address of principal executive offices)
|
Registrant's telephone number, including area code: |
(949) 255-0500 | |
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of Each Class |
Name of Each Exchange on Which Registered | |
|
Common Stock, $.01 par value |
The NASDAQ Stock Market
LLC | |
Securities registered pursuant to Section 12(g) of the
Act: None
** **
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes No
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes No
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 No
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 No
Indicate by check mark
if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of accelerated filer, large accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer Accelerated filer Non-accelerated
filer
Smaller
reporting company Emerging growth company
If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of the Common Stock held by
non-affiliates of the Registrant as of December 31, 2016 was $34,236,253. Number of shares outstanding as of September 25, 2017:
Common Stock 10,284,139.
**DOCUMENTS INCORPORATED BY REFERENCE**
Part III incorporates information by reference from Registrant's
definitive Proxy Statement to be filed with the Commission within 120 days after the close of the Registrant's fiscal year ended
June 30, 2017.
** **
****
California First National Bancorp and Subsidiaries
****
** **
****
**TABLE OF CONTENTS**
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PART I |
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Item 1. |
Business |
2-10 | |
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Item 1A. |
Risk Factors |
10-14 | |
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Item 1B. |
Unresolved Staff Comments |
15 | |
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Item 2. |
Properties |
15 | |
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Item 3. |
Legal Proceedings |
15 | |
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Item 4. |
Mine Safety Disclosures |
15 | |
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PART II |
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Item 5. |
Market for Company's Common Equity and Related Stockholder Matters and |
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Issuer Purchases of Equity Securities |
15-16 | |
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Item 6. |
Selected Financial Data |
17 | |
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Item 7. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
18-28 | |
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Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
29 | |
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Item 8. |
Financial Statements and Supplementary Data |
30-54 | |
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Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
55 | |
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Item 9A. |
Controls and Procedures |
55 | |
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Item 9B. |
Other Information |
55 | |
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PART III |
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Item 10. |
Directors, Executive Officers and Corporate Governance |
56-57 | |
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Item 11. |
Executive Compensation |
57-59 | |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management |
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and Related Stockholder Matters |
59 | |
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Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
60 | |
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Item 14. |
Principal Accountant Fees and Services |
60 | |
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PART IV |
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Item 15. |
Exhibits and Financial Statement Schedules |
61 | |
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Signatures |
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62 | |
| 1 | |
California First National Bancorp and Subsidiaries
PART I
ITEM 1. BUSINESS
** **
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 leasing subsidiary, California First
Leasing Corp (CalFirst Leasing). The Company is regulated by the Board of Governors of the Federal Reserve System
and the Federal Reserve Bank of San Francisco (FRB) under the U.S. Bank Holding Company Act of 1956, as amended.
CalFirst Bank is regulated by the Office of the Comptroller of the Currency, U.S. Department of the Treasury (OCC).
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, gathers deposits through posting rates
on the Internet and conducts all banking and other operations from one central location. Over the past few years, the Company migrated
from primarily leasing equipment toward a broader commercial lending program with commercial loans accounting for 53% of the Companys
bookings in fiscal 2017 and 68% in fiscal 2016.
At June 30, 2017, the Company had total
assets of $715.6 million, down 19% from the prior year, leases and loans of $496.8 million, total deposits of $468.6 million, and
a conservative capital profile with stockholders equity of $196.1 million producing regulatory capital ratios at June 30,
2017 of 33.1% Tier 1 capital, 34.3% total capital and 26.0% Tier 1 leverage capital, well above required regulatory thresholds.
** **
**Recent Events**
** **
During the third quarter of fiscal 2017,
CalFirst Bank was advised by the OCC to cease originating new leveraged or non-leveraged syndicated commercial loans and to
take action to substantially reduce its concentration of leveraged loans. The restrictions on the Banks loan
activities continue at the date of this filing, and as a result, the Company has originated no loans since January 2017.
While the Bank has worked to have the restrictions on its loan activities removed, it cannot predict if it will be
successful, or what the conditions of any relief might be. As of August 31, 2017, the Companys loan portfolio has
declined to approximately $250 million, 19% below the level at June 30, 2017 and down 45% from December 31, 2016. Management
projects the Banks loan portfolio will continue to decline in fiscal 2018, and this will continue to have an adverse
effect on the ability of the Company to grow its net interest income and profitably deploy the capital invested in the Bank.
The Board of Directors continues to evaluate all options available that might serve the best interests of its
shareholders.
** **
**Leasing Activities**
At June 30, 2017, leases accounted for 38% of
the Companys lease and loan portfolio, compared with 37% and 55% at June 30, 2016 and 2015, respectively. The Company leases
and finances most capital assets used by businesses and organizations, with a focus on high technology systems and other mission
critical assets, but has seen an increase in the volume of other assets over the last few years. In addition to computer systems
and networks, property leased includes manufacturing production systems, automated warehouse distribution systems, retail point-of-sale
and inventory tracking systems, telecommunications systems such as wireless networks, voice over Internet protocol (VoIP)
systems, and satellite tracking systems. Other equipment leased includes robotic surgical systems, ultrasound and medical imaging
systems, electronic patient monitoring systems, testing equipment, copying and digital printing equipment. In addition, the Company
leases a wide variety of non-electronic property, including office equipment, mining equipment, machine tools, school buses, trucks,
exercise equipment and office and dormitory furniture. The mixture of property subject to leases booked varies year by year. In
fiscal 2017, leases involving computer equipment and software accounted for 27% of property, down from 35% the prior year but up
from 15% in fiscal 2015. A comparison of the mix of property subject to new leases booked in each of the three years ending June
30, 2017 is set forth below (dollars in thousands):
|
Year End June 30, | |
|
2017 |
| |
% | |
|
2016 |
| |
% | |
|
2015 |
| |
% | |
|
Manufacturing Equipment | |
$ | 32,716 | | |
| 30 | % | |
$ | 3,174 | | |
| 3 | % | |
$ | 23,554 | | |
| 11 | % | |
|
Computer Hardware and Software | |
| 28,937 | | |
| 27 | % | |
| 38,372 | | |
| 35 | % | |
| 32,857 | | |
| 15 | % | |
|
Transportation equipment | |
| 15,560 | | |
| 14 | % | |
| 14,077 | | |
| 13 | % | |
| 16,331 | | |
| 7 | % | |
|
Furniture & Fixtures | |
| 12,522 | | |
| 12 | % | |
| 10,118 | | |
| 9 | % | |
| 27,123 | | |
| 12 | % | |
|
Medical Equipment | |
| 10,080 | | |
| 9 | % | |
| 10,354 | | |
| 9 | % | |
| 17,906 | | |
| 8 | % | |
|
Warehouse Management Systems | |
| 3,835 | | |
| 4 | % | |
| 24,414 | | |
| 22 | % | |
| 33,240 | | |
| 15 | % | |
|
Office Equipment | |
| 962 | | |
| 1 | % | |
| 1,195 | | |
| 1 | % | |
| 10,068 | | |
| 5 | % | |
|
Yellow Equipment | |
| 378 | | |
| 0 | % | |
| 3,426 | | |
| 3 | % | |
| 9,179 | | |
| 4 | % | |
|
Air Transport Equipment | |
| - | | |
| 0 | % | |
| - | | |
| 0 | % | |
| 25,000 | | |
| 11 | % | |
|
Other | |
| 2,634 | | |
| 2 | % | |
| 5,240 | | |
| 5 | % | |
| 22,527 | | |
| 10 | % | |
|
Cost of Property on Leases Booked | |
$ | 107,624 | | |
| | | |
$ | 110,370 | | |
| | | |
$ | 217,785 | | |
| | | |
| 2 | |
California First National Bancorp and Subsidiaries
The Company provides leasing and financing to
customers throughout the United States and across a breadth of industries and disciplines, including commercial, industrial and
financial companies, as well as educational, government and non-profit entities. The average size of the lease transactions booked
during fiscal 2017 was approximately $1.1 million, compared with $751,000 during fiscal 2016 and $1.1 million during fiscal 2015.
Three customers accounted for 12%, 10% and 9%, of the property cost subject to leases booked during fiscal 2017, while in fiscal
2016 two customers accounted for 18% and 13% of leases booked and in fiscal 2015 two customer accounted for 14% and 12% of leases
booked in that year. Leases primarily are originated directly through a centralized marketing program and direct delivery channels,
or through other banks or origination sources. During fiscal 2017, all of property cost subject to leases booked was originated
directly by the Company, compared to 97% originated directly in fiscal 2016 and 94% originated directly in fiscal 2015. The marketing
program includes a database of current and potential users of business property, as well as in-house customer relations management
systems. The marketing programs have been augmented through the expanded use of web sites and the Internet to identify and communicate
with potential customers. Prospect management software is utilized to enhance the productivity of the sales effort. Specific information
about potential customers is entered into a confidential database accessible to sales professionals and their managers that allows
them to efficiently focus on the most likely purchaser or lessee of capital assets.
Leases generally are for initial terms ranging
from two to five years and are structured individually to accommodate a variety of our customers objectives. Substantially
all leases are non-cancelable "net" leases which contain "hell-or-high-water" provisions under which the lessee
must make all lease payments regardless of any defects in the property, and which require the lessee to maintain and service the
property, insure the property against casualty loss and pay all property, sales and other taxes. CalFirst Bank or CalFirst Leasing
retain ownership of the property on leases they originate, and in the event of default by the lessee, they may declare the lessee
in default, accelerate all lease payments due under the lease and pursue other available remedies, including repossession of the
property. Upon the expiration of the lease term, the lessee typically has an option, which is dependent upon each lease's defined
end of term options, to either purchase the property at a negotiated price, or in the case of a "conditional sales contract,"
at a predetermined minimum price, or to renew the lease. If the original lessee does not exercise the purchase option, once the
leased property is returned, the Company will seek to sell the leased property.
Through its lease purchase operations, the Bank
purchases lease receivables on a non-recourse basis from other intermediaries. All banks or lessors from whom the Bank purchases
lease receivables are subject to an individual credit review and investigation by the Bank and must be approved by the Banks
board of directors prior to establishing a discounting relationship. The Bank generally does not assume any obligations as lessor
for these transactions, and the original lessor retains ownership of any underlying asset, with the Bank taking a priority first
lien position. Periodically, the Bank will purchase a whole lease and assume the role as lessor and take a residual interest in
the property subject to such lease. The Bank verifies the completeness of all lease documentation prior to purchase, confirms that
the Banks position is secure and that liens have been perfected, and legal documentation has been filed as appropriate.
The Company did not acquire any leases from third parties in fiscal 2017 while leases purchased from unaffiliated third parties
during fiscal 2016 of $2.9 million were 3% of total leases booked and purchased leases of $13.5 million in fiscal 2015 represented
6% of total bookings.
The Company conducts the leasing business in
a manner designed to minimize risk, however, we are subject to risks through the investment in lease receivables held in our own
portfolios, lease transactions-in-process, and residual investments. We do not purchase leased property until we have received
a binding non-cancelable lease from the customer. A portion of lease originations are discounted to banks or finance companies
on a non-recourse basis at fixed interest rates that reflect the customers' financial condition. The lender to which a lease has
been assigned has no recourse against the Company, unless we are in default under the terms of the agreement by which the lease
was assigned. The institution to which a lease has been assigned may take title to the leased property, but only in the event the
lessee fails to make lease payments or otherwise defaults under the terms of the lease. If this occurs, the Company may not realize
our residual investment, if any, in the leased property.
**Lease Portfolio**
During the fiscal year ended June 30,
2017, 100% of the total dollar amount of new leases completed by the Company was booked by CalFirst Bank, up from 93.5% in
fiscal 2016 and 90.4% in fiscal 2015. CalFirst Leasing no longer has a direct lease origination effort.
During the fiscal years ended June 30, 2017,
2016 and 2015, 80%, 89% and 88%, respectively, of the total dollar amount of new leases completed by the Company were retained
in the Companys portfolios, with the balance of such leases discounted to unaffiliated financial institutions. The Banks
strategy is to develop a conservative, diversified portfolio of leases with credit worthy lessees through a portfolio management
system that balances risk and reward while also managing exposures to any one credit or industry. The Banks credit committee
has established underwriting standards and criteria for the lease portfolio and performs an independent credit analysis and due
diligence on each lease transaction originated or purchased. The committee applies the same underwriting standards to all leases,
regardless of how they are sourced. Through the use of non-recourse financing, the Company avoids risks that do not meet our risk/reward
requirements or reduces its exposure to meet internal or regulatory requirements. A small portion of the portfolio, primarily held
by CalFirst Leasing, includes leases where the credit profile of the lessee or the underlying leased property is not acceptable
to other financial institutions.
| 3 | |
California First National Bancorp and Subsidiaries
The table below presents the discounted minimum
lease payments receivable (Net Lease Receivable") related to leases retained in the Companys portfolios at June
30, 2017, 2016 and 2015, respectively. Of the Banks Net Lease Receivable, approximately 92%, 88% and 82%, respectively,
represented leases originated directly by the Bank, with 8%, 12% and 16%, of the Banks Net Lease Receivables at June 30,
2017, 2016 and 2015, respectively, related to leases purchased from unaffiliated parties.
|
(dollars in thousands) | |
As of June 30, |
| |
|
| |
2017 | |
2016 | |
2015 |
| |
|
| |
Net Lease | |
Percent of | |
Net Lease | |
Percent of | |
Net Lease | |
Percent of |
| |
|
| |
Receivable | |
Total | |
Receivable | |
Total | |
Receivable | |
Total |
| |
|
California First National Bank | |
$ | 178,703 | | |
| 96 | % | |
$ | 213,355 | | |
| 94 | % | |
$ | 270,657 | | |
| 94 | % |
| |
|
California First Leasing | |
$ | 6,525 | | |
| 4 | % | |
$ | 14,554 | | |
| 6 | % | |
$ | 15,727 | | |
| 6 | % |
| |
The Company often makes payments to purchase
leased property prior to the commencement of the lease. The disbursements for such lease transactions-in-process are generally
made to facilitate the property implementation schedule of the lessees. The lessee generally is contractually obligated to make
rental payments during the period that the transaction is in process, and 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 June 30, 2017, 2016, and 2015, the Companys total investment in property acquired for transactions-in-process amounted
to $17.1 million, $30.9 million and $31.3 million, respectively.
** **
Commercial Loans
Commercial loans of $306.0 million accounted
for 62% of the Companys net investment in leases and loans at June 30, 2017, down from $403.7 million or 63% of the Companys
investment at June 30, 2016 but up from $243.5 million, or 45% of the Companys investment, at June 30, 2015. During fiscal
2017, the Company boarded $123.5 million of new commercial loans, 48% below fiscal 2016 bookings of $238.1 million, and offset
by payoffs and principal reductions of $220.6 million. As noted under Recent Events, the Bank did not originate any
new loans after January 2017 and had a high volume of loan payoffs during the last six months of fiscal 2017, occurring both in
the normal course and accelerated by the Banks inability to participate in extending the term of certain loans. The restrictions
on the Banks loan activities continue, and it currently is projected that the loan portfolio will continue to decline in
fiscal 2018.
Approximately 97% of the commercial loan
portfolio consists of participations in syndicated transactions led primarily by major money center banks, with approximately
3% of the loan portfolio at June 30, 2017 the result of a direct origination effort. Direct loan origination is directed
toward the Companys existing and targeted customer database as a complementary product leveraging existing resources
and extending customer longevity. Commercial loan products offered include commercial mortgages, term loans and lines of
credit, and generally will be secured, but unsecured loans will be considered, depending on the nature of the credit. The
Bank had three direct commercial loans aggregating to $10.8 million outstanding as of June 30, 2017, all at fixed rates,
ranging in size from $1.4 million to $6.4 million, and with remaining terms of 23 months to 14 years. One loan is unsecured
with the other two secured by real estate used in the borrowers business.
Syndicated loans have accounted for a
substantial portion of the Companys growth over the past five years, and the structure, terms and other
characteristics of the loans have not changed over this period. Syndicated bank loans are almost all term loans secured by
substantially all of the borrowers assets, although in some cases term loans have a second lien on working capital
assets and less than 100% security interest in certain foreign assets. At June 30, 2017, approximately 87% of syndicated
loans were characterized as Term Loan B loans that generally have initial seven-year terms and amortize less
than 10% of the principle balance over the term. All Bank syndicated loans are priced at floating rates, and generally are
made to larger corporations with debt ratings of BB or Ba, or higher, as rated by Standard & Poors
(S&P) or Moodys Investors Service (Moodys), respectively. At June 30, 2017, 23% of the
syndicated loan portfolio is rated investment grade (Baa3 or higher by Moody's or BBB- or higher by S&P) by one or more
of the rating agencies, compared to 24% of the syndicated loan portfolio at June 30, 2016, while approximately 8.7% of the
syndicated loan portfolio at June 30, 2017 relates to companies that are rated lower than Ba, down from 11.9% at June 30,
2016. Public companies made up 90% of the Companys syndicated loan portfolio at June 30, 2017, with equity market
capitalizations ranging from $326 million to $46 billion and a weighted average market value of $7.9 billion.
Approximately 62% of the loan portfolio at June
30, 2017 is characterized as leveraged loans under guidance promulgated by federal bank regulators in 2013, compared
to 79% under such guidance at June 30, 2016. Credits that the Company characterized as higher risk leveraged loans accounted for
approximately 15% of the syndicated loan portfolio at June 30, 2017, compared to 8% at June 30, 2016. The Banks credit policies
and administrative processes have been augmented significantly to incorporate the 2013 guidance issued by federal banking regulators
regarding leveraged lending, but have been criticized by the OCC as not meeting the guidance. As noted in Recent Events,
the OCC has indicated that the concentration of leveraged loans held by the Bank is too high.
| 4 | |
California First National Bancorp and Subsidiaries
The Banks syndicated loan portfolio is
diversified across industries, with the loans to individual credits ranging in size from $573,000 to $10.4 million. At June 30,
2017, the average principal outstanding on 61 credits was $5.1 million, and the remaining terms range from one to six years. The
Banks underwriting of commercial loans is consistent with its credit standards for leases, although its policies have been
augmented to address credit issues related to the larger average investment in individual loans and regulatory issues governing
the participation market. The risks associated with loans in which the Bank participates as part of a syndicate of financial institutions
are similar to those of directly originated commercial loans; however, additional risks may arise from the Banks limited
ability to control actions of the syndicate. Existing staff administer loan operations including documentation, lien perfection,
funding, payments and collections. The Banks current computer systems are capable of fully processing loans and have the
requisite connectivity to the Companys accounting, customer service and collections processes.
The table below presents the commercial loan
balance net of unearned income and discounts and before allowances by loan type in the Companys portfolios at June 30, 2017,
2016 and 2015, respectively.
|
(dollars in thousands) | |
As of June 30, |
| |
|
| |
2017 | |
2016 | |
2015 |
| |
|
| |
Net Loan | |
Percent of | |
Net Loan | |
Percent of | |
Net Loan | |
Percent of |
| |
|
| |
Balance | |
Total | |
Balance | |
Total | |
Balance | |
Total |
| |
|
Commercial term loans | |
$ | 303,604 | | |
| 97.6 | % | |
$ | 398,240 | | |
| 97.5 | % | |
$ | 238,424 | | |
| 96.7 | % |
| |
|
Revolving lines of credit | |
$ | 3,222 | | |
| 1.0 | % | |
$ | 3,389 | | |
| 0.8 | % | |
$ | 562 | | |
| 0.2 | % |
| |
|
Commercial real estate loans | |
$ | 4,387 | | |
| 1.4 | % | |
$ | 6,679 | | |
| 1.6 | % | |
$ | 7,523 | | |
| 3.1 | % |
| |
Commercial loan transactions funded during fiscal
2017 of $123.5 million to 38 different credits compared to $233.9 million through participations and $4.7 million through
real estate loans during fiscal 2016. All commercial term loans are held by CalFirst Bank for all periods, except for one loan
for $2.0 million held by CalFirst Leasing at June 30, 2017.
**Credit Risk Management**
The Companys strategy for credit risk
management includes stringent credit authority centered at the most senior levels of management. The strategy emphasizes diversification
on both a geographic and customer level, and spreading risk across a breadth of leases and loans while managing the risk to any
one area. The consolidated lease and loan portfolio at June 30, 2017 includes over 489 lease schedules and 61 commercial loans.
No customer accounted for more than 4% of the net investment in leases and loans at June 30, 2017, 2016 or, 2015. The ten largest
customers accounted for 22% of the lease and loan portfolio at June 30, 2017, compared to 18% of the portfolio at June 30, 2016
and 19% at June 30, 2015.
As a national bank, CalFirst Bank is subject
to lending limit rules that restrict the maximum credit that the Bank may extend to any one entity at any one time to 15% of unimpaired
capital and surplus. At June 30, 2017, the Banks legal lending limit was $20.0 million. The Company and
CalFirst Leasing are not subject to any regulatory limits. At June 30, 2017, the largest single exposure of CalFirst Bank
to one credit was $17.6 million that represents 3.5% of the Companys net investment in leases and loans.
The credit policy requires each lease or loan,
regardless of whether it is directly originated or acquired through syndication, to have viable repayment sources. The credit process
primarily focuses on a customers ability to repay the lease or loan through their cash flow, and generally, collateral securing
a transaction represents a secondary source of repayment. The credit process includes a policy of classifying all leases and loans
in accordance with a risk rating classification system, monitoring changes in the risk ratings of lessees and borrowers, identification
of problem leases and loans and special procedures for the collection of problem leases and loans. The lease and loan classification
system is consistent with regulatory models under which leases and loans may be rated as pass, special mention,
substandard, doubtful or loss.
An asset management (AM) group
handles the day-to-day management and oversight of the lease and loan portfolios. The AM group monitors the performance of all
leases held in the portfolios, 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. The AM group conducts an ongoing review of all leases 10 or
more days delinquent, contacts the lessee directly and generally sends the lessee a notice of non-payment within 15 days after
the due date. In the event that payment is not then received, senior management becomes involved. Delinquent leases are coded in
the AM tracking system in order to provide management visibility, periodic reporting, and appropriate reserves. Legal recourse
is considered and promptly undertaken if alternative resolutions are not obtained. At 90 days past due, leases and loans will be
placed on non-accrual status such that interest income no longer accretes into income, unless the Company believes the amounts
due are otherwise recoverable.
** **
****
| 5 | |
California First National Bancorp and Subsidiaries
** **
**Allowance for Credit Losses**
The allowance for credit losses is an estimate
of probable and assessable losses in the Companys lease and loan portfolios applying the principles of Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) Topic 450, Contingencies,
and ASC Topic 310-35, Loan Impairment. The allowance recorded is based on a quarterly review of all leases and
loans outstanding and transactions-in-process. The determination of the appropriate amount of any provision is based on managements
judgment at that time and takes into consideration all known relevant internal and external factors that may affect the lease and
loan portfolios. The primary responsibility for setting reserves resides with executive management who report quarterly to the
Companys Audit Committee and Board of Directors regarding overall asset quality, problem leases and loans and the adequacy
of valuation allowances. The Bank's classification of its assets and the amount of its valuation allowances are subject to review
by regulators who can order the establishment of additional loss allowances.
The Company individually analyzes the net book
value of each non-performing or problem lease and loan to determine whether the carrying value is less than or equal to the expected
recovery anticipated to be derived from lease or loan payments, additional collateral or residual realization. The amount estimated
as unrecoverable is recognized as a reserve specifically identified for the lease or impaired loan. An analysis of the remaining
portfolios is conducted, taking into account recent loss experience, known and inherent risks in the portfolio, levels of delinquencies,
adverse situations that may affect the customers ability to repay, trends in volume and other factors, including regulatory
guidance and current and anticipated economic conditions in the market. This portfolio analysis includes a stratification of the
lease and loan portfolio by risk classification and segments, and estimation of potential losses based on risk classification or
segment. The composition of the portfolio based on risk ratings is monitored, and changes in the overall risk profile of the portfolio
also is factored into the evaluation of inherent risks in the portfolios. Regardless of the extent of the Company's analysis of
customer performance or portfolio evaluation, certain inherent but undetected losses are probable within the lease and loan portfolios.
This is due to several factors including inherent delays in obtaining information regarding a customers financial condition
or change in business conditions; the judgmental nature of individual credit evaluations and classification, and the interpretation
of economic trends; volatility of economic or customer-specific conditions affecting the identification and estimation of losses
and the sensitivity of assumptions utilized to establish allowances for losses, among other factors. Therefore, an estimated inherent
loss not based directly on the specific problem assets is recorded as an unallocated allowance. The level of such unallocated allowance
is determined based on a review of prior years loss experience, and may vary depending on general market conditions. The
aggregate allowance in any one period is apportioned between allowance for lease and loan losses and allowance for valuation of
residual value.
Banking Operations
The Bank is focused on gathering deposits from
depositors nationwide for the primary purpose of funding its investment in leases and loans. The Banks strategy is to be
a low cost producer through marketing its products and services directly to end-users. The Bank believes that its operating costs
generally will be lower than those of traditional "bricks and mortar" banks because it does not have the expense of a
traditional branch network to generate deposits and conduct operations.
**Deposit Products**
At June 30, 2017, the Bank had $468.6 million
in deposits, down from $633.2 million at June 30, 2016, and composed of $90.9 million in demand, savings or money market accounts
and $377.8 million, or 81%, time certificates of deposits (CDs). In light of the change in the loan origination effort,
in March 2017 the Company took action to reduce deposits, particularly CDs, by drastically cutting rates offered on CDs. As a result,
deposits during the last six months of fiscal 2017 declined by 26%.
The Banks deposits have been gathered
primarily through the Internet. The Bank offers interest-bearing checking accounts, money market accounts, savings accounts and
three (3) month to three (3) year certificates of deposit (CDs) to taxable and IRA depositors. CDs are offered with
varying maturities in order to achieve a fair approximation or match of the average life of the Banks lease and loan portfolio.
With leases generally providing for fixed rental rates, a matching fixed rate CD book is intended to allow the Bank to minimize
interest rate fluctuation risk. Most of the Banks commercial loans are floating rate.
To open a new account, a customer can complete
an on-line enrollment form on the Banks web site, or can call the Banks toll-free customer service number and open
an account telephonically. Signature cards and deposits are then mailed to the Bank. Customers can make deposits by wire transfer,
via direct deposit programs, or by mail. No teller line is maintained. The Banks customers have 24-hour access to account
information. Customers can view their banking records and current balances, and transfer funds between accounts through the use
of personal computers. They can also pay bills on-line. Customers can receive a free ATM card upon opening a demand deposit or
savings account. In order to obtain cash, the Banks customers use other banks automated teller machines that are
affiliated with the Plus system. The Bank generally will reimburse customers for
some portion of any ATM fees charged by other financial institutions.
****
** **
| 6 | |
California First National Bancorp and Subsidiaries
****
**Operations**
** **
The Banks operations have been developed
by outsourcing certain principal functions to leading bank industry service providers and by sharing established systems utilized
by CalFirst Leasing or the Company. Outsourced systems include the Banks core processing and electronic banking system,
electronic bill payment systems and depository services, including item processing. The Bank believes it benefits from the service
provider's expertise and investments in developing technology. A critical element to the Banks success is the ability to
provide secure transmission of confidential information over the Internet. The Banks service providers utilize sophisticated
technology to provide maximum security. All banking transactions are encrypted and all transactions are routed from the Internet
server through a "firewall" that limits access to the Banks and service providers systems. Systems are
in place to detect attempts by third parties to access other users' accounts and feature a high degree of physical security, secure
modem access, service continuity and transaction monitoring. The Bank has implemented the two-factor authentication security to
its Internet banking procedures and platform.
**Investments**
In addition to leases and loans, the Company
had total cash and cash equivalents and investment securities of $195.8 million at June 30, 2017 compared to $204.9 million at
June 30, 2016 and $144.8 million at June 30, 2015. Cash and cash equivalents of $96.1 million consists of interest-earning deposits
with the FRB, other banks and short-term money market securities. The investment portfolio of $99.8 million includes U.S. government
agency (Agency) mortgage-backed securities (MBS), U.S. Treasury Notes, corporate bonds and common stocks,
Federal Reserve Bank and Federal Home Loan Bank stock and other investments. The Company is authorized to invest in high-quality
United States agency obligations, mortgage-backed securities, investment grade corporate bonds and municipal securities and selected
preferred and equity securities. The investment portfolio may increase or decrease depending upon the comparative returns on investments
in relation to leases and loans.
**Customers**
Leasing and
loan customers include major corporations and middle-market companies, subsidiaries and divisions of Fortune 1000 companies, private
and state-related educational institutions, municipalities and other not-for-profit organizations and institutions located throughout
the United States. The Company does not believe the loss of any one customer would have a material adverse effect on its operations
taken as a whole.
The Banks deposit customers are primarily
individuals from across the nation who place a substantial portion of their savings in safe, government-insured deposits and businesses
that spread their liquid investments among a breadth of banks in order to ensure that they are government insured. Such depositors
are seeking to maximize their interest income and, therefore, are more inclined to move their investments to a bank that offers
the highest yield regardless of the geographic location of the depository.
Competition
The Company competes for the lease and loan
financing of capital assets with other banks, commercial finance companies, and other financial institutions, independent leasing
companies, credit companies affiliated with equipment manufacturers, and equipment brokers and dealers. Many of the Company's competitors
have substantially greater resources, capital, and more extensive and diversified operations than the Company. The Company believes
that the principal competitive factors are rate, responsiveness to customer needs, flexibility in structuring lease financing and
loans, financial technical proficiency and the offering of a broad range of financing options. The level of competition varies
depending upon market and economic conditions, the interest rate environment, and availability of capital.
The Bank competes with other banks and financial
institutions to attract deposits. The Bank faces competition from established local and regional banks and savings and loan institutions.
Many of them have larger customer bases, greater name recognition and brand awareness, greater financial and other resources, broader
product offerings and longer operating histories. The market for Internet banking has seen increased competition over the past
several years as large banks and other financial institutions have deployed and aggressively promoted their own on-line banking
platforms and aggressively sought deposits over the internet. Additionally, new competitors and competitive factors are likely
to emerge with the continued development of Internet banking.
** **
**Supervision and Regulation**
The Company
is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended, and is registered with, regulated
and examined by the Board of Governors of the Federal Reserve System (the FRB). In addition to the regulation of
the Company by the FRB, the Bank is subject to extensive regulation and periodic examination, principally by the Office of the
Comptroller of the Currency (OCC). The Federal Deposit Insurance Corporation (FDIC) insures the Banks
deposits up to certain prescribed limits. The Bank is a member bank within the San Francisco Federal Reserve district. The Company
is also subject to jurisdiction of the Securities and Exchange Commission ("SEC") and to the disclosure and regulatory
requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934, and through the listing of the common stock
on the NASDAQ Global Select Market is subject to the rules of NASDAQ.
| 7 | |
California First National Bancorp and Subsidiaries
The Bank Holding Company Act, the Federal Reserve
Act, and the Federal Deposit Insurance Act subject the Company and the Bank to a number of laws and regulations. In addition, substantial
changes to the regulation of banks and bank holding companies have occurred as a result of the enactment in 2010 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The primary concern of banking regulation is
Safety and Soundness with an emphasis on asset quality and capital adequacy. These laws and regulations also encompass
a broad range of other regulatory concerns including insider transactions, the adequacy of the allowance for credit losses, intercompany
transactions, regulatory reporting, adequacy of systems of internal controls and limitations on permissible activities. The federal
banking agencies possess broad powers to take corrective action as deemed appropriate for an insured depository institution and
its holding company. The FRB examines the Company, which exam includes CalFirst Leasing. The OCC, which has primary supervisory
authority over the Bank, regularly examines banks in such areas as asset quality, reserves, investments, risk management practices,
interest rate exposure, vendor management and other aspects of operations. These examinations are designed for the protection of
the Banks depositors rather than the Companys shareholders. The Bank must furnish annual and quarterly reports to
the OCC, which has the authority under the Financial Institutions Supervisory Act to prevent a national bank from engaging in an
unsafe or unsound practice in conducting its business. The OCC may impose restrictions or new requirements on the Bank, including,
but not limited to, growth limitations, dividend restrictions, individual increased regulatory capital requirements, lease and
loan loss reserve requirements, increased supervisory assessments, activity limitations or other restrictions that could have an
adverse effect on the Bank, the Company or holders of our common stock. Many banking laws and regulations have undergone significant
change in recent years and, given the recent financial crisis in the United States, regulators have increased their oversight of
financial institutions and taken a more active role in imposing restrictions on bank operations, the classification of assets and
determination of the allowance for credit losses. Future changes to these laws and regulations, and other new financial services
laws and regulations are likely, and cannot be predicted with certainty.
Under FRB policy, the Company is expected to
serve as a source of financial and managerial strength to the Bank and, under appropriate circumstances, to commit resources to
support the Bank. Pursuant to a binding written agreement between the Bank and the Company required at the time of the Companys
purchase of the stock of the Bank in 2001, the Company is obligated to provide capital maintenance and liquidity support to the
Bank, if and when necessary. Certain loans by the Company to the Bank would be subordinate in right of payment to deposits in,
and certain other indebtedness of, the Bank.
Among the regulations that affect the Company
and the Bank are provisions of Section 23A of the Federal Reserve Act that places limits on the amount of loans or extensions of
credit the Bank may make to affiliates and the amount of assets purchased from affiliates, except for transactions exempted by
the FRB. The aggregate of all of the above transactions is limited in amount, as to any one affiliate, to 10% of a banks
capital and surplus and, as to all affiliates combined, to 20% of a bank's capital and surplus. Regulation W (Reg. W)
provides a framework under Section 23A by which the Bank does not have to comply with the quantitative limits of Section 23A when
making a loan or extension of credit to an affiliate, but also contains certain provisions designed to prohibit the Bank from buying
low-quality assets from an affiliate. The Company and the Bank are also subject to the provisions of Section 23B of the Federal
Reserve Act which, among other things, prohibits an institution from engaging in transactions with affiliates unless the transactions
are on terms substantially the same, or at least as favorable to the institution as those prevailing at the time for comparable
transactions with non-affiliated companies. All transactions between the Company or CalFirst Leasing and the Bank are in accordance
with these provisions.
In
connection with the approval of the Companys purchase of the stock of the Bank in 2001, the FRB and the OCC required
the Company and the Bank to make certain commitments with respect to the operation of the Bank. In September 2006, the OCC
approved a change in the Banks original operating plan that provided for the Bank to originate commercial loans. In
June 2012, the OCC provided a written determination of no objection to a revised business plan to continue development of the
commercial loan portfolio, but with certain conditions that were removed in January 2015 when the OCC terminated the 2001
operating agreement between the OCC and the Bank and eliminated restrictions imposed in 2012. During the third quarter of
fiscal 2017, CalFirst Bank was advised by the OCC to cease originating new leveraged or non-leveraged syndicated commercial
loans and to take action to substantially reduce its concentration of leveraged loans. The Bank is working to have the
restrictions on its loan activities removed, but it cannot predict if it will be successful, or what the conditions of any
relief might be.
Bank holding companies are subject to risk-based
capital guidelines adopted by the FRB. The Company currently is required to maintain (i) Tier 1 capital equal to at least six percent
of its risk-weighted assets and (ii) total capital (the sum of Tier 1 and Tier 2 capital) equal to ten percent of risk-weighted
assets. The FRB also requires the Company to maintain a minimum Tier 1 "leverage ratio" (measuring Tier 1 capital as
a percentage of adjusted total assets) of at least five percent. At June 30, 2017 and 2016, the Company exceeded all these requirements.
| 8 | |
California First National Bancorp and Subsidiaries
The Bank is also subject to risk-based and leverage
capital requirements. In July 2013, federal bank regulatory agencies jointly issued final rules that revise the general risk-based
capital requirements to incorporate certain revisions by the Basel Committee on Banking Supervision to the Basel capital framework
(Basel III). Under the final rule, minimum requirements increase both the quantity and quality of capital held by
banking organizations. Consistent with Basel III, the rule includes a new minimum ratio of common equity tier 1 capital to risk-weighted
assets of 4.5 percent and a common equity tier 1 capital conservation buffer of 2.5 percent of risk-weighted assets. The rule also
raises the minimum ratio of tier 1 capital to risk-weighted assets from 4 percent to 6 percent and includes a minimum leverage
ratio of 4 percent for all banking organizations. The final rule minimizes the burden on smaller, less complex financial institutions
such as the Company and the Bank, with a phase-in period that began in January 2015 while the phase-in period for larger institutions
began in January 2014. At June 30, 2017, the Bank had capital in excess of all current minimum risk-based and leverage capital
requirements as well as the new guidelines.
Under the Community Reinvestment Act (CRA),
the Bank has a continuing and affirmative obligation, consistent with safe and sound operation, to help meet the credit needs of
its entire communities, including low- and moderate-income neighborhoods. CalFirst Bank is designated as a wholesale institution
for CRA purposes. To evaluate the CRA performance of banks with this designation, regulatory agencies use the community development
test. This includes an assessment of the level and nature of the Banks community development lending, investments and services.
The CRA requires the OCC, in connection with its examination of the Bank, to assess and assign one of four ratings to the Banks
record of meeting the credit needs of its community. The CRA also requires that the Bank publicly disclose its CRA rating. In December
2016, CalFirst Bank was subjected to a CRA examination and received a satisfactory rating on the CRA performance
evaluation.
The Bank is
a member of the Deposit Insurance Fund (DIF) maintained by the FDIC. Through the DIF, the FDIC insures the deposits
of the Bank up to prescribed limits for each depositor. As a result of the Dodd-Frank Act, the maximum deposit insurance amount
has been increased permanently from $100,000 to $250,000. In February 2011, the FDIC adopted a final rule implementing the Dodd-Frank
Act provisions which provides for use of a risk scorecard to determine deposit premiums. For FDIC assessment purposes, the banks
assessment base is its average consolidated total assets minus its average tangible equity. The assessment rate is determined by
the FDIC using a risk-based calculation. The Bank's assessment base and assessment rate are calculated and billed each quarter.
As of June 30, 2016, the DIF surpassed a target of 1.15 percent to trigger important changes in the FDIC assessments for all banks.
The changes took effect for premiums billed after December 2016. Banks with less than $10 billion in assets will see their overall
schedule decline by two basis points for banks paying the lowest premiums and up to five points for those at the top end of the
assessment scale. The Banks overall assessment declined by over two basis points. In addition, a new formula for calculating
risk-based assessment rates is now in effect. The FDIC may increase or decrease the assessment rate in the future, and any such
increase could have an adverse impact on the earnings of insured institutions, including the Bank.
The Bank also is required to make payments for
the servicing of obligations of the Financing Corporation (FICO) issued in connection with the resolution of savings
and loan associations, so long as such obligations remain outstanding. The FICO annual assessment rate as of June 30, 2017 is $0.54
cents per $100 of deposits compared to $0.56 cents per $100 of deposits as of June 30, 2016.
The FDIC can terminate insurance of the Banks
deposits upon a finding that the Bank has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the OCC. The termination of deposit
insurance could have a material adverse effect on the Companys results of operations, business and financial condition.
The principal source of cash flow to the Company,
including cash flow to pay dividends on its common shares, is dividends from its subsidiaries and fees for services rendered to
its subsidiaries. Various statutory and regulatory provisions limit the amount of dividends or fees that may be paid to the Company
by the Bank. In general, the Bank may not declare or pay a dividend to the Company in excess of 100% of its net retained earnings
for the current calendar year combined with its net retained earnings for the preceding two calendar years without prior approval
of the OCC. The Company has not received any dividends from the Bank to date, and believes CalFirst Leasing and CalFirst Bank have
sufficient resources to meet the Companys requirements.
There
are numerous laws, regulations and policies affecting financial services businesses currently in effect and they are continually
under review by Congress and state legislatures and federal and state regulatory agencies. The Gramm-Leach-Bliley Act established
requirements for financial institutions to provide privacy protections to consumers and notices to customers about its privacy
policies and practices. The Bank Secrecy Act and USA Patriot Act impose obligations to maintain appropriate policies, procedures
and controls to detect, prevent and report suspicious activities, money laundering and terrorist financing as well as maintain
compliance programs to verify the identity of customers. The Dodd-Frank Act provides for
sweeping financial regulatory reform and may have the effect of increasing the cost of doing business, limiting or expanding permissible
activities and affect the competitive balance between banks and other financial intermediaries. Under the Dodd-Frank Act, the Consumer
Financial Protection Bureau (the CFPB) has assumed all authority to prescribe rules or issue orders or guidelines
pursuant to any federal consumer financial laws. While many of the provisions of the Dodd-Frank Act do not impact the existing
business of the Bank, the repeal of prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions
to pay interest on business transaction and other accounts, could increase deposit rates to be paid by the Bank in order to retain
or grow deposits. In addition, the provisions of the Dodd-Frank Act known as the Volcker Rule prohibit proprietary trading of securities
and other financial instruments that do not currently impact the Company but could limit future activities. Changes in the laws,
regulations or policies that impact the Company cannot necessarily be predicted, and they may have a material effect on the business
and earnings of the Company.
| 9 | |
California First National Bancorp and Subsidiaries
The commercial
banking business is also influenced by the monetary and fiscal policies of the federal government and the policies of the FRB.
The FRB implements national monetary policies through its management of the discount rate, the money supply, and reserve requirements
on bank deposits. Indirectly, such policies and actions may impact the ability of non-bank financial institutions to compete with
the Bank. Monetary policies of the FRB have had, and will continue to have, a significant effect on the operating results of financial
institutions. The nature and impact of any future changes in monetary or other policies of the FRB cannot be predicted.
**Employees**
At June 30,
2017, the Company and its subsidiaries had 98 employees, none of whom are represented by a labor union. The Company believes that
its relations with its employees are satisfactory.
**Available Information**
Our Internet
address is www.calfirstbancorp.com. There we make available, by link to the SEC, our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practical after we electronically
file such material with, or furnish it to, the SEC. Our SEC reports can be accessed through the Investor Relations section of our
Internet site. Our Corporate Governance Guidelines and our Code of Ethics for Senior Financial Management are available for viewing
and printing under the Corporate Governance section of our Internet site. The information found on our Internet site is not part
of this or any other report we file with or furnish to the SEC and is not incorporated herein by reference.
** **
**ITEM 1A. RISK FACTORS**
** **
**Forward-Looking Statements**
** **
**This Form 10-K contains forward-looking statements. Forward-looking
statements include, among other things, information concerning our possible future consolidated results of operations, business
and growth strategies, financing plans, our competitive position and the effects of competition, regulatory actions and economic
conditions. 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. Some
of the risks and uncertainties that may cause our actual results or performance to differ materially from such forward-looking
statements are included in Item 1A. Risk Factors of this report. All forward-looking statements are qualified
in their entirety by this cautionary statement and the Company undertakes no obligation to revise or update any forward-looking
statements to reflect events or circumstances arising after the date on which they were made.**
** **
There are a number of factors, including those
specified below, that may adversely affect the Companys business, financial results or stock price. Additional risks that
the Company currently does not know about or currently views as immaterial may also affect the Companys business or adversely
impact its financial results or stock price.
**Industry Risk Factors**
**The Companys business and financial
results are subject to general business and economic conditions.** The economic downturn and slow recovery reduced demand for
financing capital assets. Continued or renewed weakness in the economy or in certain sectors could impact the financial performance
and condition of customers and negatively affect the repayment of their obligations. In addition, changes in securities markets
and monetary fluctuations adversely affect the availability and terms of funding necessary to meet the Companys liquidity
needs.
**Changes in the domestic interest rate environment
could reduce the Companys net finance and interest income.**The Companys net finance and interest income, which
is the difference between income earned on leases, loans and investments and interest expense paid on deposits, is affected by
market rates of interest, which in turn are affected by prevailing economic conditions, by the fiscal and monetary policies of
the federal government and by the policies of various regulatory agencies. Since December 2016, the Federal Open Market Committee
(FOMC) of the FRB has increased short term interest rates three times from the near zero level maintained for several years,
but the timing and amount of any further increases is unclear. Increases in interest rates will increase the income earned on the
Companys available cash balances, but will also increase the Banks cost of funds over time. If the interest rates
on deposits and other borrowings increase at a faster rate than the interest rates received on leases, loans, securities and other
interest-earning investments, net interest income and therefore earnings, could be adversely affected.
****
| 10 | |
California First National Bancorp and Subsidiaries
** **
**Uncertain worldwide economic conditions and
volatility in the currency and credit markets may negatively impact the Company and its customers.**The Companys net
interest income is impacted by changes in market rates of interest, changes in credit spreads, changes in the shape of the yield
curve, and the interest rate sensitivity of our assets and liabilities. Interest earning assets and interest bearing liabilities
may react in different degrees to changes in market interest rates. Interest rates on some types of assets and liabilities may
fluctuate prior to changes in broader market interest rates, while rates on other types may lag behind. The result of these changes
to rates may cause differing spreads on interest earning assets and interest bearing liabilities, and a narrowing of the spread
between longer and shorter term rates tends to negatively impact net interest margins. Although the Bank employs a funding strategy
designed to correlate the repricing characteristics of assets with liabilities, the impact of interest rate movements and customer
demand is not always consistent during different market cycles, and changes in the costs for deposits and yields on assets may
not coincide. Foreign currency fluctuations have hurt the results of many businesses, including certain leveraged loan customers,
and may impact their ability to meet their obligations. These circumstances could not only result in increased loan defaults, and
charge-offs, but require increases to the allowance for credit losses which may materially and adversely affect our results of
operations, business, and financial condition.** **
** **
**Changes in the laws, regulations and policies
governing financial services companies could alter the Companys business environment and adversely affect operations.**The
Board of Governors of the Federal Reserve System regulates the supply of money and credit in the United States. Its fiscal and
monetary policies determine in a large part the Companys cost of funds and the return that can be earned on leases, loans
and investments, which affect the Companys net finance, loan and interest income.
**The Company and the Bank are subject to
a wide range of complex laws and regulations established by government entities.**Most regulation is intended to protect
depositors, federal deposit insurance funds and the banking system as a whole. Bank regulators can impose restrictions on the
ability of the Company to undertake certain business and growth initiatives. Following the 2008 financial crisis, regulators
increased their oversight of banks and have taken a more active role in imposing restrictions on bank loan operations, the
classification of assets and determination of the allowance for credit losses. Changes in laws or governmental regulations,
or changes in the interpretation of existing laws or regulations by a regulatory authority, have impacted the Company in
substantial and unpredictable ways. The Company cannot predict whether any additional legislation will be enacted, and if
enacted, the effect that it or any regulations would have on the Companys financial condition or results of
operations.
**Cyber security and privacy breaches may hurt
our business, damage our reputation, increase our costs, and cause losses.** Our systems and networks store all the Companys
business records as well as personal information about our customers and employees. We have security systems and information technology
infrastructure in place designed to protect against unauthorized access to such information. However, there is still a risk that
the security systems and infrastructure that we maintain may not be successful in protecting against all security breaches, employee
error, malfeasance, and cyber-attacks. Efforts have accelerated in recent months by parties seeking to obtain unauthorized access,
disable or degrade service or sabotage systems. Techniques change frequently and often are not recognized until launched and we
may be unable to anticipate these techniques or to implement adequate preventative measures. Third parties, including vendors that
provide services for our operations, could also be a source of security risk to us in the event of a failure of their own security
systems and infrastructure or outside parties may attempt to fraudulently induce employees or customers to disclose sensitive information
in order to gain access to our data or our customers' data. Any significant violations of data privacy could result in a loss of
confidence in the security of our products and services, the loss of business, litigation, regulatory investigations, and penalties
that could damage our reputation and adversely affect the growth of our business.
**The financial services industry is highly
competitive, and competitive pressures could intensify and adversely affect the Companys financial results.**The Company
operates in a highly competitive industry that could become even more competitive as a result of legislative, regulatory and technological
changes. The Company competes with other commercial banks, savings and loan associations, mutual savings banks, finance companies,
credit unions and investment companies, many of which have greater resources than the Company.
**Acts or threats of terrorism and political
or military actions taken by the United States or other governments could adversely affect general economic or industry conditions.**
** **
| 11 | |
California First National Bancorp and Subsidiaries
** **
**Company Risk Factors**
**Regulatory restrictions on the Banks
ability to originate syndicated commercial loans may not be rescinded which could have a long term negative impact on the Company.**
During the third quarter of fiscal 2017, the OCC directed the Bank to cease originating new syndicated commercial loans and to
take action to substantially reduce its concentration of leveraged loans. At March 31, 2017, $366.9 million, or 97% of the commercial
loan portfolio consisted of participations in syndicated transactions, with approximately $248.1 million, or 65%, characterized
as leveraged loans under guidance promulgated by federal bank regulators. Consequently, in order to comply with the
OCC directive, the net commercial loan portfolio declined by 18% during the 2017 fourth quarter to $306 million at June 30, 2017,
and is down 24% from $404 million at June 30, 2016. Syndicated loans have accounted for a substantial portion of the Companys
growth over the past few years. If regulatory restrictions on the Banks ability to originate syndicated commercial loans
are not lifted, it is expected that this will require further significant reductions in the Banks loan portfolio over the
next twelve months, and this will have a material adverse effect on the ability of the Company to grow its business and net interest
income. See Recent Events.
**The Bank is subject to increased liquidity
and interest rate risk as it is forced to reduce its loan portfolio.** While the Bank believes it can reduce the loan portfolio
in an orderly way so as to coordinate the decline with a reduction in deposits and other funding liabilities, consistent with a
prudent asset and liability management strategy, this process is complicated and management is not able to perfectly balance loan
repayments with deposit withdrawals. As a result, higher yielding loans have paid off before higher cost deposits used to fund
those loans have matured.
**The Banks steps to reduce deposits
by drastically cutting rates offered on CDs may have a long term negative effect on the Banks ability to raise deposits
in the future**. CalFirst Bank represents 94% of the Companys assets and bank deposits exceeded $468 million, or 239%
of stockholders equity at June 30, 2017. After the Bank eliminates the excess deposits, it will need to retain some portion
of its deposit base to fund the remaining portfolio. If the remaining deposits do not roll over, or previous customers do not return,
CalFirst Bank may be required to seek other sources of funds, including more expensive time deposits and borrowings, or sell more
assets. Depending on market conditions, rates paid on deposits and borrowings may be higher than currently paid or no longer available.
**The Bank and Company continue to be subject
to periodic examination by the FRB and the OCC** and if the Bank were found to be operating in an unsound or unsafe manner, or
in violation of any OCC directive, they could impose new or additional restrictions or requirements, including, but not limited
to activity or growth limitations, dividend restrictions, increased loan and lease loss reserve requirements, or other restrictions
that could have an adverse effect on the Bank or the Company.
**Market for capital asset lease financing
continues to show weak demand with competitive pricing.**The Companys volume of new lease originations in fiscal 2017
was down for the third year in a row, and the Company does not see signs of significant improvement in lease origination in the
near future.
** **
**The Companys allowance for credit
losses may not be adequate to cover actual losses.**The Companys subsidiaries retain approximately 90% of lease transactions
and all loans in their own portfolios, which expose the Company to credit risk. The Company maintains an allowance for credit losses
to provide for probable and estimable losses in the portfolio. The Companys allowance for credit losses is based on its
historical experience as well as industry data, an evaluation of the risks associated with its portfolios, including the size and
composition of the lease and loan portfolios, current economic conditions and concentrations within the portfolio. The allowance
for credit losses may not be adequate to cover losses resulting from unanticipated adverse changes in the economy or the financial
markets. If the credit quality of the customer base materially decreases, or if the reserve for credit losses is not adequate,
future provisions for credit losses could materially and adversely affect financial results.
**The Company may suffer losses in its lease
and loan portfolio despite its underwriting practices.**The Company seeks to mitigate the risks inherent in its lease and loan
portfolio by adhering to specific credit practices. Although the Company believes that its criteria are appropriate for the various
kinds of leases and loans it makes, the Company may incur losses on leases and loans that meet these criteria.
**Larger transactions and customer concentration
may increase the risk of loss in the event of the deterioration of one of these customers or industries.**At June 30, 2017,
leases aggregating to $17.6 million to one customer accounted for 3.5% of the Companys net investment in leases and loans,
with the ten largest customers representing 22% of the portfolio. Only one industry classification represented over 5% of the Companys
total investment in leases and loans, as public and private colleges and universities aggregated to 6.1%.
** **
****
| 12 | |
California First National Bancorp and Subsidiaries
** **
****
**The Banks commercial loan initiative
may increase the Companys risk of losses**. The commercial loan portfolio contains a number of commercial loans with relatively
larger balances than the average lease. About 62% of the portfolio consists of leveraged loans as characterized by
federal regulatory guidelines, with 15% of the commercial loan portfolio considered to be higher risk leveraged loans by the Company.
Based on the OCC directive to not extend the term of loans and reduce the concentration of leveraged loans, the Banks loans
are steadily being paid off, which in some cases might be for an amount less than the Banks carrying cost. No loan credit
is rated substandard, but the deterioration of one or a few of these loans could cause a significant increase in non-performing
loans. An increase in non-performing loans could result in an increase in the provision for credit losses and an increase in charge-offs,
all of which could have a material adverse effect on the Companys results of operations.
**The Companys diversification into
broader investment alternatives may increase the Companys risk of losses**. The Companys investment portfolio includes
U.S. Treasury and Agency Securities, corporate and municipal bonds and closed-end mutual funds, equity securities, in addition
to interest-earning deposits, short-term money market securities and federal funds. These securities subject the Company to increased
risk of volatility in the valuation of the investment, as well as greater interest and market risks. The deterioration of one or
a few of these investments on a permanent basis could result in an determination that the investment has been permanently impaired
and require a write-down of such investment, all of which could have a material adverse effect on the Companys results of
operations.
** **
**The change in residual value of leased assets
may have an adverse impact on the Companys financial results.** A portion of the Companys leases is subject to
the risk that the residual value of the property under lease will be less than the Companys recorded value. Adverse changes
in the residual value of leased assets can have a negative impact on the Companys financial results. The risk of changes
in the realized value of the leased assets compared to recorded residual values depends on many factors outside of the Companys
control.
** **
**The financial services business involves
significant operational risks.** Operational risk is the risk of loss resulting from the Companys operations, including,
but not limited to, the risk of fraud by employees or persons outside of the Company, the execution of unauthorized transactions
by employees, errors relating to transaction processing and technology, breaches of the internal control system and compliance
requirements, and failure of business continuation and disaster recovery plans. This risk of loss also includes the potential legal
actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards,
adverse business decisions or their implementation, and customer attrition due to potential negative publicity. In the event of
a breakdown in the internal control system, improper operation of systems or improper employee actions, the Company could suffer
financial loss, face regulatory action and suffer damage to its reputation.
** **
**Quarterly operating
results may fluctuate significantly.** Operating results may differ from quarter to quarter due to a variety of factors,
including the volume and profitability of leased property being remarketed, the size and credit quality of the lease and loan portfolio,
the interest rate environment, the volume of new lease and loan originations, including variations in the property mix and funding
of such originations and economic conditions in general. The results of any quarter may not be indicative of results in the future.
** **
**Negative publicity could damage the Companys
reputation and adversely impact its business and financial results.**Reputation risk, or the risk to the Companys business
from negative publicity, including recent disclosure related to the OCCs directive to the Bank, is inherent in the Companys
business. Negative publicity can result from the Companys actual or alleged conduct in any number of activities, including
leasing practices, compliance with bank regulations, corporate governance, and actions taken by government regulators in response
to those activities. Negative publicity can adversely affect the Companys ability to keep and attract customers and deposits
and can expose the Company to litigation and regulatory action.
** **
**The Companys reported financial results
are subject to certain assumptions and estimates and managements selection of accounting method.** The Companys
management must exercise judgment in selecting and applying many accounting policies and methods so they comply with generally
accepted accounting principles and reflect managements judgment of the most appropriate manner to report the Companys
financial condition and results. In some cases, management may select an accounting policy which might be reasonable under the
circumstances yet might result in the Companys reporting different results than would have been reported under a different
alternative.
**Certain accounting policies are critical
to presenting the Companys financial condition and results.** They require management to make difficult, subjective or
complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or
using different assumptions or estimates. These critical accounting policies include the estimate of residual values, the allowance
for credit losses, and income taxes. For more information, refer to Critical Accounting Policies and Estimates.
** **
****
| 13 | |
California First National Bancorp and Subsidiaries
** **
****
**Changes in accounting standards could materially
impact the Companys financial statements.**The Financial Accounting Standards Board (FASB) may change the financial
accounting and reporting standards that govern the preparation of the Companys financial statements. These changes can be
hard to predict and can materially impact how the Company records and reports its financial condition and results of operations.
Recently, FASB approved new accounting standards related to the accounting for leases and allowance for credit losses that could
change the Companys financial statements when implemented. In some cases, the Company could be required to apply a new or
revised standard retroactively, resulting in the Companys restating prior period financial statements.
** **
**Loss of certain key officers would adversely
affect the Companys business.** The Companys business and operating results are substantially dependent on certain
key employees, including the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Chief Credit Officer
of the Bank and certain key sales managers. The loss of the services of these individuals, particularly the Chief Executive Officer,
would have a negative impact on the business because of their expertise and years of industry experience.
**The Companys business could suffer
if the Company fails to attract and retain qualified people.**The Companys success depends, in large part, on its ability
to attract and retain key people. Competition for personnel in most activities the Company engages in can be intense. The Company
may not be able to hire the best people or to keep them.
** **
**The Company relies on other companies to
provide components of the Companys business infrastructure.**Third party vendors provide certain components of the Companys
business infrastructure, such as the Banks core processing and electronic banking systems, item processing, and Internet
connections. While the Company has selected these third party vendors carefully, it does not control their actions. Any problems
caused by these third parties not providing the Company their services for any reason or their performing their services poorly,
could adversely affect the Companys ability to deliver products and services to the Companys customers and otherwise
to conduct its business. Replacing these third party vendors could also entail significant delay and expense.
** **
**A natural disaster could harm the Companys
business.**Natural disasters could harm the Companys operations directly through interference with communications, including
the interruption or loss of the Companys websites, which would prevent the Company from gathering deposits, originating
leases and loans and processing and controlling its flow of business, as well as through the destruction of facilities and the
Companys operational, financial and management information systems.
** **
**The Company faces systems failure risks as
well as security risks, including hacking and identity theft.**The computer systems and network
infrastructure the Company and others use could be vulnerable to unforeseen problems. These problems may arise in both our internally
developed systems and the systems of our third-party service providers. Our operations are dependent upon our ability to protect
computer equipment against damage from fire, power loss or telecommunication failure. Any damage or failure that causes an interruption
in our operations could adversely affect our business and financial results. In addition, our computer systems and network infrastructure
present security risks, and could be susceptible to hacking or identity theft.
** **
**The Company relies on dividends from its
subsidiaries for its liquidity needs.**The Company is a separate and distinct legal entity from CalFirst Leasing and the Bank.
The principal source of funds to pay dividends on the Companys stock is from distributions from the subsidiaries. Various
regulations limit the amount of dividends that the Bank may pay to the Company.
** **
**The Companys stock price can be volatile.**The Companys common stock is not widely held and the limited trading market for the stock can result in fluctuations
in prices between trades and make it difficult for stockholders to dispose of their shares. The Companys stock price can
fluctuate widely in response to a variety of factors, including: actual or anticipated variations in the Companys quarterly
operating results and dividend policy; operating and stock price performance of other companies that investors deem comparable
to the Company; news reports relating to trends, concerns and other issues in the financial services industry, and changes in government
regulations. General market fluctuations, industry factors and general economic and political conditions and events, including
terrorist attacks, economic slowdowns or recessions, interest rate changes, credit loss trends or currency fluctuations, could
also cause the Companys stock price to decrease regardless of the Companys operating results.
** **
**The Company is a controlled company
as defined by NASDAQ, with 63% of the stock held by the Chief Executive Officer, 76% held by two senior executives and
fewer than 100 shareholders of record.** As a result, senior management has the ability to exercise significant influence over
the Companys policies and business, and determine the outcome of corporate actions requiring stockholder approval. These
actions may include, for example, the election of directors, the adoption of amendments to corporate documents, the approval of
mergers, sales of assets and the continuation of the Company as a registered company with obligations to file periodic reports
and other filings with the SEC.
**The Company
is eligible to delist its common stock from NASDAQ and deregister its common stock under the Exchange Act.** As a
public company listed on the NASDAQ Global Market, the Company is subject to the reporting requirements of the Exchange Act
and the listing standards of NASDAQ. The Company incurs costs and time to comply with these requirements and given the
limited public float and trading volume in the Companys stock, the benefits from continuing as a SEC reporting company
may not be supported. The Company is eligible to voluntarily delist its common stock from trading on NASDAQ and, as a bank
holding company with fewer than 1,200 stockholders of record, the Company is also eligible to deregister its common stock
under Section 12(g) of the Exchange Act. If the Company takes such actions and the Companys reporting obligations
under Section 15(d) of the Exchange Act are also suspended, the Companys common stock would not continue to be traded
on NASDAQ and the Companys reporting obligations with the SEC would cease. While the Companys common stock
could continue to be traded over-the-counter, including through an over-the-counter market such as the OTCQB or OTCQX if
elected by the Company, there can be no assurance that this wont have an adverse effect on the price of the common
stock or that an active trading market will continue to exist. If an active trading market is not maintained, the price and
liquidity of the Companys common stock may be adversely affected. Further, upon suspension of the Companys
reporting obligations under the Exchange Act, significantly less information about the Company may be publicly available,
which could also have an adverse effect on the price and liquidity of the Companys common stock.
| 14 | |
California First National Bancorp and Subsidiaries
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
At June 30, 2017 the Company and its subsidiaries
occupied approximately 36,000 square feet of office space in Irvine, California leased from an unaffiliated party. The lease provides
for monthly rental payments that average $60,100 from July 2017 through August 2018.
ITEM 3. LEGAL PROCEEDINGS
The Company is sometimes named as a defendant
in litigation relating to its business operations. Management does not expect the outcome of any existing suit to have a material
adverse effect on the Company's financial condition or results of operations.
** **
**Item 4. Mine Safety
Disclosures**
** **
Not applicable
** **
PART II
** **
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The common stock of California First National
Bancorp trades on the NASDAQ Global Market System under the symbol CFNB. The following high and low closing sale prices for the
periods shown reflect inter-dealer prices without retail markup, markdown or commissions and may not necessarily reflect actual
transactions.
|
| |
For the years ended |
| |
|
| |
June 30, 2017 | |
June 30, 2016 |
| |
|
| |
High | |
Low | |
High | |
Low |
| |
|
First Quarter | |
$ | 15.44 | | |
$ | 13.96 | | |
$ | 13.60 | | |
$ | 13.06 | |
| |
|
Second Quarter | |
| 16.15 | | |
| 13.87 | | |
| 13.70 | | |
| 13.11 | |
| |
|
Third Quarter | |
| 16.45 | | |
| 15.47 | | |
| 13.97 | | |
| 12.85 | |
| |
|
Fourth Quarter | |
$ | 19.30 | | |
$ | 15.85 | | |
$ | 15.00 | | |
$ | 13.45 | |
| |
The Company had approximately 14 stockholders
of record and in excess of 350 beneficial owners as of September 1, 2017.
Beginning in October 2009, the Board of Directors
dividend policy provided for one annual dividend payment each year. The Company paid an annual dividend in the amount of $0.42
on December 13, 2014, $0.44 on December 15, 2015 and $0.46 on December 15, 2016. The Board of Directors will continue to review
the dividend policy on an ongoing basis, taking into consideration a variety of factors including the business, economic and tax
environment. No decision to pay dividends in fiscal 2017 and beyond has been made.
In April 2001, the Board of Directors authorized
management, at its discretion, to repurchase up to 1,000,000 shares of common stock. This authorization has no termination date,
but the Board of Directors reviews the authorization to repurchase common stock from time to time. No shares were repurchased during
the years ended June 30, 2017 and 2015. The Company repurchased 180,117 shares of common stock under this authorization during
the year ended June 30, 2016. As of September 10, 2017, 188,237 shares remain available under this authorization.
| 15 | |
California First National Bancorp and Subsidiaries
Common Stock Performance Graph
The following graph shows a comparison of the
five-year cumulative return among the Company, the NASDAQ Composite Index and the Russell 2000. The graph assumes an investment
of $100 on June 30, 2012 in our common stock and in each of the indices listed on the graph and reflects the change in the market
price of our common stock relative to the changes in the noted indices at June 30, 2013, 2014, 2015, 2016 and 2017. The performance
shown below is based on historical data and is not indicative of, nor intended to forecast, future price performance of our common
stock. As required by Securities and Exchange Commission rules, total return in each case assumes the reinvestment of dividends
paid.
Equity Compensation Plan Information
The following table provides information about
shares of the Companys Common Stock that may be issued upon the exercise of options under our existing equity compensation
plans as of June 30, 2017.
|
Plan category | |
Number
of shares of common
stock to be issued upon exercise
of outstanding options | |
Weighted
average
exercise price of
outstanding options | |
Number
of shares of common stock available
for future issuance under equity compensation
plans (excluding shares in first column)(1) | |
|
Equity compensation plans approved by shareholders | |
| 6,000 | | |
$ | 16.00 | | |
| 2,322,643 | | |
|
Equity compensation plans not approved by shareholders | |
| None | | |
| N/A | | |
| N/A | | |
|
Total | |
| 6,000 | | |
$ | 16.00 | | |
| 2,322,643 | (1) | |
|
(1) | | The maximum number of shares that may be issued under the equity compensation plan
increases each year by an amount equal to 1% of the total number of issued and outstanding shares of Common Stock as of June 30
of the fiscal year immediately preceding such fiscal year. |
|
| 16 | |
California First National Bancorp and Subsidiaries
** **
**ITEM 6. SELECTED FINANCIAL DATA**
The following table sets forth selected financial
data and operating information of the Company and its subsidiaries. The selected financial data should be read in conjunction with
the Financial Statements and notes thereto and Management's Discussion and Analysis of Results of Operations and Financial Condition
contained herein.
|
INCOME STATEMENT FINANCIAL DATA | |
YEARS ENDED JUNE 30, | |
|
(in thousands, except per share amounts) | |
2017 | |
2016 | |
2015 | |
2014 | |
2013 | |
|
| |
| |
| |
| |
| |
| |
|
Finance and loan income | |
$ | 26,234 | | |
$ | 25,471 | | |
$ | 21,489 | | |
$ | 18,370 | | |
$ | 18,995 | | |
|
Investment and interest income | |
| 3,014 | | |
| 2,230 | | |
| 1,516 | | |
| 1,371 | | |
| 2,408 | | |
|
Total interest income | |
| 29,248 | | |
| 27,701 | | |
| 23,005 | | |
| 19,741 | | |
| 21,403 | | |
|
Interest expense on deposits and borrowings | |
| 7,229 | | |
| 6,210 | | |
| 3,945 | | |
| 3,037 | | |
| 2,664 | | |
|
Net interest income | |
| 22,019 | | |
| 21,491 | | |
| 19,060 | | |
| 16,704 | | |
| 18,739 | | |
|
Provision for credit losses | |
| 250 | | |
| 1,475 | | |
| 1,175 | | |
| 200 | | |
| 275 | | |
|
Net interest income after provision for credit losses | |
| 21,769 | | |
| 20,016 | | |
| 17,885 | | |
| 16,504 | | |
| 18,464 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Operating and sales-type lease income | |
| 2,716 | | |
| 1,146 | | |
| 305 | | |
| 2,152 | | |
| 1,711 | | |
|
Gain on sale of leases and leased property | |
| 4,336 | | |
| 3,497 | | |
| 4,791 | | |
| 2,980 | | |
| 2,278 | | |
|
Other income | |
| 387 | | |
| 220 | | |
| 3,132 | | |
| 432 | | |
| 526 | | |
|
Realized gain on sale of investment securities | |
| - | | |
| 23 | | |
| 481 | | |
| - | | |
| 316 | | |
|
Total non-interest income | |
| 7,439 | | |
| 4,886 | | |
| 8,709 | | |
| 5,564 | | |
| 4,831 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Non-interest expenses | |
| 10,484 | | |
| 10,834 | | |
| 11,779 | | |
| 10,995 | | |
| 11,610 | | |
|
Earnings before income taxes | |
| 18,724 | | |
| 14,068 | | |
| 14,815 | | |
| 11,073 | | |
| 11,685 | | |
|
Income taxes | |
| 7,601 | | |
| 5,420 | | |
| 5,760 | | |
| 4,022 | | |
| 4,331 | | |
|
Net earnings | |
$ | 11,123 | | |
$ | 8,648 | | |
$ | 9,055 | | |
$ | 7,051 | | |
$ | 7,354 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Diluted earnings per share | |
$ | 1.08 | | |
$ | 0.83 | | |
$ | 0.87 | | |
$ | 0.67 | | |
$ | 0.70 | | |
|
Diluted common shares outstanding | |
| 10,280 | | |
| 10,399 | | |
| 10,460 | | |
| 10,456 | | |
| 10,453 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Cash dividends per share | |
$ | 0.46 | | |
$ | 0.44 | | |
$ | 0.42 | | |
$ | 0.40 | | |
$ | 2.20 | | |
|
Dividend payout ratio | |
| 42.5 | % | |
| 53.2 | % | |
| 48.5 | % | |
| 59.3 | % | |
| 312.6 | % | |
|
Net interest margin | |
| 2.71 | % | |
| 2.78 | % | |
| 3.15 | % | |
| 3.22 | % | |
| 3.77 | % | |
|
Net interest spread | |
| 2.47 | % | |
| 2.54 | % | |
| 2.88 | % | |
| 2.92 | % | |
| 3.41 | % | |
|
Return on average assets | |
| 1.30 | % | |
| 1.06 | % | |
| 1.39 | % | |
| 1.30 | % | |
| 1.40 | % | |
|
Return on average equity | |
| 5.78 | % | |
| 4.59 | % | |
| 4.87 | % | |
| 3.90 | % | |
| 4.00 | % | |
|
BALANCE SHEET DATA | |
AS OF JUNE 30, | |
|
(in thousands, except per share amounts) | |
2017 | |
2016 | |
2015 | |
2014 | |
2013 | |
|
| |
| |
| |
| |
| |
| |
|
Cash and cash equivalents | |
$ | 96,055 | | |
$ | 105,094 | | |
$ | 60,240 | | |
$ | 40,122 | | |
$ | 75,469 | | |
|
Investment securities | |
| 99,790 | | |
| 99,801 | | |
| 84,546 | | |
| 29,316 | | |
| 48,162 | | |
|
Net investment in leases and loans | |
| 496,807 | | |
| 641,410 | | |
| 541,786 | | |
| 455,805 | | |
| 416,569 | | |
|
Total assets | |
| 715,585 | | |
| 888,176 | | |
| 731,074 | | |
| 579,550 | | |
| 558,903 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Deposits | |
| 468,634 | | |
| 633,147 | | |
| 471,906 | | |
| 355,810 | | |
| 346,028 | | |
|
Borrowings | |
| 40,000 | | |
| 40,000 | | |
| 42,000 | | |
| 6,858 | | |
| - | | |
|
Non-recourse debt | |
| 279 | | |
| 4,449 | | |
| 10,193 | | |
| 8,640 | | |
| 768 | | |
|
Stockholders equity | |
$ | 196,134 | | |
$ | 191,022 | | |
$ | 188,218 | | |
$ | 183,745 | | |
$ | 180,879 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Equity to total assets ratio | |
| 27.41 | % | |
| 21.51 | % | |
| 25.75 | % | |
| 31.70 | % | |
| 32.36 | % | |
|
Book value per common share | |
$ | 19.07 | | |
$ | 18.58 | | |
$ | 17.99 | | |
$ | 17.57 | | |
$ | 17.31 | | |
| 17 | |
California First National Bancorp and Subsidiaries
**ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS**
** **
General
** **
The Companys results include the operations
of CalFirst Bank and CalFirst Leasing. The Companys finance, loan and interest income includes interest income earned on
the Companys investment in lease receivables and residuals, commercial loans and investment securities. Non-interest income
primarily includes gains realized on the sale of leased property, income from sales-type and operating leases, gains realized on
the sale of leases, gains or losses recorded on investment securities and other income. Income from sales-type leases relates to
the re-lease of off-lease property (lease extensions) while operating lease income generally involves lease extensions
that do not meet the accounting requirements for sales-type leases.
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 interest rate environment, the volume and profitability of leased property being re-marketed through re-lease or sale, 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 Companys principal market risk exposure currently is related
to interest rates and the differences in the repricing characteristics of interest-earning assets and interest-bearing liabilities.
The FRB maintained historically low market interest rates from 2009 to 2016 thats contributed to lower net interest
margins. The Companys current balance sheet structure is short-term in nature, with over 70% of interest-earning assets
and 90% of interest-bearing liabilities that mature or reprice within one year. The Companys interest margin is susceptible
to timing lags related to varying movements in market interest rates. Many of the Companys 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 result
in 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 investment in leases and loans held in its own portfolio, securities, lease transactions-in-process,
and residual investments. The Company takes steps to manage risks through the implementation of strict credit and risk management
processes and on-going risk management review procedures.
Critical Accounting Policies and Estimates
The preparation of the Companys 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 managements 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 following is a description of the most critical accounting policies management applies,
all of which require the use of accounting estimates and managements judgment, based on the relevant information available
at the end of each period.
**Allowance for Credit Losses** The allowance for credit
losses provides coverage for probable and estimable losses in the Companys lease and commercial loan portfolios. The allowance
recorded is based on a quarterly review of all leases and loans outstanding, loan commitments and transactions-in-process. The
determination of the appropriate amount of any provision is highly dependent on managements judgment at that time and takes
into consideration all known relevant internal and external factors that may affect the lease and loan portfolio, including levels
of non-performing leases and loans, customers financial condition, leased property values and collateral appraisals as well as
general economic conditions and credit quality indicators. The Companys allowance includes an estimate of reserves needed
to cover specifically identified lease and loan losses and certain unidentified but inherent risks in the portfolio.
**Fair Value of Investments** Investment securities are
characterized as held-to-maturity (Investments) or as available-for-sale (Securities Available-for-Sale) based on managements
ability and intent regarding such investment at acquisition. On an ongoing basis, management must estimate the fair value of its
investment securities based on information and assumptions it deems reliable and reasonable, which may be quoted market prices
or if quoted market prices are not available, fair values extrapolated from the quoted prices of similar instruments. Based on
this information, an assessment must be made as to whether any decline in the fair value of an investment security should be considered
an other-than-temporary impairment and recorded in non-interest income as a loss on investments. The determination of such impairment
is subject to a variety of factors, including managements judgment and experience.
| 18 | |
California First National Bancorp and Subsidiaries
**Residual Values** For capital leases that qualify as
direct financing leases, the aggregate lease payments receivable and estimated residual value, if any, are recorded on the balance
sheet, net of unearned income and allowances, as net investment in leases. Of the volume of leases booked during the fiscal years
ended June 30, 2017, 2016 and 2015, approximately 6.7%, 6.8% and 15.9%, respectively, were structured such that the Company owns
the leased asset at the end of the term and recorded a residual value. The residual value is an estimate for accounting purposes
of the fair value of the leased property at lease termination and is determined at the inception of the lease based on the property
leased and the terms and conditions of the underlying lease contract. The realizability of any estimated residual value depends
on future collateral values, contractual options available to the lessee, the credit of the lessee, market conditions and other
subjective and qualitative factors. The estimated residual values established at lease inception are periodically reviewed to determine
if values are realizable and any identified losses are recognized at such time.
**Initial Direct Costs Deferred **A portion of the Companys
non-interest expenses that management estimates is directly related to originating lease and loan transactions is deferred through
a reduction to non-interest expenses recognized in a period. The amount deferred reflects managements estimate of the expenses
applicable to the origination process, taking into account a variety of factors including sales productivity, credit and documentation
efficiency and estimates of completion percentages.
**Deferred Income Taxes and Valuation Allowance** Deferred
tax assets and liabilities result from temporary differences between the time income or expense items are recognized for financial
statement purposes and for tax reporting. Such amounts are calculated using the enacted tax rates and laws that are expected to
be in effect when the differences are expected to reverse. The determination of current and deferred income taxes is based on complex
analyses of many factors including interpretation of federal and state income tax laws, the difference between tax and financial
reporting basis of assets and liabilities (temporary differences), estimates of amounts due or owed such as the timing of reversals
of temporary differences and current financial accounting standards. A valuation allowance is established if, based upon the relevant
facts and circumstances, management believes that some or all of certain tax assets will not be realized. The Company has open
tax years that may in the future be subject to examination by federal and state taxing authorities. Management periodically evaluates
the adequacy of related valuation allowances, taking into account open tax return positions, tax assessments received and tax law
changes. The process of evaluating allowance accounts involves the use of estimates and a high degree of management judgment. Actual
results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax
liabilities and reserves.
**Loans Held for Sale** Loans that were originated with the intent
to hold but subsequently designated as being held for sale are recorded at the lower of cost or fair value at the time of transfer
to held for sale. Fair value is determined by firm purchase commitments or quoted prices and if cost exceeds fair value at the
transfer date, the difference is taken as a charge against the allowance for loan losses. Loans held for sale continue to be carried
at the lower of cost or fair value until sold, with any subsequent decline in fair value recorded as a valuation allowance for
held for sale loans and then reflected in the gain or loss on sale when sold.
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, Trends and Outlook**
Net earnings for the year ended June 30, 2017
of $11.12 million increased $2.5 million, or 28.6%, from $8.65 million reported in fiscal 2016. Fiscal 2017 pre-tax income of $18.7
million was up 33.1%, benefitting from a $1.8 million increase in net interest income after provision for credit losses and a $2.6
million increase in non-interest income.
For the year ended June 30, 2017, total leases
and loans booked of $231.2 million were 33.7% below fiscal 2016 bookings of $348.5 million. Commercial loans boarded of $123.5
million were down 48% from the $238.1 million boarded in fiscal 2016, and new lease bookings of $107.6 million decreased 2.5% from
the $110.4 million booked in the prior fiscal year. The Companys net investment in leases and loans of $496.8 million at
June 30, 2017 decreased 23% from $641.4 million at June 30, 2016, which included a 24% decrease in commercial loans and a 19.7%
decline in the investment in leases. See Recent Events.
New lease and loan transactions approved (lease
and loan originations) of $213.7 million during fiscal 2017 were 42% below the level of the prior year. Fiscal 2017 loan
originations of $116.9 million were down $102.6 million or 47% from $219.5 million in fiscal 2016. Lease originations during fiscal
2017 of $96.7 million were down 34% from $146.7 million the prior year. As a result, the estimated backlog of approved lease and
loan commitments of $59.7 million at June 30, 2017 is down 33% from $89.4 million at June 30, 2016, with 95% of the backlog related
to leases.
| 19 | |
California First National Bancorp and Subsidiaries
Consolidated Statement of Earnings Analysis
**Summary** For the fiscal year ended
June 30, 2017, net earnings of $11.12 million increased by 29% or $2.5 million from $8.65 million for fiscal 2016. Diluted earnings
per share increased 30.1% to $1.08 in fiscal 2017 from $0.83 fiscal 2016. Net interest income after provision for credit losses
increased $1.8 million and non-interest income increased $2.6 million while non-interest expenses decreased 3.2%.
**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 or other borrowings. Net interest income is affected by changes in the volume and mix of interest
earning assets and liabilities, the movement of interest rates, and funding and pricing strategies.
The following table presents the components
of the increases (decreases) in net interest income by volume and rate:
|
| |
2017 compared to 2016 | |
2016 compared to 2015 | |
|
| |
Volume | |
Rate | |
Total | |
Volume | |
Rate | |
Total | |
|
| |
(in thousands) | |
| |
|
Interest income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Net investment in leases | |
$ | (3,193 | ) | |
$ | 970 | | |
$ | (2,223 | ) | |
$ | (1,786 | ) | |
$ | 412 | | |
$ | (1,374 | ) | |
|
Commercial loans | |
| 2,505 | | |
| 482 | | |
| 2,987 | | |
| 5,302 | | |
| 54 | | |
| 5,356 | | |
|
Investment securities | |
| 80 | | |
| 126 | | |
| 206 | | |
| 932 | | |
| (380 | ) | |
| 552 | | |
|
Interest-earning deposits with banks | |
| 111 | | |
| 466 | | |
| 577 | | |
| 44 | | |
| 118 | | |
| 162 | | |
|
Total interest income | |
| (497 | ) | |
| 2,044 | | |
| 1,547 | | |
| 4,492 | | |
| 204 | | |
| 4,696 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Interest expense | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Demand and savings deposits | |
| 112 | | |
| 202 | | |
| 314 | | |
| 27 | | |
| 84 | | |
| 111 | | |
|
Time deposits | |
| 418 | | |
| 252 | | |
| 670 | | |
| 1,427 | | |
| 582 | | |
| 2,009 | | |
|
Short-term borrowings | |
| (39 | ) | |
| 74 | | |
| 35 | | |
| 96 | | |
| 49 | | |
| 145 | | |
|
Total interest expense | |
| 491 | | |
| 528 | | |
| 1,019 | | |
| 1,550 | | |
| 715 | | |
| 2,265 | | |
|
Net interest income | |
$ | (988 | ) | |
$ | 1,516 | | |
$ | 528 | | |
$ | 2,972 | | |
$ | (511 | ) | |
$ | 2,431 | | |
Net interest income increased 2.5% to $22.0
million for the fiscal year ended June 30, 2017 compared to $21.5 million for fiscal 2016. Total interest income increased 5.6%
to $29.2 million compared to $27.7 million in fiscal 2016. This increase was due to a $3.0 million, or 24.6%, increase in commercial
loan income resulting from a 20.6% increase in average loan balances to $400.2 million from $331.8 million for fiscal 2016, and
a 12 basis point increase in average yields earned to 3.78%. The increase in loan yields reflects some benefit from higher Libor
rates, but was offset by narrower pricing spreads. Direct finance income declined 16.7% for the year to $11.1 million, reflecting
a 24.0% decrease in average investment in leases to $204.8 million which offset a 47 basis point increase in average lease yield
to 5.42%. The 2017 lease yield benefitted from the recognition of $1.4 million of finance income related to a transaction in process
that was unwound in bankruptcy and from accelerated finance income from other early lease terminations. This boosted the yield
by 70 basis points while fiscal 2016 benefitted from accelerated finance income for early terminations of 23 basis points. Without
these benefits, the average lease yield for fiscal 2017 remained flat. Investment interest income in fiscal 2017 was up 35.1% to
$3.0 million, reflecting a 41% increase in average cash balances to $110.7 million and 42 basis point improvement in average yield
to 0.76% due to higher rates earned on Fed Funds. In addition, yields on investments increased 13 basis points on a 4% increase
in average balances. Interest expense on deposits and borrowings increased 16.4% to $7.2 million, reflecting a 7.5% increase in
average balances to $640.8 million and a 9 basis point increase in average cost to 1.13%. The rise in interest cost for fiscal
2017 includes a 6 basis point increase in average cost of deposits to 1.16% and a $54.2 million increase in average deposits, tempered
by a $9.3 million decrease in average borrowings at an average rate of 0.61%.
The average yield on all interest-earning assets
in fiscal 2017 of 3.60% was up by 1 basis point from the prior year while the average rate paid on all interest-bearing liabilities
increased by 9 basis points. The small increase in average yield, despite the benefit of accelerated finance income discussed above,
reflects the increase of lower yielding commercial loans to 49% of average interest earning assets from 43% in fiscal 2016. As
a result, the net interest margin and spread for fiscal 2017 were down slightly from the prior year.
| 20 | |
California First National Bancorp and Subsidiaries
Net interest income increased 12.8% to $21.5
million for the fiscal year ended June 30, 2016 compared to $19.1 million for fiscal 2015. Total interest income increased 20.4%
to $27.7 million compared to $23.0 million in fiscal 2015. This increase was due to a $5.4 million, or 79%, increase in commercial
loan income resulting from a 78% increase in average loan balances to $331.8 million from $186.4 million for fiscal 2015, and a
2 basis point increase in average yields earned to 3.66%. The minor increase in loan yields reflects some benefit from an increase
in Libor rates, but was offset by narrower pricing spreads. Direct finance income declined 9% for the year to $13.3 million, reflecting
a 12% decrease in average investment in leases to $269.4 million which offset a 15 basis point increase in average lease yield
to 4.95%. The yield on leases benefitted from the early termination of leases that accelerated interest income recognition. Investment
interest income in fiscal 2016 was up 47% to $2.2 million, reflecting a 54% increase in average cash and investment balances to
$171.4 million and 6 basis point drop in average yields to 1.30%. While average yields on interest-earning deposits with banks
increased 15 basis points, average yields on investment balances declined by 41 basis points as lower yielding treasury and mortgage
securities replaced maturing corporate securities. Interest expense on deposits and borrowings increased 57% to $6.2 million, reflecting
a 40% increase in average balances to $595.8 million and an 11 basis point increase in average cost to 1.04%. The rise in interest
cost for fiscal 2016 includes a 14 basis point increase in average cost of deposits to 1.10% and a $141 million increase in average
deposits, tempered by a $30 million increase in average borrowings at an average rate of 0.42%.
The following table presents the Companys
average balance sheets, finance and loan income and interest earned or interest paid, the related yields and rates on major categories
of the Companys interest-earning assets and interest-bearing liabilities:
|
(dollars in thousands) | |
Year ended June 30, 2017 | |
Year ended June 30, 2016 | |
Year ended June 30, 2015 | |
|
| |
Average | | |
| | |
Yield/ | |
Average | | |
| | |
Yield/ | |
Average | | |
| | |
Yield/ | |
|
Assets | |
Balance | | |
Interest | | |
Rate | |
Balance | | |
Interest | | |
Rate | |
Balance | | |
Interest | | |
Rate | |
|
Interest-earning assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Interest-earning deposits with banks | |
$ | 110,660 | | |
$ | 846 | | |
| 0.76 | % | |
$ | 78,251 | | |
$ | 269 | | |
| 0.34 | % | |
$ | 55,374 | | |
$ | 107 | | |
| 0.19 | % | |
|
Investment securities | |
| 96,949 | | |
| 2,168 | | |
| 2.24 | % | |
| 93,170 | | |
| 1,961 | | |
| 2.10 | % | |
| 56,082 | | |
| 1,409 | | |
| 2.51 | % | |
|
Commercial loans | |
| 400,222 | | |
| 15,134 | | |
| 3.78 | % | |
| 331,818 | | |
| 12,148 | | |
| 3.66 | % | |
| 186,357 | | |
| 6,792 | | |
| 3.64 | % | |
|
Net investment in leases (1) | |
| 204,847 | | |
| 11,100 | | |
| 5.42 | % | |
| 269,419 | | |
| 13,323 | | |
| 4.95 | % | |
| 306,697 | | |
| 14,697 | | |
| 4.79 | % | |
|
Total interest-earning assets | |
| 812,678 | | |
| 29,248 | | |
| 3.60 | % | |
| 772,658 | | |
| 27,701 | | |
| 3.59 | % | |
| 604,510 | | |
| 23,005 | | |
| 3.81 | % | |
|
Other assets | |
| 40,204 | | |
| | | |
| | | |
| 40,402 | | |
| | | |
| | | |
| 45,625 | | |
| | | |
| | | |
|
| |
$ | 852,882 | | |
| | | |
| | | |
$ | 813,060 | | |
| | | |
| | | |
$ | 650,135 | | |
| | | |
| | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Liabilities and Shareholders' Equity | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Interest-bearing liabilities | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Demand and savings deposits | |
$ | 91,374 | | |
| 756 | | |
| 0.83 | % | |
$ | 72,829 | | |
| 441 | | |
| 0.61 | % | |
$ | 67,338 | | |
| 330 | | |
| 0.49 | % | |
|
Time deposits | |
| 509,378 | | |
| 6,231 | | |
| 1.22 | % | |
| 473,751 | | |
| 5,562 | | |
| 1.17 | % | |
| 338,080 | | |
| 3,553 | | |
| 1.05 | % | |
|
FHLB borrowings | |
| 40,000 | | |
| 242 | | |
| 0.61 | % | |
| 49,254 | | |
| 207 | | |
| 0.42 | % | |
| 19,334 | | |
| 62 | | |
| 0.32 | % | |
|
Total interest bearing liabilities | |
| 640,752 | | |
| 7,229 | | |
| 1.13 | % | |
| 595,834 | | |
| 6,210 | | |
| 1.04 | % | |
| 424,752 | | |
| 3,945 | | |
| 0.93 | % | |
|
Non-interest bearing demand deposits | |
| 2,908 | | |
| | | |
| | | |
| 2,134 | | |
| | | |
| | | |
| 2,024 | | |
| | | |
| | | |
|
Other liabilities | |
| 16,880 | | |
| | | |
| | | |
| 26,743 | | |
| | | |
| | | |
| 37,278 | | |
| | | |
| | | |
|
Shareholders' equity | |
| 192,342 | | |
| | | |
| | | |
| 188,349 | | |
| | | |
| | | |
| 186,081 | | |
| | | |
| | | |
|
| |
$ | 852,882 | | |
| | | |
| | | |
$ | 813,060 | | |
| | | |
| | | |
$ | 650,135 | | |
| | | |
| | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Net interest income | |
| | | |
$ | 22,019 | | |
| | | |
| | | |
$ | 21,491 | | |
| | | |
| | | |
$ | 19,060 | | |
| | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Net interest spread (2) | |
| | | |
| | | |
| 2.47 | % | |
| | | |
| | | |
| 2.55 | % | |
| | | |
| | | |
| 2.88 | % | |
|
Net interest margin (3) | |
| | | |
| | | |
| 2.71 | % | |
| | | |
| | | |
| 2.78 | % | |
| | | |
| | | |
| 3.15 | % | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Average interest earning assets over
average
interest bearing liabilities | |
| | | |
| | | |
| 126.8 | % | |
| | | |
| | | |
| 129.7 | % | |
| | | |
| | | |
| 142.3 | % | |
|
(1) |
Average balance is based on month-end balances, includes non-accrual leases, and is presented net of unearned income. | |
|
(2) |
Net interest spread is equal to the difference between the average yield on interest earning assets and the average rate paid
on interest-bearing liabilities. | |
|
(3) |
Net interest margin represents net finance and interest income as a percent of average interest earning assets. | |
**Provision for Credit Losses** The
Company recorded a provision for credit losses in fiscal 2017 of $250,000, compared to a provision of $1.48 million recorded in
fiscal 2016 and a provision of $1.18 million in fiscal 2015. The provision in fiscal 2017 included a release of $650,000 of reserves
during the fourth quarter following the 32% decline in the commercial loan portfolio between December 31, 2016 and June 30, 2017,
and a $200,000 recovery recognized in the quarter. The provision in fiscal 2016 covered the $1.0 million write-down during the
second quarter of a lease in bankruptcy as well as 66% growth in the loan portfolio. The fiscal 2015 provision related to the 88%
growth in the commercial loan portfolio and some increased credit risk in the lease portfolio. At June 30, 2017, the allowance
for credit losses of $7.15 million, 1.4% of total leases and loans, is considered to be appropriate for the credit profile of the
consolidated portfolio.
| 21 | |
California First National Bancorp and Subsidiaries
**Total Non-interest Income** Total
non-interest income for fiscal 2017 of $7.4 million was up 52.3% from $4.9 million in fiscal 2016. The increase reflects gains
on the sale of leases and loans of $2.5 million in fiscal 2017 compared to $1.0 million in fiscal 2016. Income from leases reaching
their end-of-term increased 24% to $4.6 million in fiscal 2017 from $3.7 million in fiscal 2016.
Total non-interest income for fiscal 2016 of
$4.9 million was down 43.9% from $8.7 million in fiscal 2015. Non-interest income for the prior year included the pre-tax recovery
of $2,743,920 from the settlement of claims filed in a TFT-LCD (thin-film transistor liquid display) products antitrust case. Excluding
that income from the prior year, non-interest income for fiscal 2016 was still down by $1.08 million or 18% due to a $1.3 million
decrease in gains from the sale of leases and $458,600 decline in securities gains, offset in part by a $706,000 increase in income
from the release of property on leases reaching the end of term during the year.
** **
**Non-interest Expenses** The Companys
non-interest expenses decreased $350,000, or 3.2%, to $10.5 million recognized for the year ended June 30, 2017. This compared
to non-interest expenses in fiscal 2016 of $10.8 million, which had decreased by $945,000, or 8.0%, from $11.8 million in fiscal
2015. The decrease in expenses in fiscal 2017 compared to fiscal 2016 was due primarily to the sale of the repossessed asset offset
in part by higher compensation and benefits cost recognized.
The Companys non-interest expenses decreased
$945,000, or 8.0%, to $10.8 million recognized for the year ended June 30, 2016. This compared to non-interest expenses in fiscal
2015 of $11.8 million, which had increased by $784,000, or 7.1%, from $11.0 million in fiscal 2014. The decrease in expenses in
fiscal 2016 compared to fiscal 2015 was due primarily to a decrease in sales compensation and benefits cost recognized, offset
in part by charges taken to write-down the value of a repossessed asset.
Income Taxes Income
taxes were accrued at a tax rate of 40.6% for the fiscal year ended June 30, 2017, 38.5% for fiscal year ended June 30, 2016 and
38.9% for fiscal year ended June 30, 2015, representing the Companys estimated effective tax rate for each respective year.
The effective tax rate increased in fiscal 2017 compared to 2016 due to the increase in the effective federal tax rate and the
estimated state tax rate resulting from apportionment changes. The effective tax rate decreased slightly in fiscal 2016 compared
to 2015 due to the decrease in the effective state tax rate.
**Financial Condition Analysis**
Lease and Loan Portfolio
The following table summarizes the Companys consolidated lease and loan portfolio
by category:
|
| |
June 30, | |
| |
|
| |
2017 | | |
2016 | | |
2015 | | |
2014 | | |
2013 | |
| |
|
| |
(in thousands) | |
| |
|
Net investment in leases | |
$ | 192,741 | | |
$ | 239,964 | | |
$ | 301,733 | | |
$ | 329,935 | | |
$ | 345,753 | |
| |
|
Commercial loans | |
| 306,826 | | |
| 401,629 | | |
| 238,978 | | |
| 123,238 | | |
| 66,541 | |
| |
|
Commercial real estate loans | |
| 4,387 | | |
| 6,679 | | |
| 7,531 | | |
| 7,920 | | |
| 9,411 | |
| |
|
Total leases and loans | |
| 503,954 | | |
| 648,272 | | |
| 548,242 | | |
| 461,093 | | |
| 421,705 | |
| |
|
Less allowance for credit losses | |
| (7,147 | ) | |
| (6,862 | ) | |
| (6,456 | ) | |
| (5,288 | ) | |
| (5,136 | ) |
| |
|
Net leases and loans | |
$ | 496,807 | | |
$ | 641,410 | | |
$ | 541,786 | | |
$ | 455,805 | | |
$ | 416,569 | |
| |
Lease Portfolio
During the fiscal year ended June 30, 2017,
80% of the property value of new leases booked by the Company was held in its own portfolio, compared to 89% during fiscal 2016
and 88% during fiscal 2015. For the fiscal year ended June 30, 2017, the Companys net investment in lease receivables decreased
by $42.7 million and the investment in estimated residual values decreased by $4.2 million. The decrease in the investment in lease
receivables reflects the low volume of new lease bookings that didnt offset payments received and includes the sale or assignment
of $43.1 million of lease receivables. The decrease in investment in residual values is due to a lower volume of new leases on
which the Company records a residual compared to the volume of residual values recognized during the year.
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 made to facilitate
the lessees property implementation schedule. The lessee generally is contractually obligated by the lease to make rental
payments directly to the Company during the period that the transaction is in process, and 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 June 30, 2017, the Companys investment in property acquired for transactions-in-process was $17.1 million,
down from $30.9 million at June 30, 2016, and $31.3 million at June 30, 2015.
| 22 | |
California First National Bancorp and Subsidiaries
The Company leases capital assets to businesses
and other commercial or non-profit organizations. All leases are secured by the underlying property being leased. The Companys
strategy is to develop lease portfolios with risk/reward profiles that meet its objectives and avoid risks that do not meet these
requirements through the use of non-recourse financing. The strategy emphasizes diversification on both a geographic and customer
level, and spreading the Companys risk across a breadth of leases. The average size of lease transactions over the past
three years has fluctuated from $751,000 to $1.1 million. During the year ended June 30, 2017, three commercial credits accounted
for 12.8%, 9.9% and 9.3% of the property cost of leases booked during the fiscal year, respectively, with the five largest commercial
accounts aggregating to 44% of leases booked. During the year ended June 30, 2016, two commercial credits accounted for 18.1% and
13.2% of the property cost of leases booked during the fiscal year, respectively, with the five largest commercial accounts aggregating
to 47% of leases booked. During the year ended June 30, 2015, two commercial credits accounted for 14.1% and 12%, respectively,
of the property cost of leases booked during the fiscal year, with the five largest commercial accounts aggregating to 41% of leases
booked. At June 30, 2017, one customer accounted for 3.5% of the Companys net investment in leases, compared to one customer
accounting for 9.8% of the Companys net investment in leases at June 30, 2016 and two customers accounting for 4.8 and 4.2%
of the Companys net investment at June 30, 2015.
Commercial Loan Portfolio
The Companys commercial loan portfolio
was $306.0 million at June 30, 2017, a 24.2% decrease from $403.7 million at June 30, 2016. The commercial loan portfolio is comprised
primarily of participations in commercial loan syndications where the loans are secured by the borrowers and any subsidiary
guarantors assets. Commercial loan participations represent 96.5% of the commercial loan portfolio with the remainder of
the portfolio comprised of two commercial real estate loans and one unsecured loan originated directly. The loan portfolio at June
30, 2017 is distributed among 61 credits with an average balance of $5.1 million and the largest outstanding at $10.4 million.
Syndicated loans the Company characterizes as higher risk leveraged loans account for approximately 14.8% of the commercial loan
portfolio.
The estimated repayment of principal on the commercial loan portfolio
as of June 30, 2017 is as follows:
|
| |
| | |
Principal Balance Due in | | |
|
| |
Principal | | |
One Year | | |
One to | | |
Due After | | |
|
Loan Type | |
Balance | | |
Or less | | |
Five Years | | |
Five Years | | |
|
| |
(in thousands) | | |
|
Commercial term loans | |
$ | 304,045 | | |
$ | 7,583 | | |
$ | 238,646 | | |
$ | 57,816 | | |
|
Commercial real estate loans | |
| 4,387 | | |
| 247 | | |
| 1,406 | | |
| 2,734 | | |
|
Revolving lines of credit | |
| 3,248 | | |
| - | | |
| 3,248 | | |
| - | | |
|
Principal balance outstanding | |
$ | 311,680 | | |
$ | 7,830 | | |
$ | 243,300 | | |
$ | 60,550 | | |
|
Loans with predetermined interest rates | |
| | | |
| | | |
| | | |
$ | 10,787 | | |
|
Loans with floating or adjustable interest rates | |
| | | |
| | | |
| | | |
$ | 300,893 | | |
The lease and loan portfolio is diversified
geographically with the investment spread across all fifty states. The following table shows the geographic distribution of the
Companys net investment in leases and loans (before valuation allowances and initial direct costs) at June 30, 2017 and
2016.
|
(dollars in thousands) | |
Net Investment in Leases & Loans | |
|
| |
June 30, 2017 | |
June 30, 2016 | |
|
State | |
Balance | | |
Percent | |
Balance | | |
Percent | |
|
California | |
$ | 57,702 | | |
| 11.5 | % | |
$ | 77,868 | | |
| 12.0 | % | |
|
Texas | |
| 51,451 | | |
| 10.3 | % | |
| 61,040 | | |
| 9.4 | % | |
|
Ohio | |
| 26,946 | | |
| 5.4 | % | |
| 30,853 | | |
| 4.8 | % | |
|
Colorado | |
| 26,892 | | |
| 5.4 | % | |
| 37,012 | | |
| 5.7 | % | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Georgia, Virginia, Tennessee, North Carolina, Florida | |
| 107,077 | | |
| 21.3 | % | |
| 132,488 | | |
| 20.5 | % | |
|
New York, Massachusetts, Connecticut | |
| 53,831 | | |
| 10.7 | % | |
| 68,940 | | |
| 10.7 | % | |
|
Indiana, Wisconsin, Michigan, Minnesota, Illinois, Missouri | |
| 61,261 | | |
| 12.2 | % | |
| 72,945 | | |
| 11.3 | % | |
|
Utah, Idaho, Washington, Nebraska | |
| 40,849 | | |
| 8.1 | % | |
| 63,302 | | |
| 9.8 | % | |
|
Pennsylvania, New Jersey, Maryland | |
| 38,484 | | |
| 7.7 | % | |
| 65,168 | | |
| 10.1 | % | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
All other states (no state greater than 1.0%) | |
| 37,041 | | |
| 7.4 | % | |
| 36,772 | | |
| 5.7 | % | |
|
| |
$ | 501,534 | | |
| 100.0 | % | |
$ | 646,389 | | |
| 100.0 | % | |
| 23 | |
California First National Bancorp and Subsidiaries
The lease and loan portfolio is also distributed
across a wide spectrum of industry groups as shown below:
|
(dollars in thousands) | |
Net Investment in Leases & Loans | |
|
| |
June 30, 2017 | |
June 30, 2016 | |
|
Industry | |
Balance | |
Percent | |
Balance | |
Percent | |
|
Scientific, professional, other business services | |
$ | 68,610 | | |
| 13.7 | % | |
$ | 58,038 | | |
| 9.0 | % | |
|
Manufacturing - industrial | |
| 66,442 | | |
| 13.2 | % | |
| 82,363 | | |
| 12.7 | % | |
|
Retail Trade | |
| 56,437 | | |
| 11.3 | % | |
| 58,350 | | |
| 9.0 | % | |
|
Healthcare and social services | |
| 54,237 | | |
| 10.8 | % | |
| 67,544 | | |
| 10.4 | % | |
|
Manufacturing - chemicals and materials | |
| 45,524 | | |
| 9.1 | % | |
| 63,940 | | |
| 9.9 | % | |
|
Wholesale distribution | |
| 40,873 | | |
| 8.1 | % | |
| 57,710 | | |
| 8.9 | % | |
|
Educational services | |
| 34,658 | | |
| 6.9 | % | |
| 40,115 | | |
| 6.2 | % | |
|
Arts, entertainment and recreation | |
| 34,209 | | |
| 6.8 | % | |
| 64,634 | | |
| 10.0 | % | |
|
Agriculture and food products | |
| 28,196 | | |
| 5.6 | % | |
| 34,851 | | |
| 5.4 | % | |
|
Commercial airlines and aviation services | |
| 19,357 | | |
| 3.9 | % | |
| 22,705 | | |
| 3.5 | % | |
|
Manufacturing - automotive, truck, aerospace | |
| 12,031 | | |
| 2.4 | % | |
| 22,581 | | |
| 3.5 | % | |
|
Mining and oil & gas services | |
| 9,953 | | |
| 2.0 | % | |
| 18,264 | | |
| 2.8 | % | |
|
Transportation | |
| 9,125 | | |
| 1.8 | % | |
| 17,432 | | |
| 2.7 | % | |
|
Financial services | |
| 7,622 | | |
| 1.5 | % | |
| 8,931 | | |
| 1.4 | % | |
|
Public administration | |
| 6,218 | | |
| 1.2 | % | |
| 8,556 | | |
| 1.3 | % | |
|
Utilities | |
| 4,957 | | |
| 1.0 | % | |
| 14,658 | | |
| 2.3 | % | |
|
Building and construction | |
| 3,086 | | |
| 0.6 | % | |
| 5,718 | | |
| 0.9 | % | |
|
| |
$ | 501,534 | | |
| 100 | % | |
$ | 646,389 | | |
| 100 | % | |
Most of the industry groups identified above
include customers captured by different industry codes and may not be directly comparable or considered a concentration. However,
at June 30, 2017, approximately 6.1% of the portfolio is with public and private colleges and universities, up from to 5.3% at
June 30, 2016, and approximately 4.8% of the portfolio consists of hospitals and medical centers, down from 5.2% at June 30, 2016.
The universities and colleges are located throughout the United States and spread over 168 leases with 68 different institutions
and no university representing more than 1% of the portfolio. The hospital portfolio involves 15 different credits and includes
24 lease schedules and 1 loan.
Securities Available-for-Sale
The Company maintains a portfolio of securities
to generate interest and investment income from the investment of excess funds and to provide liquidity. Total securities available-for-sale
of $95.5 million as of June 30, 2017 compared to $95.8 million at June 30, 2016. The carrying cost and fair value of the Companys
securities portfolio at June 30, 2017 and 2016 is as follows:
|
| |
As of June 30, 2017 | |
As of June 30, 2016 | |
|
(in thousands) | |
Amortized | |
Fair | |
Amortized | |
Fair | |
|
| |
Cost | |
Value | |
Cost | |
Value | |
|
Available-for-sale | |
| |
| |
| |
| |
|
U.S. Treasury notes | |
$ | 47,426 | | |
$ | 47,721 | | |
$ | 47,355 | | |
$ | 48,774 | | |
|
Corporate debt securities | |
| 13,140 | | |
| 13,171 | | |
| 13,291 | | |
| 13,385 | | |
|
Agency MBS | |
| 25,803 | | |
| 25,577 | | |
| 31,782 | | |
| 32,223 | | |
|
Equity securities | |
| 7,934 | | |
| 7,709 | | |
| - | | |
| - | | |
|
Mutual fund investments | |
| 1,215 | | |
| 1,331 | | |
| 1,215 | | |
| 1,462 | | |
|
Total securities available-for-sale | |
$ | 95,518 | | |
$ | 95,509 | | |
$ | 93,643 | | |
$ | 95,844 | | |
During the fiscal year ended June 30, 2017,
the Companys portfolio of securities available-for-sale decreased $335,000 to $95.5 million. The decrease during the year
included the acquisition of $7.9 million in equity securities that was offset by pay downs, net of accretion, of $6.1 million and
a $2.2 million decrease in the fair value of securities. The rise in interest rates since June 2016 swung an unrecognized net gain
of $2.2 million at June 30, 2016 to an unrealized net loss of $9,000 at June 30, 2017.
During the twelve months ended June 30, 2016,
the Company realized a gain of $23,000 from an early call of a corporate debt security for proceeds of $4.8 million. The net gain
is recognized using the specific identification method and is included in non-interest income.
| 24 | |
California First National Bancorp and Subsidiaries
Management evaluates investment
securities for other-than-temporary impairment on a quarterly basis. Consideration is given to the length of time and the
extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and
the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for
any anticipated recovery in fair value. The weighted-average maturity of debt securities at June 30, 2017 was 4.2 years
and the corresponding weighted-average yield was 2.06 percent.
**Asset Quality**
The Company monitors the performance of all
leases and loans held in its own portfolio, transactions-in-process and loan commitments as well as lease transactions assigned
to lenders, if the Company retains a residual investment in the leased property subject to those leases. An ongoing review of all
leases and loans ten or more days delinquent is conducted. Customers who are delinquent with the Company or an assignee are coded
in the Companys accounting and tracking systems in order to provide management visibility, periodic reporting, and appropriate
reserves. 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 customers financial condition or
other relevant factors.
The following table summarizes the Companys non-performing
leases and loans.
|
| |
June 30, | |
|
Non-performing Leases and Loans | |
2017 | |
2016 | |
2015 | |
2014 | |
2013 | |
|
| |
(dollars in thousands) | |
|
Non-accrual leases and loans | |
$ | 3 | | |
$ | 12 | | |
$ | 41 | | |
$ | 47 | | |
$ | 1,614 | | |
|
Restructured leases | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Leases past due 90 days (other than above) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Total non-performing leases and loans | |
$ | 3 | | |
$ | 12 | | |
$ | 41 | | |
$ | 47 | | |
$ | 1,614 | | |
|
Repossessed equipment | |
| - | | |
| 1,300 | | |
| - | | |
| - | | |
| - | | |
|
Total non-performing assets | |
$ | - | | |
$ | 1,312 | | |
$ | 41 | | |
$ | 47 | | |
$ | 1,614 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Non-performing leases as % of net
investment in leases and loans before allowances | |
| 0.00 | % | |
| 0.00 | % | |
| 0.01 | % | |
| 0.01 | % | |
| 0.38 | % | |
|
Non-performing assets as % of total assets | |
| 0.00 | % | |
| 0.15 | % | |
| 0.01 | % | |
| 0.01 | % | |
| 0.29 | % | |
Non-performing assets consists of non-performing
leases as well as any repossessed assets. In the third quarter of fiscal 2016, the Company transferred $1.7 million of property
related to a lease rejected in bankruptcy to repossessed equipment. The repossessed asset had carrying value of $1.3 million at
June 30, 2016 and was subsequently sold in May 2017 for $121,000 in excess of the carrying value. The decline in non-accrual leases
at June 30, 2017 is due to payments received or write-offs taken with no new leases added. No direct finance income would have
been recorded had non-accrual leases at each respective fiscal year end been current in accordance with their original terms during
fiscal 2017, 2016 and 2015. There was no direct finance income actually recorded on non-performing leases during fiscal 2017, 2016
and 2015.
In addition to the non-performing leases identified
above, there was $7.4 million of investment in leases at June 30, 2017 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 $4.0 million at June 30, 2016. 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.
** **
****
| 25 | |
California First National Bancorp and Subsidiaries
** **
**Allowance for Credit Losses**
The allowance for credit losses and the residual
valuation allowance provide coverage for probable and estimable losses in the Companys lease and loan portfolios. The allowance
recorded is based on a quarterly review of all leases and loans outstanding, loan commitments and transactions-in-process to determine
that it is adequate to cover these inherent losses. The evaluation of each element and the overall allowance is based on a continuing
assessment of problem credits, recent loss experience and other factors, including regulatory guidance and economic conditions.
The Company utilizes similar processes to estimate its liability for unfunded loan commitments, which is included in other liabilities
in the Consolidated Balance Sheets. Both the allowance for credit losses and the liability for unfunded loan commitments are included
in the Companys analysis of credit losses. 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 managements judgment at that time
and takes into consideration all known relevant internal and external factors that may affect the lease and loan portfolio. The
following table summarizes the activity in the allowance for loan and lease losses for the five years ended June 30, 2017.
|
| |
Years Ended June 30, | |
|
| |
2017 | |
2016 | |
2015 | |
2014 | |
2013 | |
|
| |
(dollars in thousands) | |
|
Property acquired for transactions-in-process before allowance | |
$ | 17,101 | | |
$ | 30,932 | | |
$ | 31,340 | | |
$ | 40,578 | | |
$ | 11,938 | | |
|
Net investment in leases before allowance | |
| 192,741 | | |
| 239,964 | | |
| 301,733 | | |
| 329,935 | | |
| 345,753 | | |
|
Commercial loans, before allowance | |
| 311,213 | | |
| 408,308 | | |
| 246,509 | | |
| 131,158 | | |
| 75,952 | | |
|
Leases and loans, before allowances | |
$ | 521,055 | | |
$ | 679,204 | | |
$ | 579,582 | | |
$ | 501,671 | | |
$ | 433,643 | | |
|
Average leases and loans | |
$ | 605,069 | | |
$ | 601,237 | | |
$ | 493,054 | | |
$ | 422,788 | | |
$ | 382,343 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Allowance for credit losses at beginning of year | |
$ | 6,862 | | |
$ | 6,456 | | |
$ | 5,299 | | |
$ | 5,147 | | |
$ | 5,216 | | |
|
Charge-off of lease receivables, loans and transactions-in-process | |
| (168 | ) | |
| (1,120 | ) | |
| (19 | ) | |
| (62 | ) | |
| (350 | ) | |
|
Recovery of lease amounts previously written off | |
| 203 | | |
| 51 | | |
| 1 | | |
| 14 | | |
| 6 | | |
|
Provision for credit losses | |
| 250 | | |
| 1,475 | | |
| 1,175 | | |
| 200 | | |
| 275 | | |
|
Allowance for credit losses at end of year (Allowance) | |
$ | 7,147 | | |
$ | 6,862 | | |
$ | 6,456 | | |
$ | 5,299 | | |
$ | 5,147 | | |
|
Components of allowance for credit losses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Allowance for lease losses | |
$ | 1,943 | | |
$ | 2,290 | | |
$ | 3,409 | | |
$ | 3,327 | | |
$ | 3,175 | | |
|
Allowance for loan losses | |
| 5,204 | | |
| 4,572 | | |
| 3,047 | | |
| 1,972 | | |
| 1,972 | | |
|
| |
$ | 7,147 | | |
$ | 6,862 | | |
$ | 6,456 | | |
$ | 5,299 | | |
$ | 5,147 | | |
|
Allowance as percent of leases and loans before allowances | |
| 1.42 | % | |
| 1.06 | % | |
| 1.18 | % | |
| 1.15 | % | |
| 1.22 | % | |
|
Net (charge-offs) recoveries as percent of average leases and loans | |
| 0.0 | % | |
| (0.2 | )% | |
| (0.00 | )% | |
| (0.01 | )% | |
| (0.09 | )% | |
The allowance for credit losses increased to
$7.15 million (1.42% of net investment in leases and loans) at June 30, 2017 from $6.86 million (1.06% of net investment in leases
and loans) at June 30, 2016. The allowance at June 30, 2017 consisted of $373,300 allocated to specific accounts that were identified
as problems and $6.8 million that was available to cover losses inherent in the portfolio. This compared to $48,000 allocated to
specific accounts at June 30, 2016 and $6.8 million that was available to cover losses inherent in the portfolio at such date.
The increase in the specific allowance at June 30, 2017 primarily relates to new specific problems identified. Based on the above
factors, the Company considers the allowance for credit losses of $7.15 million at June 30, 2017 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 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, a renewed economic
slowdown 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. As the Company has retained a significantly greater percentage of leases and loans in its own portfolio,
this creates increased exposure to delinquencies, repossessions, foreclosures and losses than the Company has historically experienced.
Based on managements evaluation of the
lease and loan portfolio at each period end, management has allocated the allowance for loan and lease losses for the past five
years as shown in the table below:
|
| |
2017 | |
2016 | |
2015 | |
2014 | |
2013 | |
|
| |
| |
% of | |
| |
% of | |
| |
% of | |
| |
% of | |
| |
% of | |
|
| |
Allowance | |
Leases | |
Allowance | |
Leases | |
Allowance | |
Leases | |
Allowance | |
Leases | |
Allowance | |
Leases | |
|
| |
Amount | |
and | |
Amount | |
and | |
Amount | |
and | |
Amount | |
and | |
Amount | |
and | |
|
| |
Allocated | |
Loans | |
Allocated | |
Loans | |
Allocated | |
Loans | |
Allocated | |
Loans | |
Allocated | |
Loans | |
|
| |
(dollars in thousands) | |
|
Net Investment in Leases | |
| 1,943 | | |
| 27.1 | % | |
$ | 2,290 | | |
| 37.0 | % | |
$ | 3,409 | | |
| 55.0 | % | |
$ | 3,327 | | |
| 71.6 | % | |
$ | 3,175 | | |
| 82.0 | % | |
|
Commercial Loans | |
| 5,143 | | |
| 72.0 | % | |
| 4,511 | | |
| 62.0 | % | |
| 2,936 | | |
| 43.6 | % | |
| 1,761 | | |
| 26.7 | % | |
| 1,561 | | |
| 15.8 | % | |
|
Commercial Real Estate Loans | |
| 61 | | |
| 0.9 | % | |
| 61 | | |
| 1.0 | % | |
| 111 | | |
| 1.4 | % | |
| 211 | | |
| 1.7 | % | |
| 411 | | |
| 2.2 | % | |
|
| |
| 7,147 | | |
| 100.0 | % | |
$ | 6,862 | | |
| 100.0 | % | |
$ | 6,456 | | |
| 100.0 | % | |
$ | 5,299 | | |
| 100.0 | % | |
$ | 5,147 | | |
| 100.0 | % | |
While
the allowance is allocated by category above, the allowance is general in nature and is available for the portfolio in its entirety.
** **
****
| 26 | |
California First National Bancorp and Subsidiaries
** **
Liquidity and Capital Resources
** **
The Company funds its operating activities through
internally generated funds, bank deposits, borrowings and non-recourse debt. At June 30, 2017 and 2016, the Companys cash
and cash equivalents were $96.1 million and $105.1 million, respectively.
Deposits at CalFirst Bank totaled $468.6 million
at June 30, 2017, down 26.0% from $633.1 million at June 30, 2016 and 0.7% below $471.9 million at June 30, 2015. Since March 2017,
the Bank has worked to manage the reduction in the loan portfolio to a comparable decline in deposits. The Bank historically offered
interest rates on deposit accounts that were higher than the national average, but since March 2017 the Banks rates have
been targeted at the bottom of the market. Average rates paid by the Bank on deposits in fiscal 2017 still increased due to activity
during the first seven months of the year and to a deposit mix concentrated in one-year CDs that have not matured or repriced yet.
For fiscal 2016 and 2015, average rates increased due to market conditions and the Banks need to increase deposits to fund
the growth in its loan portfolio at that time. The following table presents average balances and average rates paid on deposits
for years ended June 30, 2017, 2016 and 2015:
|
| |
Years ended June 30, | |
|
| |
2017 | |
2016 | |
2015 | |
|
| |
(dollars in thousands) | |
|
| |
| |
| |
Average | |
| |
| |
Average | |
| |
| |
Average | |
|
| |
Ending | |
Average | |
Rate | |
Ending | |
Average | |
Rate | |
Ending | |
Average | |
Rate | |
|
| |
Balance | |
Balance | |
Paid | |
Balance | |
Balance | |
Paid | |
Balance | |
Balance | |
Paid | |
|
Non-interest bearing demand deposits | |
$ | 4,855 | | |
$ | 2,908 | | |
| n/a | | |
$ | 2,181 | | |
$ | 2,134 | | |
| n/a | | |
$ | 2,193 | | |
$ | 2,024 | | |
| n/a | | |
|
Interest-bearing demand deposits | |
| 1,356 | | |
| 1,206 | | |
| 0.20 | % | |
| 1,298 | | |
| 2,125 | | |
| 0.20 | % | |
| 2,715 | | |
| 2,023 | | |
| 0.20 | % | |
|
Savings deposits | |
| 84,656 | | |
| 90,168 | | |
| 0.84 | % | |
| 78,510 | | |
| 70,704 | | |
| 0.62 | % | |
| 65,539 | | |
| 65,315 | | |
| 0.50 | % | |
|
Time deposits less than $100,000 | |
| 74,947 | | |
| 94,717 | | |
| 1.21 | % | |
| 98,604 | | |
| 83,191 | | |
| 1.17 | % | |
| 69,226 | | |
| 60,176 | | |
| 1.05 | % | |
|
Time deposits, $100,000 or more | |
$ | 302,820 | | |
$ | 414,661 | | |
| 1.23 | % | |
$ | 452,554 | | |
| 390,560 | | |
| 1.17 | % | |
$ | 332,233 | | |
$ | 277,904 | | |
| 1.05 | % | |
The following table shows the maturities of
certificates of deposits at the dates indicated:
|
| |
June 30, 2017 |
| |
|
| |
$250,000 | |
More than |
| |
|
| |
Or less | |
$250,000 |
| |
|
| |
(in thousands) |
| |
|
Under 3 months | |
$ | 68,875 | | |
$ | 23,550 | |
| |
|
3 6 months | |
| 65,038 | | |
| 21,535 | |
| |
|
7 12 months | |
| 108,686 | | |
| 40,645 | |
| |
|
13 24 months | |
| 33,555 | | |
| 9,686 | |
| |
|
25 36 months | |
| 5,156 | | |
| 1,041 | |
| |
|
| |
$ | 281,310 | | |
$ | 96,457 | |
| |
The Bank has a borrowing agreement 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 has short-term borrowings outstanding of $40.0 million at June 30, 2017 at an
average rate of 1.12%, and $40.0 million outstanding at an average rate of 0.42% at June 30, 2016. Under terms of the blanket collateral
agreement, advances from the FHLB are collateralized by qualifying securities and real estate loans, with $31.1 million available
under the agreement as of June 30, 2017. 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 June 30, 2017 of approximately
$73.3 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. During fiscal 2017, the Company sold or assigned net lease receivables aggregating to $40.8 million, all of which
were characterized as sales by the Bank. This compared to leases sold or assigned of $26.8 million and $73.8 million for fiscal
2016 and 2015, respectively. At June 30, 2017, the Company had outstanding non-recourse debt aggregating $279,000 relating to property
under leases assigned to unaffiliated parties. 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.
| 27 | |
California First National Bancorp and Subsidiaries
The following table presents capital and capital
ratio information for the Company and CalFirst Bank as of June 30, 2017 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.
|
| |
June 30, |
| |
|
| |
2017 | |
2016 |
| |
|
| |
(dollars in thousands) |
| |
|
California First National Bancorp | |
Amount | |
Ratio | |
Amount | |
Ratio |
| |
|
Common equity Tier 1 capital | |
$ | 196,140 | | |
| 33.09 | % | |
$ | 189,677 | | |
| 25.12 | % |
| |
|
Tier 1 risk-based capital | |
$ | 196,140 | | |
| 33.09 | % | |
$ | 189,677 | | |
| 25.12 | % |
| |
|
Total risk-based capital | |
$ | 203,338 | | |
| 34.30 | % | |
$ | 196,589 | | |
| 26.04 | % |
| |
|
Tier 1 leverage capital | |
$ | 196,140 | | |
| 26.01 | % | |
$ | 189,677 | | |
| 21.67 | % |
| |
|
| |
| | | |
| | | |
| | | |
| | |
| |
|
California First National Bank | |
| | | |
| | | |
| | | |
| | |
| |
|
Common equity Tier 1 capital | |
$ | 126,424 | | |
| 22.22 | % | |
$ | 116,379 | | |
| 15.88 | % |
| |
|
Tier 1 risk-based capital | |
$ | 126,424 | | |
| 22.22 | % | |
$ | 116,379 | | |
| 15.88 | % |
| |
|
Total risk-based capital | |
$ | 133,419 | | |
| 23.45 | % | |
$ | 123,091 | | |
| 16.79 | % |
| |
|
Tier 1 leverage capital | |
$ | 126,424 | | |
| 17.23 | % | |
$ | 116,379 | | |
| 13.94 | % |
| |
** **
Contractual Obligations and Commitments
The following table summarizes various contractual
obligations at June 30, 2017. Commitments to purchase property for unfunded leases are binding but generally have fixed expiration
dates and other termination clauses. Commercial loan commitments are agreements to purchase a participation or lend to a customer
provided there is no violation of any condition in the contract. Since the Company expects some of the commitments
to expire without being funded, the total commitment amounts do not necessarily represent the Companys 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) | |
$ | 38,637 | | |
$ | 38,637 | | |
$ | - | | |
$ | - | |
| |
|
Commercial loan and lease purchase commitments | |
| 3,181 | | |
| 3,181 | | |
| - | | |
| - | |
| |
|
FHLB Borrowings | |
| 40,000 | | |
| 40,000 | | |
| - | | |
| - | |
| |
|
Operating lease rental payments | |
| 841 | | |
| 720 | | |
| 121 | | |
| - | |
| |
|
Total contractual commitments | |
$ | 82,659 | | |
$ | 82,538 | | |
$ | 121 | | |
$ | - | |
| |
________________
|
(1) | | Disbursements to purchase property on approved lease or loan 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 will
fluctuate as the Company expands or contracts. The Company believes that existing cash balances, cash flow from operations, cash
flows from its financing and investing activities, and sales or assignments of lease receivables will be sufficient to meet its
foreseeable financing needs.
Inflation has not had a significant impact upon
the operations of the Company.
**Recent Accounting Pronouncements**
See Note 1, Summary of Significant Accounting
Policies, of the Companys consolidated financial statements for disclosure of recent accounting pronouncements.
| 28 | |
California First National Bancorp and Subsidiaries
**ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
Market risk is the risk of loss in a financial
instrument arising from changes in market indices such as interest rates and equity prices. The Companys 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 grew to represent a greater portion of the Companys
assets and liabilities, the Company is subject to increased market risk. The Bank has an Asset/Liability Management Committee and
policies established to manage its interest rate and market risk.
At June 30, 2017, the Company had $105.1 million
of cash or invested in securities of very short duration. The Companys gross investment in lease payments receivable and
loan principal of $518.4 million consists of leases with fixed rates and loans with fixed and variable rates, however, $392.2 million
of such investment is due or will reprice within one year of June 30, 2017. This compares to the Companys interest bearing
deposit and borrowing liabilities of $503.8 million, of which 90.2%, or $454.3 million, mature within one year. Non-recourse debt
does not represent an interest rate risk to the Company because it is fully amortized through direct payments from lessees to the
purchaser of the lease receivable. Based on the foregoing, at June 30, 2017 the Company had assets of $505.4 million subject to
changes in interest rates over the next twelve months, compared to repricing liabilities of $454.3 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 | |
$ | 96,055 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 96,055 | |
| |
|
Investment securities | |
| 9,040 | | |
| 8,139 | | |
| 52,754 | | |
| 29,857 | | |
| - | | |
| 99,790 | |
| |
|
Net investment in leases | |
| 24,934 | | |
| 63,290 | | |
| 116,544 | | |
| 1,974 | | |
| (15,944 | ) | |
| 190,798 | |
| |
|
Commercial loans | |
| 301,249 | | |
| 2,691 | | |
| 4,705 | | |
| 3,035 | | |
| (5,671 | ) | |
| 306,009 | |
| |
|
Non-interest earning assets | |
| - | | |
| - | | |
| - | | |
| - | | |
| 22,933 | | |
| 22,933 | |
| |
|
Totals | |
| 431,278 | | |
| 74,120 | | |
| 174,003 | | |
| 34,866 | | |
| 1,318 | | |
$ | 715,585 | |
| |
|
Cumulative total for RSA | |
$ | 431,278 | | |
$ | 505,398 | | |
$ | 679,401 | | |
$ | 714,267 | | |
| | | |
| | |
| |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
|
Rate Sensitive Liabilities (RSL): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
|
Demand and savings deposits | |
$ | 86,012 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 4,855 | | |
$ | 90,867 | |
| |
|
Time deposits | |
| 92,426 | | |
| 235,903 | | |
| 49,438 | | |
| - | | |
| - | | |
| 377,767 | |
| |
|
Borrowings | |
| 40,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 40,000 | |
| |
|
Non-interest bearing liabilities | |
| - | | |
| - | | |
| - | | |
| - | | |
| 10,817 | | |
| 10,817 | |
| |
|
Stockholders' equity | |
| - | | |
| - | | |
| - | | |
| - | | |
| 196,134 | | |
| 196,134 | |
| |
|
Totals | |
$ | 218,438 | | |
$ | 235,903 | | |
$ | 49,438 | | |
$ | - | | |
$ | 211,806 | | |
$ | 715,585 | |
| |
|
Cumulative total for RSL | |
$ | 218,438 | | |
$ | 454,341 | | |
$ | 503,779 | | |
$ | 503,779 | | |
| | | |
| | |
| |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
|
Interest rate sensitivity gap | |
$ | 212,840 | | |
$ | (161,783 | ) | |
$ | 124,565 | | |
$ | 34,866 | | |
| | | |
| | |
| |
|
Cumulative GAP | |
$ | 212,840 | | |
$ | 51,057 | | |
$ | 175,622 | | |
$ | 210,488 | | |
| | | |
| | |
| |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
|
RSA divided by RSL (cumulative) | |
| 197.44 | % | |
| 111.24 | % | |
| 134.86 | % | |
| 141.78 | % | |
| | | |
| | |
| |
|
Cumulative GAP / total assets | |
| 29.74 | % | |
| 7.14 | % | |
| 24.54 | % | |
| 29.41 | % | |
| | | |
| | |
| |
** **
****
| 29 | |
California First National Bancorp and Subsidiaries
** **
**ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
The following financial statements and supplementary financial information
are included herein at the pages indicated below:
|
|
Page | |
|
Report of Independent Registered Public Accounting Firm |
30 | |
|
|
| |
|
Consolidated Balance Sheets at June 30, 2017 and 2016 |
31 | |
|
|
| |
|
Consolidated Statements of Earnings for the years ended June 30, 2017, 2016 and 2015 |
32 | |
|
|
| |
|
Consolidated Statements of Comprehensive Income for the
years ended June 30, 2017, 2016 and 2015 |
33 | |
|
|
| |
|
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 2017, 2016 and
2015 |
34 | |
|
|
| |
|
Consolidated Statements of Cash Flows for the years ended June 30, 2017, 2016 and 2015 |
35 | |
|
|
| |
|
Notes to Consolidated Financial Statements |
36-54 | |
****
****
** **
****
** **
**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM**
To the Board of Directors and Stockholders of California First National
Bancorp
We have audited the accompanying consolidated balance sheets of
California First National Bancorp and Subsidiaries as of June 30, 2017 and 2016 and the related consolidated statements of earnings,
comprehensive income, stockholders' equity, and cash flows for each of the years in the three year period ended June 30, 2017.
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of California First National Bancorp and Subsidiaries as
of June 30, 2017 and 2016, and the results of their operations and their cash flows for each of the years in the three year period
ended June 30, 2017, in conformity with accounting principles generally accepted in the United States of America.
Laguna Hills, California
September 27, 2017
** **
** **
****
| 30 | |
California First National Bancorp and Subsidiaries
** **
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
|
| |
June 30, |
| |
|
ASSETS | |
2017 | |
2016 |
| |
|
| |
| |
|
| |
|
Cash and due from banks | |
$ | 96,055 | | |
$ | 105,094 | |
| |
|
Securities available-for-sale | |
| 95,509 | | |
| 95,844 | |
| |
|
Investments | |
| 4,281 | | |
| 3,957 | |
| |
|
Receivables | |
| 840 | | |
| 1,333 | |
| |
|
Property acquired for transactions-in-process | |
| 17,101 | | |
| 30,932 | |
| |
|
Leases and loans: | |
| | | |
| | |
| |
|
Net investment in leases | |
| 192,741 | | |
| 239,964 | |
| |
|
Commercial loans | |
| 311,213 | | |
| 408,308 | |
| |
|
Allowance for credit losses | |
| (7,147 | ) | |
| (6,862 | ) |
| |
|
Net investment in leases and loans | |
| 496,807 | | |
| 641,410 | |
| |
|
| |
| | | |
| | |
| |
|
Property on operating leases, less accumulated deprecation of $871 (2017) and $378 (2016) | |
| 2,319 | | |
| 2,928 | |
| |
|
Income tax receivable | |
| 1,088 | | |
| 121 | |
| |
|
Other assets | |
| 1,306 | | |
| 2,108 | |
| |
|
Discounted lease rentals assigned to lenders | |
| 279 | | |
| 4,449 | |
| |
|
Total Assets | |
$ | 715,585 | | |
$ | 888,176 | |
| |
|
| |
| | | |
| | |
| |
|
LIABILITIES AND STOCKHOLDERS EQUITY | |
| | | |
| | |
| |
|
| |
| | | |
| | |
| |
|
Liabilities: | |
| | | |
| | |
| |
|
Demand and savings deposits | |
$ | 90,867 | | |
$ | 81,989 | |
| |
|
Time certificates of deposit | |
| 377,767 | | |
| 551,158 | |
| |
|
Short-term borrowings | |
| 40,000 | | |
| 40,000 | |
| |
|
Accounts payable | |
| 1,087 | | |
| 1,697 | |
| |
|
Accrued liabilities | |
| 2,536 | | |
| 3,622 | |
| |
|
Lease deposits | |
| 1,346 | | |
| 1,565 | |
| |
|
Non-recourse debt | |
| 279 | | |
| 4,449 | |
| |
|
Deferred income taxes, net | |
| 5,569 | | |
| 12,674 | |
| |
|
Total Liabilities | |
| 519,451 | | |
| 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; 10,283,807 (2017) and 10,279,807 (2016) issued and outstanding | |
| 103 | | |
| 103 | |
| |
|
Additional paid in capital | |
| 2,309 | | |
| 2,240 | |
| |
|
Retained earnings | |
| 193,728 | | |
| 187,334 | |
| |
|
Accumulated other comprehensive income, net of tax | |
| (6 | ) | |
| 1,345 | |
| |
|
Total Stockholders Equity | |
| 196,134 | | |
| 191,022 | |
| |
|
Total Liabilities and Stockholders Equity | |
$ | 715,585 | | |
$ | 888,176 | |
| |
The accompanying notes are an integral part of these consolidated
financial statements.
** **
****
| 31 | |
California First National Bancorp and Subsidiaries
** **
**CONSOLIDATED STATEMENTS OF EARNINGS**
(in thousands, except share and per share amounts)
|
| |
Years ended June 30, |
| |
|
| |
2017 | |
2016 | |
2015 |
| |
|
| |
| |
| |
|
| |
|
Finance and loan income | |
$ | 26,234 | | |
$ | 25,471 | | |
$ | 21,489 | |
| |
|
Investment interest income | |
| 3,014 | | |
| 2,230 | | |
| 1,516 | |
| |
|
Total interest income | |
| 29,248 | | |
| 27,701 | | |
| 23,005 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Interest expense | |
| | | |
| | | |
| | |
| |
|
Deposits | |
| 6,987 | | |
| 6,003 | | |
| 3,883 | |
| |
|
Borrowings | |
| 242 | | |
| 207 | | |
| 62 | |
| |
|
Net interest income | |
| 22,019 | | |
| 21,491 | | |
| 19,060 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Provision for credit losses | |
| 250 | | |
| 1,475 | | |
| 1,175 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Net interest income after provision for credit losses | |
| 21,769 | | |
| 20,016 | | |
| 17,885 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Non-interest income | |
| | | |
| | | |
| | |
| |
|
Operating and sales-type lease income | |
| 2,716 | | |
| 1,146 | | |
| 305 | |
| |
|
Gain on sale of leases, loans and leased property | |
| 4,336 | | |
| 3,497 | | |
| 4,791 | |
| |
|
Realized gain on sale of investment securities | |
| - | | |
| 23 | | |
| 481 | |
| |
|
Recovery realized on TFT-LCD settlement | |
| - | | |
| - | | |
| 2,744 | |
| |
|
Other fee income | |
| 387 | | |
| 220 | | |
| 388 | |
| |
|
Total non-interest income | |
| 7,439 | | |
| 4,886 | | |
| 8,709 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Non-interest expenses | |
| | | |
| | | |
| | |
| |
|
Compensation and employee benefits | |
| 7,485 | | |
| 7,254 | | |
| 8,582 | |
| |
|
Occupancy | |
| 695 | | |
| 685 | | |
| 634 | |
| |
|
Professional and IT services | |
| 1,060 | | |
| 1,117 | | |
| 971 | |
| |
|
FDIC and regulatory fees | |
| 507 | | |
| 534 | | |
| 401 | |
| |
|
Repossessed assets | |
| (121 | ) | |
| 397 | | |
| - | |
| |
|
Other general and administrative | |
| 858 | | |
| 847 | | |
| 1,191 | |
| |
|
Total non-interest expenses | |
| 10,484 | | |
| 10,834 | | |
| 11,779 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Earnings before income taxes | |
| 18,724 | | |
| 14,068 | | |
| 14,815 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Income taxes | |
| 7,601 | | |
| 5,420 | | |
| 5,760 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Net earnings | |
$ | 11,123 | | |
$ | 8,648 | | |
$ | 9,055 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Basic earnings per common share | |
$ | 1.08 | | |
$ | 0.83 | | |
$ | 0.87 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Diluted earnings per common share | |
$ | 1.08 | | |
$ | 0.83 | | |
$ | 0.87 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Dividends declared per common share outstanding | |
$ | 0.46 | | |
$ | 0.44 | | |
$ | 0.42 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Average common shares outstanding basic | |
| 10,279,818 | | |
| 10,399,393 | | |
| 10,459,924 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Average common shares outstanding diluted | |
| 10,279,785 | | |
| 10,399,393 | | |
| 10,459,924 | |
| |
The accompanying notes are an integral part of these consolidated
financial statements.
| 32 | |
California First National Bancorp and Subsidiaries
**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**
(in thousands)
|
| |
Years ended June 30, |
| |
|
| |
2017 | |
2016 | |
2015 |
| |
|
| |
| |
| |
|
| |
|
Net earnings | |
$ | 11,123 | | |
$ | 8,648 | | |
$ | 9,055 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Other comprehensive income/(loss): | |
| | | |
| | | |
| | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Unrealized (loss)/gain on securities available-for-sale | |
| (2,274 | ) | |
| 1,845 | | |
| 166 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Other-than-temporary impairment loss on securities available-for-sale | |
| - | | |
| - | | |
| 91 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Reclassification adjustment of realized gain included in net income on securities available-for-sale | |
| - | | |
| (23 | ) | |
| (572 | ) |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Tax effect | |
| 923 | | |
| (708 | ) | |
| 122 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Total other comprehensive (loss)/income | |
| (1,351 | ) | |
| 1,114 | | |
| (193 | ) |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Total comprehensive income | |
$ | 9,772 | | |
$ | 9,762 | | |
$ | 8,862 | |
| |
The accompanying notes are an integral part of these consolidated
financial statements.
| 33 | |
California First National Bancorp and Subsidiaries
**CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY**
(in thousands, except for share amounts)
|
| |
| |
| |
Additional | |
| |
Accumulated | |
| |
|
| |
Common Stock | |
Paid in | |
Retained | |
Comprehensive | |
| |
|
| |
Shares | |
Amount | |
Capital | |
Earnings | |
Income | |
Total | |
|
| |
| |
| |
| |
| |
| |
| |
|
Balance, June 30, 2014 | |
| 10,459,924 | | |
| 105 | | |
| 3,372 | | |
| 179,844 | | |
| 424 | | |
| 183,745 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Net earnings | |
| - | | |
| - | | |
| - | | |
| 9,055 | | |
| - | | |
| 9,055 | | |
|
Other comprehensive loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (193 | ) | |
| (193 | ) | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Stock based compensation expense | |
| - | | |
| - | | |
| 4 | | |
| - | | |
| - | | |
| 4 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Dividends paid | |
| - | | |
| - | | |
| - | | |
| (4,393 | ) | |
| - | | |
| (4,393 | ) | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Balance, June 30, 2015 | |
| 10,459,924 | | |
| 105 | | |
$ | 3,376 | | |
| 184,506 | | |
| 231 | | |
| 188,218 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Net earnings | |
| - | | |
| - | | |
| - | | |
| 8,648 | | |
| - | | |
| 8,648 | | |
|
Other comprehensive income | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,114 | | |
| 1,114 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Stock based compensation expense | |
| - | | |
| - | | |
| 5 | | |
| - | | |
| - | | |
| 5 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Stock repurchased | |
| (180,117 | ) | |
| (2 | ) | |
| (1,141 | ) | |
| (1,217 | ) | |
| - | | |
| (2,360 | ) | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Dividends paid | |
| - | | |
| - | | |
| - | | |
| (4,603 | ) | |
| - | | |
| (4,603 | ) | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Balance, June 30, 2016 | |
| 10,279,807 | | |
| 103 | | |
| 2,240 | | |
| 187,334 | | |
| 1,345 | | |
$ | 191,022 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Net earnings | |
| - | | |
| - | | |
| - | | |
| 11,123 | | |
| - | | |
| 11,123 | | |
|
Other comprehensive loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,351 | ) | |
| (1,351 | ) | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Shares issued stock options exercised | |
| 4,000 | | |
| - | | |
| 64 | | |
| - | | |
| - | | |
| 64 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Stock based compensation expense | |
| - | | |
| - | | |
| 5 | | |
| - | | |
| - | | |
| 5 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Dividends paid | |
| - | | |
| - | | |
| - | | |
| (4,729 | ) | |
| - | | |
| (4,729 | ) | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Balance, June 30, 2017 | |
| 10,283,807 | | |
$ | 103 | | |
$ | 2,309 | | |
$ | 193,728 | | |
$ | (6 | ) | |
$ | 196,134 | | |
The accompanying notes are an integral part of these consolidated
financial statements.
| 34 | |
California First National Bancorp and Subsidiaries
**CONSOLIDATED STATEMENTS OF CASH FLOWS**
(in thousands)
|
| |
Years Ended June 30, | |
|
| |
2017 | |
2016 | |
2015 | |
|
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | | |
| | | |
|
Net Earnings | |
$ | 11,123 | | |
$ | 8,648 | | |
$ | 9,055 | | |
|
Adjustments to reconcile net earnings to cash flows provided by (used for) operating activities: | |
| | | |
| | | |
| | | |
|
Provision for credit losses | |
| 250 | | |
| 1,475 | | |
| 1,175 | | |
|
Depreciation and net accretion | |
| (177 | ) | |
| (129 | ) | |
| (496 | ) | |
|
Gain on sale of loans held for sale | |
| (189 | ) | |
| - | | |
| - | | |
|
Proceeds from sales of loans held for sale | |
| 44,135 | | |
| - | | |
| - | | |
|
Repossessed assets | |
| (121 | ) | |
| 397 | | |
| - | | |
|
Gain on sale of leased property and sales-type lease income | |
| (2,784 | ) | |
| (1,834 | ) | |
| (2,033 | ) | |
|
Net gain recognized on investment securities | |
| - | | |
| (23 | ) | |
| (481 | ) | |
|
Deferred income taxes, including income taxes payable | |
| (6,246 | ) | |
| 17 | | |
| (3,240 | ) | |
|
(Increase) decrease in income taxes receivable | |
| (967 | ) | |
| 110 | | |
| 1,427 | | |
|
Net (decrease) increase in accounts payable and accrued liabilities | |
| (1,086 | ) | |
| 1,344 | | |
| (275 | ) | |
|
Other, net | |
| 390 | | |
| (320 | ) | |
| 37 | | |
|
Net cash provided by operating activities | |
| 44,328 | | |
| 9,685 | | |
| 5,169 | | |
|
| |
| | | |
| | | |
| | | |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | | |
| | | |
|
Investment in leases, loans and transactions in process | |
| (220,077 | ) | |
| (349,231 | ) | |
| (381,763 | ) | |
|
Payments received on lease receivables and loans | |
| 286,238 | | |
| 214,331 | | |
| 224,830 | | |
|
Proceeds from sales of leased property and sales-type leases | |
| 8,149 | | |
| 5,395 | | |
| 4,457 | | |
|
Proceeds from sales and assignments of leases | |
| 43,136 | | |
| 27,817 | | |
| 75,926 | | |
|
Purchase of investment securities | |
| (8,261 | ) | |
| (22,798 | ) | |
| (68,294 | ) | |
|
Pay down on investment securities | |
| 5,817 | | |
| 4,414 | | |
| 12,067 | | |
|
Proceeds from sale of investment securities | |
| - | | |
| 4,769 | | |
| 994 | | |
|
Proceeds from sale of repossessed assets | |
| 1,425 | | |
| - | | |
| - | | |
|
Net increase in other assets | |
| (616 | ) | |
| (1,806 | ) | |
| (113 | ) | |
|
Net cash provided by (used for) investing activities | |
| 115,811 | | |
| (117,109 | ) | |
| (131,896 | ) | |
|
| |
| | | |
| | | |
| | | |
|
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | | |
| | | |
|
Net (decrease) increase in time certificates of deposit | |
| (173,391 | ) | |
| 149,699 | | |
| 111,232 | | |
|
Net increase in demand and savings deposits | |
| 8,878 | | |
| 11,542 | | |
| 4,864 | | |
|
Net (decrease) increase in short-term borrowings | |
| - | | |
| (2,000 | ) | |
| 35,142 | | |
|
Payments to repurchase common stock | |
| - | | |
| (2,360 | ) | |
| - | | |
|
Dividends to stockholders | |
| (4,729 | ) | |
| (4,603 | ) | |
| (4,393 | ) | |
|
Proceeds from exercise of stock options | |
| 64 | | |
| - | | |
| - | | |
|
Net cash (used for) provided by financing activities | |
| (169,178 | ) | |
| 152,278 | | |
| 146,845 | | |
|
| |
| | | |
| | | |
| | | |
|
NET CHANGE IN CASH AND CASH EQUIVALENTS | |
| (9,039 | ) | |
| 44,854 | | |
| 20,118 | | |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |
| 105,094 | | |
| 60,240 | | |
| 40,122 | | |
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD | |
$ | 96,055 | | |
$ | 105,094 | | |
$ | 60,240 | | |
|
| |
| | | |
| | | |
| | | |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |
| | | |
| | | |
| | | |
|
(Decrease) increase in lease rentals assigned to lenders and related non-recourse debt | |
$ | (4,170 | ) | |
$ | (5,744 | ) | |
$ | 1,553 | | |
|
Estimated residual values recorded on leases | |
$ | (652 | ) | |
$ | (579 | ) | |
$ | (2,565 | ) | |
|
Lease transferred to repossessed assets | |
$ | - | | |
$ | 1,500 | | |
$ | - | | |
|
Interest paid on deposits and borrowed funds | |
$ | 7,338 | | |
$ | 6,124 | | |
$ | 3,875 | | |
|
Income taxes paid | |
$ | 14,814 | | |
$ | 5,293 | | |
$ | 7,573 | | |
|
Transfers from loans held for investment to loans held for sale | |
$ | 44,140 | | |
$ | - | | |
$ | - | | |
The accompanying notes are an integral part of these consolidated
financial statements.
| 35 | |
California First National Bancorp and Subsidiaries
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
****
**Note 1 - Summary of Significant Accounting Policies:**
Nature of Operations
California First National Bancorp, a California corporation (the
Company) is a bank holding company with two subsidiaries, California First National Bank (CalFirst Bank
or the Bank) and 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. The Companys business has migrated from predominately leasing to over 50% commercial loans, with a lease
and loan portfolio diversified geographically and across industries. CalFirst Bank is an Internet bank that gathers deposits from
a centralized location primarily through posting rates on the Internet with all banking and other operations conducted from one
central location.
The Company is regulated by the Board of Governors of the Federal
Reserve System (the FRB) while CalFirst Bank is subject to regulation and examination by the Office of the Comptroller
of the Currency (OCC), its primary regulator. The Federal Deposit Insurance Corporation (FDIC) insures
the Banks deposit accounts up to the maximum allowable amount.
Basis of Presentation
The consolidated financial statements include the accounts of California
First National Bancorp and its wholly owned subsidiaries, CalFirst Bank and CalFirst Leasing. All intercompany balances and transactions
have been eliminated in consolidation.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Critical accounting estimates particularly susceptible
to change include the allowance for credit losses, residual values and taxes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks, cash in demand
deposit accounts, and money market accounts, all of which have initial maturities of less than ninety days. The Company had cash
in interest-bearing accounts of $95.4 million and $102.0 at June 30, 2017 and 2016, respectively, of which $72.8 million and $92.0
million, respectively, represented assets of the Bank. At June 30, 2017, CalFirst Leasing and California First National Bancorp
had $23.3 million held in money market accounts not subject to FDIC insurance.
Securities
Securities are designated at the time of acquisition as available
for sale or held to maturity. Securities that the Company will hold for indefinite periods of time and that might be sold in the
future as part of efforts to manage interest rate risk, or in response to changes in interest rates, changes in prepayment rates,
changes in market conditions or changes in economic factors are classified as available for sale and carried at fair values. Net
aggregate unrealized gains or losses are reported, net of taxes, as a component of comprehensive income. Securities that the Company
has the intent and ability to hold until maturity are classified as investments held-to-maturity and are stated at
cost adjusted for amortization of premium or accretion of discount. The Company does not have any securities classified as trading.
The Company conducts a regular assessment of its securities portfolio
to determine whether any are other-than-temporarily impaired. In estimating other-than-temporary impairment losses, management
considers, among other factors, the length of time and extent to which the fair value has been less than cost, the financial condition
and near term prospects of the issuer, and the intent and ability of the Company to retain its investment for a period of time
sufficient to allow for any anticipated recovery. The term other-than-temporary is not intended to indicate that
the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that
there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a
decline in value for a debt security is determined to be other-than-temporary, the other-than-temporary impairment is separated
into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected
from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other
factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in other income. The
amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income. For
equity securities, the full amount of the other-than-temporary impairment is recorded in non-interest income as an impairment loss
on investment securities.
| 36 | |
California First National Bancorp and Subsidiaries
Leases
Capital Leases
New lease transactions are generally structured as direct financing
leases. The re-lease of property that has come off lease may be accounted for as a sales-type lease or as an operating lease, depending
on the terms of the re-lease. Leased property that comes off lease and is re-marketed through a sale to the lessee or a third party
is accounted for as sale of leased property.
For leases that qualify as direct financing leases, the aggregate
lease payments receivable and estimated residual value, if any, are recorded net of unearned income as net investment in leases.
The unearned income is recognized as direct finance income on an internal rate of return method calculated to achieve a level yield
on the Companys investment over the lease term. There are no costs or expenses related to direct financing leases since
lease income is recorded on a net basis.
For leases that qualify as sales-type leases, the Company recognizes
profit or loss at lease inception to the extent the fair value of the property leased differs from the Company's carrying value.
The difference between the discounted value of the aggregate lease payments receivable and the property cost, less the discounted
value of the residual, if any, and any initial direct costs is recorded as sales-type lease income. For balance sheet purposes,
the aggregate lease payments receivable and estimated residual value, if any, are recorded net of unearned income as net investment
in leases. Unearned income is recognized as direct finance income over the lease term on an internal rate of return method.
The residual value is an estimate for accounting purposes of the
fair value of the lease property at lease termination. The estimates are reviewed periodically to ensure reasonableness, however,
the amounts the Company may ultimately realize could differ from the estimated amounts.
In some instances, the Company assigns on a nonrecourse basis or
participates out the lease payments receivable related to direct financing leases to unaffiliated financial institutions at fixed
interest rates. The accounting for the participation or sale of lease receivables is governed by Financial Accounting Standards
Board (FASB) Accounting Standards Codification (ASC) 860 Transfer and Servicing, which establishes
a framework for determining which transactions should be treated as a sale of the financial asset by the Company or a secured borrowing
through retention of the lease as an asset and reporting of non-recourse debt. For lease receivables accounted for as a sale, the
Company derecognizes the lease receivable and the unearned income related to the lease is recognized as a gain from the sale of
lease receivable in the period in which the lease receivable has been sold. For lease receivables accounted for as a secured borrowing,
the minimum lease payments receivable is re-categorized on the balance sheet as discounted lease rentals assigned to lenders. The
related obligations resulting from the discounting of the leases are recorded as non-recourse debt. The unearned income related
to the lease is reduced by the interest expense from the non-recourse debt. In the event of default by a lessee, the participant
or lender has a first lien against the underlying leased property with no further recourse against the Company. If this occurs,
the Company may not realize its residual investment in the leased property.
A portion of the Company's non-interest expenses directly related
to originating lease transactions is deferred through a reduction to non-interest expenses recognized in the period, with the deferred
costs amortized over the lease term as a reduction to direct finance income utilizing the effective interest method.
Operating Leases
Lease contracts which do not meet the criteria of capital leases
are accounted for as operating leases. Property on operating leases is recorded at the lower of cost or fair value and depreciated
on a straight-line basis over the lease term to the estimated residual value at the termination of the lease. Most operating leases
involve the re-lease of off-lease property and the associated cost is the Companys estimated residual. Rental income is
recorded on a straight-line basis over the lease term.
Loans
Loans are reported at their principal amount outstanding, net of
unearned discounts and unamortized nonrefundable fees and direct costs associated with their origination or acquisition. Interest
earned on loans without discounts is credited to income based on loan principal amounts outstanding at appropriate interest rates.
Material origination and other nonrefundable fees net of direct costs and discounts on loans are credited to income over the terms
of the loans using a method that approximates an effective yield.
Allowance for Credit Losses
The allowance for credit losses is an estimate
based on managements judgment applying the principles of ASC Topic 450, Contingencies, and ASC Topic
310-35, Loan Impairment. The determination of the adequacy of the allowance is based on an assessment of the inherent
loss potential in the lease and loan portfolios given the conditions at the time and are continuously reviewed for adequacy considering
levels of past due payments and non-performing assets, customers financial condition, leased property values as well as
general economic conditions and credit quality indicators. The need for reserves is subject to future events, which by their nature
are uncertain. Therefore, changes in economic conditions or other events affecting specific customers or industries may necessitate
additions or deductions to the allowance for credit losses or the residual valuation allowance. The allowance is maintained at
a level believed to be adequate to absorb probable losses inherent in the portfolios.
| 37 | |
California First National Bancorp and Subsidiaries
The allowance for credit losses includes
specific and general reserves. Specific reserves relate to leases and loans that are individually classified as problems or impaired.
Leases are individually evaluated for impairment under ASC Topic 450, while loans are evaluated under ASC 310-35, which does not
apply to leases. A lease or loan is impaired when, based on current information and events, it is probable that the Company will
be unable to collect amounts due according to the contractual terms. Factors considered in determining impairment include payment
status, collateral value and the probability of collecting all amounts when due. The net book value of each non-performing or problem
lease is evaluated to determine whether the carrying value is less than or equal to the expected recovery anticipated to be derived
from lease payments, additional collateral or residual realization. Measurement of impairment of a loan is based on expected future
cash flows of the impaired loan, which are to be discounted at the loans effective interest rate, or measured by reference
to an observable market value, if one exists, or the fair value of the collateral for a collateral-dependent loan. The Company
selects the measurement method on a loan-by-loan basis. The amount estimated as unrecoverable is recognized as a reserve individually
identified for the lease or impaired loan.
General reserves are an estimate of probable
or inherent losses related to the remaining portfolio. An ongoing review of all leases and loans is conducted, taking into account
recent loss experience, known and inherent risks in the portfolio, levels of delinquencies, adverse situations that may affect
customers ability to repay, trends in volume and other factors, including regulatory guidance and current and anticipated
economic conditions. This portfolio analysis includes a stratification of the portfolio by the risk classifications and segments
and estimation of potential losses based on risk classification or segment. The composition of the portfolio based on risk ratings
is monitored, and changes in the overall risk profile of the portfolio are also factored into the evaluation of inherent risks
in the portfolio. Based on the foregoing, an estimated inherent loss not based directly on specific problem assets is recorded
as a collective allowance. The Company utilizes similar processes to estimate its liability for unfunded loan commitments, which
is included in other liabilities and not in the allowance for credit losses. Lease receivables and loans are charged off when they
are deemed completely uncollectible. Subsequent recoveries, if any, are credited to the allowance.
Loans held for sale are carried at the lower of cost or fair value
as determined by quoted prices, and are reported as level 2 inputs. Any amount by which cost exceeds fair value is initially recorded
as a valuation allowance when transferred to held for sale and subsequently reflected in the gain or loss when sold.
Property Acquired for Transactions-in-process
Property acquired for transactions-in-process represents partial
deliveries of property which the lessee has accepted on in-process lease transactions. Such amounts are stated at cost, net of
any lessee payments related to the property. Income is not recognized while a transaction is in process and prior to the commencement
of the lease. At lease commencement, any pre-commencement payments are included in minimum lease payments receivable and the unearned
income is recognized as direct finance income over the lease term.
Comprehensive Income
Accumulated other comprehensive income consists of unrealized gains
and losses on available-for-sale securities.
Earnings Per Share
Basic net income per share is computed by dividing income available
to common stockholders by the weighted average number of common shares outstanding. Diluted net income per share includes the effect
of the potential shares outstanding, including dilutive stock options, using the treasury stock method.
The following table reconciles the components of the basic net income
per share calculation to diluted net income per share:
|
| |
Years ended June 30, | |
|
| |
2017 | |
2016 | |
2015 | |
|
| |
(in thousands, except share and per amounts) | |
|
Net earnings | |
$ | 11,123 | | |
$ | 8,648 | | |
$ | 9,055 | | |
|
Weighted average number of common shares outstanding assuming no exercise of outstanding options | |
| 10,279,818 | | |
| 10,399,393 | | |
| 10,459,924 | | |
|
Dilutive stock options using the treasury stock method | |
| (33 | ) | |
| - | | |
| - | | |
|
Dilutive common shares outstanding | |
| 10,279,785 | | |
| 10,399,393 | | |
| 10,459,924 | | |
|
Basic earnings per common share | |
$ | 1.08 | | |
$ | 0.83 | | |
$ | 0.87 | | |
|
Diluted earnings per common share | |
$ | 1.08 | | |
$ | 0.83 | | |
$ | 0.87 | | |
The Company had 6,000 antidilutive stock options in its calculation
of diluted earnings per share for the year ended June 30, 2017, and 10,000 antidilutive stock options in fiscal 2016 and 2015.
| 38 | |
California First National Bancorp and Subsidiaries
Recent Accounting Pronouncements
In March 2017, the FASB issued Accounting Standards Update (ASU)
2017-08, Receivable Nonrefundable Fees and Other Costs (Subtopic 310-20) Premium Amortization on Purchased Callable
Debt Securities. This ASU amends guidance on the amortization period of premiums on certain purchased callable debt securities
to shorten the amortization period of premiums on certain purchased callable debt securities to the earliest call date. The amendment
is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within fiscal
years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The Company is currently
evaluating the potential impact of ASU 2017-08 on its financial statements and disclosures.
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 flow statement of the Company.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments
- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires the measurement
of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions,
and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used
in estimating credit losses, as well as the credit quality and underwriting standards of an organizations portfolio. In
addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial
assets with credit deterioration. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019, including interim
periods within those fiscal years. The Company continues to evaluate the extent of the potential impact of ASU 2016-13 on
its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic
842). ASU 2016-02 will require that all leases be recognized on the balance sheet as lease assets and lease liabilities and disclosing
key information about leasing arrangements. The guidance is effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. The Company continues to evaluate the extent of the potential impact of ASU
2016-02 on its financial statements and disclosures.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments
Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. Changes made to the current measurement
model primarily affect the accounting for equity securities with readily determinable fair values, where changes in fair value
will impact earnings instead of other comprehensive income. The accounting for other financial instruments, such as loans, investments
in debt securities, and financial liabilities is largely unchanged. ASU 2016-01 also changes the presentation and disclosure requirements
for financial instruments including a requirement that public business entities use exit price when measuring the fair value of
financial instruments measured at amortized cost for disclosure purposes. ASU 2016-01 is generally effective for public business
entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company has
determined that ASU No. 2016-01 is not expected to have a material impact on the Companys Consolidated Financial Statements;
however, the Company will continue to closely monitor developments and additional guidance.
Reclassifications
Certain reclassifications have been made to the fiscal 2016 and
2015 financial statements to conform to the presentation of the fiscal 2017 financial statements.
** **
****
**Note 2 Investments**
Investments are carried at cost and consist of the following:
|
| |
June 30, 2017 | |
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 | |
| 2,213 | | |
| 2,213 | | |
| 1,886 | | |
| 1,886 | |
| |
|
Mortgage-backed investment | |
| 113 | | |
| 126 | | |
| 116 | | |
| 131 | |
| |
|
| |
$ | 4,281 | | |
$ | 4,294 | | |
$ | 3,957 | | |
$ | 3,972 | |
| |
| 39 | |
California First National Bancorp and Subsidiaries
The investment in Federal Home Loan Bank of San Francisco (FHLB)
stock is a required investment related to CalFirst Banks 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 FHLBs are generally jointly and severally liable for repayment of each others
debt. Therefore, the Companys 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 Companys
intent to do so, anticipates that it will realize the full carrying value of its investment and carries the security at amortized
cost.
****
**Note 3 - Securities Available for Sale:**
Securities available-for-sale includes U.S. Treasury securities,
corporate bonds, U.S. government agency (Agency) mortgaged-backed securities (MBS), mutual fund and
equity investments. The amortized cost, fair value, and carrying value of available-for-sale-securities were as follows:
|
| |
at June 30, 2017 |
| |
|
(in thousands) | |
Amortized | |
Gross Unrealized | |
Fair |
| |
|
| |
Cost | |
Gains | |
Losses | |
Value |
| |
|
U.S. Treasury Notes | |
$ | 47,426 | | |
$ | 295 | | |
$ | - | | |
$ | 47,721 | |
| |
|
Corporate debt securities | |
| 13,140 | | |
| 31 | | |
| - | | |
| 13,171 | |
| |
|
Agency MBS | |
| 25,803 | | |
| 22 | | |
| (248 | ) | |
| 25,577 | |
| |
|
Equity securities | |
| 7,934 | | |
| 111 | | |
| (336 | ) | |
| 7,709 | |
| |
|
Mutual fund investment | |
| 1,215 | | |
| 116 | | |
| - | | |
| 1,331 | |
| |
|
Total securities available-for-sale | |
$ | 95,518 | | |
$ | 575 | | |
$ | (584 | ) | |
$ | 95,509 | |
| |
|
| |
at June 30, 2016 |
| |
|
(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 investments | |
| 1,215 | | |
| 247 | | |
| - | | |
| 1,462 | |
| |
|
Total securities available-for-sale | |
$ | 93,643 | | |
$ | 2,204 | | |
$ | (3 | ) | |
$ | 95,844 | |
| |
The following table presents the fair value and associated gross
unrealized loss on available-for-sale securities with a gross unrealized loss at June 30, 2017 and 2016.
|
| |
Less than 12 Months | |
12 Months or More | |
Total |
| |
|
| |
Unrealized | |
Estimated | |
Unrealized | |
Estimated | |
Unrealized | |
Estimated |
| |
|
| |
Loss | |
Fair Value | |
Loss | |
Fair Value | |
Loss | |
Fair Value |
| |
|
| |
(in thousands) |
| |
|
At June 30, 2017 | |
| |
| |
| |
| |
| |
|
| |
|
Agency MBS | |
$ | (248 | ) | |
$ | 22,349 | | |
$ | - | | |
$ | - | | |
$ | (248 | ) | |
$ | 22,349 | |
| |
|
Equity securities | |
| (336 | ) | |
| 5,655 | | |
| - | | |
| - | | |
| (336 | ) | |
| 5,655 | |
| |
|
Total | |
$ | (584 | ) | |
$ | 28,004 | | |
$ | - | | |
$ | - | | |
$ | (584 | ) | |
$ | 28,004 | |
| |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
|
At June 30, 2016 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
|
Corporate debt securities | |
$ | (3 | ) | |
$ | 3,266 | | |
$ | - | | |
$ | - | | |
$ | (3 | ) | |
$ | 3,266 | |
| |
|
Total | |
$ | (3 | ) | |
$ | 3,266 | | |
$ | - | | |
$ | - | | |
$ | (3 | ) | |
$ | 3,266 | |
| |
| 40 | |
California First National Bancorp and Subsidiaries
The Company conducts a regular assessment of its investment portfolios
to determine whether any securities are other-than-temporarily impaired. In estimating other-than-temporary impairment losses,
management considers, among other factors, length of time and extent to which the fair value has been less than cost, the financial
condition and near term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer
for a period of time sufficient to allow for any recovery. The $584,000 unrealized loss at June 30, 2017 relates to fluctuations
in interest rates and financial markets and not credit quality. Because the Company has the intent to hold these securities and
more likely than not will not need to sell them before recovery, the Company does not consider the investments to be other-than-temporarily
impaired at June 30, 2017.
The $3,000 unrealized loss at June 30, 2016 related to fluctuations
in interest rates and financial markets and not credit quality. Because the Company had the intent to hold this security and more
likely than not would not need to sell it, the Company did not consider this investment to be other-than-temporarily impaired at
June 30, 2016.
The amortized cost and estimated fair value of available-for-sale
securities at June 30, 2017, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
| |
Amortized Cost | |
Fair Value |
| |
|
| |
(in thousands) |
| |
|
Due in three months or less | |
$ |
- |
| |
$ |
- |
|
| |
|
Due after three months to one year | |
| 8,132 | | |
| 8,139 | |
| |
|
Due after one year to five years | |
| 52,434 | | |
| 52,753 | |
| |
|
Due after five years | |
| 25,803 | | |
| 25,577 | |
| |
|
No stated maturity | |
| 9,149 | | |
| 9,040 | |
| |
|
Total securities available-for-sale | |
$ | 95,518 | | |
$ | 95,509 | |
| |
The following table presents the Companys gross realized
gains on available-for-sale securities. These gains and losses were recognized using the specific identification method and were
included in non-interest income.
|
(in thousands) | |
Available-for-sale |
| |
|
| |
For the years ended June 30, |
| |
|
| |
2017 | |
2016 | |
2015 |
| |
|
Gross realized gains | |
$ | - | | |
$ | 23 | | |
$ | 572 | |
| |
|
Other than temporary impairment | |
| - | | |
| - | | |
| (91 | ) |
| |
|
Total | |
$ | - | | |
$ | 23 | | |
$ | 481 | |
| |
During the twelve months ended June 30, 2016, the Company realized
a gain of $23,000 from an early call of a corporate debt security for proceeds of $4.8 million. During the twelve months ended
June 30, 2015, the Company realized a gain of $572,000 from the sale of equity investments for proceeds of $994,000. In September
2014, the Company recorded a pre-tax impairment charge of $91,000 related to the mutual fund investment. The mutual fund lowered
its dividend by 11% and traded below its recorded cost for over twelve months.
At June 30, 2017 and 2016, U.S. Treasury notes and Agency MBS with
an amortized cost of $73.2 million and $79.1 million respectively, are pledged to secure borrowings from the FHLB (see Note 9).
****
**Note 4 - Receivables:**
The Company's receivables consist of the following:
|
| |
June 30, |
| |
|
| |
2017 | |
2016 |
| |
|
| |
(in thousands) |
| |
|
Other lessee receivables | |
$ | 130 | | |
$ | 214 | |
| |
|
Accrued interest and dividends | |
| 710 | | |
| 1,119 | |
| |
|
Total receivables | |
$ | 840 | | |
$ | 1,333 | |
| |
| 41 | |
California First National Bancorp and Subsidiaries
** **
****
**Note 5 Net Investment in Leases:**
The Company's net investment in leases consists of the following:
|
| |
June 30, |
| |
|
| |
2017 | |
2016 |
| |
|
| |
(in thousands) |
| |
|
Minimum lease payments receivable | |
$ | 200,516 | | |
$ | 248,527 | |
| |
|
Estimated residual value | |
| 6,226 | | |
| 10,871 | |
| |
|
Less unearned income | |
| (14,001 | ) | |
| (19,434 | ) |
| |
|
Net investment in leases before allowances | |
| 192,741 | | |
| 239,964 | |
| |
|
Less allowance for lease losses | |
| (1,881 | ) | |
| (2,228 | ) |
| |
|
Less valuation allowance for estimated residual value | |
| (62 | ) | |
| (62 | ) |
| |
|
Net investment in leases | |
$ | 190,798 | | |
$ | 237,674 | |
| |
The minimum lease payments receivable and estimated residual value
are discounted using the internal rate of return method related to each specific lease. Unearned income and discounts include the
offset of initial direct costs of $2.5 million and $2.6 million at June 30, 2017 and 2016, respectively.
At June 30, 2017, a summary of the installments due on minimum lease
payments receivable, and the expected maturity of the Company's estimated residual value are as follows:
|
| |
Lease | |
Estimated | |
|
| |
|
Years ending June 30, | |
Receivable | |
Residual Value | |
Total |
| |
|
| |
(in thousands) |
| |
|
2018 | |
$ | 85,352 | | |
$ | 2,872 | | |
$ | 88,224 | |
| |
|
2019 | |
| 61,458 | | |
| 1,730 | | |
| 63,188 | |
| |
|
2020 | |
| 32,906 | | |
| 648 | | |
| 33,554 | |
| |
|
2021 | |
| 13,293 | | |
| 263 | | |
| 13,556 | |
| |
|
2022 | |
| 5,610 | | |
| 636 | | |
| 6,246 | |
| |
|
Thereafter | |
| 1,897 | | |
| 77 | | |
| 1,974 | |
| |
|
| |
| 200,516 | | |
| 6,226 | | |
| 206,742 | |
| |
|
Less unearned income | |
| (13,407 | ) | |
| (594 | ) | |
| (14,001 | ) |
| |
|
Less allowances | |
| (1,881 | ) | |
| (62 | ) | |
| (1,943 | ) |
| |
|
| |
$ | 185,228 | | |
$ | 5,570 | | |
$ | 190,798 | |
| |
Non-recourse debt, which relates to the discounting of lease receivables,
bears interest at rates of 3.0%. Maturities of such obligations at June 30, 2017 are as follows:
|
| |
Non-recourse |
| |
|
Years ending June 30, | |
Debt |
| |
|
| |
| (in thousands) | |
| |
|
2018 | |
$ | 276 | |
| |
|
Total non-recourse debt | |
| 276 | |
| |
|
Deferred interest expense | |
| 3 | |
| |
|
Discounted lease rentals assigned to lenders | |
$ | 279 | |
| |
Deferred interest expense of $3,000 at June 30, 2017 will be amortized
against direct finance income related to the Company's discounted lease rentals assigned to lenders of $279,000 using the effective
yield method over the applicable lease term.
****
** **
****
| 42 | |
California First National Bancorp and Subsidiaries
** **
****
**Note 6 Commercial Loans:**
The Companys investment in commercial loans consists of the
following:
|
| |
June 30, |
| |
|
| |
2017 | |
2016 |
| |
|
| |
(in thousands) |
| |
|
Commercial term loans | |
$ | 304,045 | | |
$ | 399,239 | |
| |
|
Commercial real estate loans | |
| 4,387 | | |
| 6,682 | |
| |
|
Revolving lines of credit | |
| 3,248 | | |
| 3,405 | |
| |
|
Total commercial loans | |
| 311,680 | | |
| 409,326 | |
| |
|
Less unearned income and discounts | |
| (467 | ) | |
| (1,018 | ) |
| |
|
Less allowance for loan losses | |
| (5,204 | ) | |
| (4,572 | ) |
| |
|
Net commercial loans | |
$ | 306,009 | | |
$ | 403,736 | |
| |
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 $3.2 million at June
30, 2017 and $524,000 at June 30, 2016.
** **
****
**Note 7 Allowance for Credit Losses:**
The allowance for credit losses includes amounts to cover losses
related to the net investment in leases, commercial loans, and transactions-in-process (risk assets). A summary of
the allocation of the allowance for credit losses and selected statistics is as follows:
|
| |
June 30, |
| |
|
| |
2017 | |
2016 |
| |
|
| |
(dollars in thousands) |
| |
|
Allowance for credit losses at beginning of year | |
$ | 6,862 | | |
$ | 6,456 | |
| |
|
Charge-off of leases | |
| (168 | ) | |
| (1,120 | ) |
| |
|
Recovery of lease amounts previously written off | |
| 203 | | |
| 51 | |
| |
|
Provision for credit losses | |
| 250 | | |
| 1,475 | |
| |
|
Allowance for credit losses at end of year | |
$ | 7,147 | | |
$ | 6,862 | |
| |
|
| |
| | | |
| | |
| |
|
Components of allowance for credit losses: | |
| | | |
| | |
| |
|
Allowance for lease losses | |
$ | 1,943 | | |
$ | 2,290 | |
| |
|
Allowance for loan losses | |
| 5,204 | | |
| 4,572 | |
| |
|
| |
$ | 7,147 | | |
$ | 6,862 | |
| |
|
Allowance for credit losses as percent of net investment in leases and loans before allowances | |
| 1.42 | % | |
| 1.06 | % |
| |
|
| |
| | | |
| | |
| |
|
Net recoveries (charge-offs) as percent of average leases and loans | |
| 0.0 | % | |
| -0.2 | % |
| |
In addition to the allowance for credit losses, the Company has
recorded a liability for unfunded loan commitments of $50,000 at June 30, 2017 and 2016.
** **
****
**Note 8 Credit Quality of Financing Receivables:**
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
Topic 310, Receivables. This disclosure on financing receivables covers the Companys 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 Companys
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:
| 43 | |
California First National Bancorp and Subsidiaries
|
| | 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 Companys credit position at some future
date. |
|
|
| | Substandard Are inadequately protected by the paying capacity of the obligor or of
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:
|
| |
| |
Education | |
| |
| |
| |
|
| |
| |
Government | |
Commercial | |
Commercial | |
Total | |
|
(in thousands) | |
Commercial | |
Non-profit | |
& Industrial | |
Real Estate | |
Financing | |
|
| |
Leases | |
Leases | |
Loans | |
Loans | |
Receivable | |
|
As of June 30, 2017: | |
| |
| |
| |
| |
| |
|
Pass | |
$ | 143,387 | | |
$ | 45,859 | | |
$ | 301,733 | | |
$ | 4,387 | | |
$ | 495,366 | | |
|
Special Mention | |
| 3,296 | | |
| 196 | | |
| 5,093 | | |
| - | | |
| 8,585 | | |
|
Substandard | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Doubtful | |
| 1 | | |
| 2 | | |
| - | | |
| - | | |
| 3 | | |
|
| |
$ | 146,684 | | |
$ | 46,057 | | |
$ | 306,826 | | |
$ | 4,387 | | |
$ | 503,954 | | |
|
Non-accrual | |
$ | 1 | | |
$ | 2 | | |
$ | - | | |
$ | - | | |
$ | 3 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
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 customers financial condition or other relevant factors. Payments received while on non-accrual are applied to reduce
the Companys recorded value.
The following table presents the aging of the financing receivables
by portfolio class:
|
| |
| |
Greater | |
| |
| |
Total | |
Over 90 | |
|
| |
31-89 | |
Than | |
Total | |
| |
Financing | |
Days & | |
|
(in thousands) | |
Days | |
90 Days | |
Past Due | |
Current | |
Receivable | |
Accruing | |
|
| |
| |
| |
| |
| |
| |
| |
|
As of June 30, 2017: | |
| |
| |
| |
| |
| |
| |
|
Commercial Leases | |
$ | - | | |
$ | 1 | | |
$ | 1 | | |
$ | 146,683 | | |
$ | 146,684 | | |
$ | - | | |
|
Education, Government, Non-profit Leases | |
| - | | |
| 2 | | |
| 2 | | |
| 46,055 | | |
| 46,057 | | |
| - | | |
|
Commercial and Industrial Loans | |
| - | | |
| - | | |
| - | | |
| 306,826 | | |
| 306,826 | | |
| - | | |
|
Commercial Real Estate Loans | |
| - | | |
| - | | |
| - | | |
| 4,387 | | |
| 4,387 | | |
| - | | |
|
| |
$ | - | | |
$ | 3 | | |
$ | 3 | | |
$ | 503,951 | | |
$ | 503,954 | | |
$ | - | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
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 | | |
$ | - | | |
| 44 | |
California First National Bancorp and Subsidiaries
The following table presents the allowance balances and activity
in the allowance related to financing receivables, along with the recorded investment and allowance determined based on impairment
method as of June 30, 2017 and 2016:
|
| |
| |
Education | |
| |
| |
| |
|
| |
| |
Government | |
Commercial | |
Commercial | |
Total | |
|
| |
Commercial | |
Non-profit | |
& Industrial | |
Real Estate | |
Financing | |
|
(in thousands) | |
Leases | |
Leases | |
Loans | |
Loans | |
Receivable | |
|
As of June 30, 2017: | |
| |
| |
| |
| |
| |
|
Allowance for lease and loan losses | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Balance beginning of period | |
$ | 1,825 | | |
$ | 465 | | |
$ | 4,511 | | |
$ | 61 | | |
$ | 6,862 | | |
|
Charge-offs | |
| - | | |
| - | | |
| (168 | ) | |
| - | | |
| (168 | ) | |
|
Recoveries | |
| 203 | | |
| - | | |
| - | | |
| - | | |
| 203 | | |
|
Provision | |
| (400 | ) | |
| (150 | ) | |
| 800 | | |
| - | | |
| 250 | | |
|
Balance end of period | |
$ | 1,628 | | |
$ | 315 | | |
$ | 5,143 | | |
$ | 61 | | |
$ | 7,147 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Individually evaluated for impairment | |
$ | 367 | | |
$ | 6 | | |
$ | - | | |
$ | - | | |
$ | 373 | | |
|
Collectively evaluated for impairment | |
| 1,261 | | |
| 309 | | |
| 5,143 | | |
| 61 | | |
| 6,774 | | |
|
Total ending allowance balance | |
$ | 1,628 | | |
$ | 315 | | |
$ | 5,143 | | |
$ | 61 | | |
$ | 7,147 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Finance receivables | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Individually evaluated for impairment | |
$ | 7,323 | | |
$ | 81 | | |
$ | - | | |
$ | - | | |
$ | 7,404 | | |
|
Collectively evaluated for impairment | |
| 139,362 | | |
| 45,975 | | |
| 306,826 | | |
| 4,387 | | |
| 496,550 | | |
|
Total ending finance receivable balance | |
$ | 146,685 | | |
$ | 46,056 | | |
$ | 306,826 | | |
$ | 4,387 | | |
$ | 503,954 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
As of June 30, 2016: | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Allowance for lease and loan losses | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Balance beginning of period | |
$ | 2,592 | | |
$ | 817 | | |
$ | 2,936 | | |
$ | 111 | | |
$ | 6,456 | | |
|
Charge-offs | |
| (1,118 | ) | |
| (2 | ) | |
| - | | |
| - | | |
| (1,120 | ) | |
|
Recoveries | |
| 1 | | |
| 50 | | |
| - | | |
| - | | |
| 51 | | |
|
Provision | |
| 350 | | |
| (400 | ) | |
| 1,575 | | |
| (50 | ) | |
| 1,475 | | |
|
Balance end of period | |
$ | 1,825 | | |
$ | 465 | | |
$ | 4,511 | | |
$ | 61 | | |
$ | 6,862 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
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 9 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 daily 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.
Short-term borrowings consist of funds with remaining maturities
of one year or less and long-term debt consists of borrowings with remaining maturities greater than one year. The Company had
no long-term borrowings at June 30, 2017 and 2016. The borrowings from the FHLB and weighted average interest rates at June 30,
2017 and 2016 were as follows:
|
| |
June 30, 2017 | |
June 30, 2016 |
| |
|
(dollars in thousands) | |
| |
Weighted | |
| |
Weighted |
| |
|
| |
Amount | |
Average Rate | |
Amount | |
Average Rate |
| |
|
Short-term borrowings | |
| | | |
| | | |
| | | |
| | |
| |
|
FHLB advances | |
$ | 40,000 | | |
| 1.12 | % | |
$ | 40,000 | | |
| 0.42 | % |
| |
At June 30, 2017, there was estimated available borrowing capacity
from the FHLB of $31.1 million related to qualifying real estate loans of $4.3 million and securities with a carrying value of
$73.2 million. There were no borrowings from the FRB, leaving availability of approximately $73.3 million secured by $94.0 million
of lease receivables.
** **
****
| 45 | |
California First National Bancorp and Subsidiaries
** **
****
**Note 10 Deposits:**
The composition of deposits is as follows:
|
| |
June 30, 2017 | |
June 30, 2016 |
| |
|
| |
(dollars in thousands) |
| |
|
Non-interest bearing deposits | |
| | | |
| | | |
| | | |
| | |
| |
|
Demand deposits | |
$ | 4,855 | | |
| 1.0 | % | |
$ | 2,181 | | |
| 0.3 | % |
| |
|
| |
| | | |
| | | |
| | | |
| | |
| |
|
Interest-bearing deposits | |
| | | |
| | | |
| | | |
| | |
| |
|
Demand | |
| 1,356 | | |
| 0.3 | % | |
| 1,298 | | |
| 0.2 | % |
| |
|
Savings and money market | |
| 84,656 | | |
| 18.1 | % | |
| 78,510 | | |
| 12.4 | % |
| |
|
Time certificates of deposits | |
| 377,767 | | |
| 80.6 | % | |
| 551,158 | | |
| 87.1 | % |
| |
|
Total Deposits | |
$ | 468,634 | | |
| 100.0 | % | |
$ | 633,147 | | |
| 100.0 | % |
| |
Included in savings and money market deposits at June 30, 2017 is
a deposit in the amount of $487,000 from an affiliate, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, of the
Company. The terms of such account are the same terms offered on similar accounts to non-affiliated depositors.
Time certificates of deposits with balances of more than $250,000
were $96.5 million and $128.0 million at June 30, 2017 and 2016, respectively.
At June 30, 2017, the scheduled maturities of time certificates
of deposit are as follows:
|
Years Ending: | |
(in thousands) |
| |
|
2018 | |
$ | 328,330 | |
| |
|
2019 | |
| 43,241 | |
| |
|
2020 | |
| 6,196 | |
| |
|
Total time certificates of deposit | |
$ | 377,767 | |
| |
Note 11 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 entitys 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 Companys investment in leases. The Companys financial assets measured
at fair value on a recurring basis include primarily securities available-for-sale and at June 30, 2017, there were no liabilities
subject to ASC 820.
| 46 | |
California First National Bancorp and Subsidiaries
The Company classifies financial assets and liabilities within the fair value hierarchy
based on the availability of observable market information. Securities available-for-sale include U.S. Treasury securities,
corporate bonds, U.S. government agency (Agency) mortgage-backed securities (MBS), mutual fund and
equity investments and generally are reported at fair value utilizing Level 1 and Level 2 inputs. The fair value of corporate bonds
and the 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 input). U.S. Treasury securities, mutual funds and equity investments are valued by reference
to the market closing or last trade price (Level 1 inputs). In the unlikely event that no trade occurred on the applicable date,
an indicative bid or the last trade most proximate to the applicable date would be used (Level 2 input). Changes in markets, economic
conditions or the Company valuation model may require the transfer of financial instruments from one level to another. Such transfer,
if any, would be recorded at the fair value as of the beginning of the period in which the transfer occurred. The Company has had
no transfers in fiscal 2017 and 2016.
The following table summarizes the Companys assets, which
are measured at fair value on a recurring basis as of June 30, 2017 and 2016:
|
| |
| |
Quoted Price in | |
| |
Significant |
| |
|
| |
| |
Active Markets for | |
Significant Other | |
Unobservable |
| |
|
| |
Total | |
Identical Assets | |
Observable Inputs | |
Inputs |
| |
|
Description of Assets / Liabilities | |
Fair Value | |
(Level 1) | |
(Level 2) | |
(Level 3) |
| |
|
| |
(in thousands) |
| |
|
As of June 30, 2017 | |
| |
| |
| |
|
| |
|
U.S. Treasury Notes | |
$ | 47,721 | | |
$ | 47,721 | | |
$ | - | | |
$ | - | |
| |
|
Corporate debt securities | |
| 13,171 | | |
| - | | |
| 13,171 | | |
| - | |
| |
|
Agency MBS | |
| 25,577 | | |
| - | | |
| 25,577 | | |
| - | |
| |
|
Equity investments | |
| 7,709 | | |
| 7,709 | | |
| - | | |
| | |
| |
|
Mutual fund investments | |
| 1,331 | | |
| 1,331 | | |
| - | | |
| - | |
| |
|
| |
$ | 95,509 | | |
$ | 56,761 | | |
$ | 38,748 | | |
$ | - | |
| |
|
| |
| | | |
| | | |
| | | |
| | |
| |
|
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 investments | |
| 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, 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 the repossessed equipment was based on available market information, including sales results and appraisal,
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 in
fiscal 2016 to a fair value of $1.3 million based on Significant Unobservable Inputs
(Level 3) at June 30, 2016. During fiscal 2017, the repossessed asset was sold. The Company had no such assets or liabilities
at June 30, 2017.
Note 12 Fair Value of Financial Instruments:
In accordance with ASC 825-50, the following table summarizes the
estimated fair value of financial instruments as of June 30, 2017, 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.
| 47 | |
California First National Bancorp and Subsidiaries
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 2 and 11. 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 Companys 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:
|
| |
June 30, 2017 | |
June 30, 2016 |
| |
|
| |
Carrying | |
Estimated | |
Carrying | |
Estimated |
| |
|
| |
Amount | |
Fair Value | |
Amount | |
Fair Value |
| |
|
| |
(in thousands) |
| |
|
Financial Assets: | |
| | | |
| | | |
| | | |
| | |
| |
|
Cash and cash equivalents | |
$ | 96,055 | | |
$ | 96,055 | | |
$ | 105,094 | | |
$ | 105,094 | |
| |
|
Investments | |
| 4,281 | | |
| 4,294 | | |
| 3,957 | | |
| 3,972 | |
| |
|
Securities available-for-sale | |
| 95,509 | | |
| 95,509 | | |
| 95,844 | | |
| 95,844 | |
| |
|
Commercial loan participations | |
| 295,280 | | |
| 295,556 | | |
| 389,511 | | |
| 388,781 | |
| |
|
Other loans | |
| 10,729 | | |
| 10,726 | | |
| 14,225 | | |
| 14,512 | |
| |
|
Financial Liabilities: | |
| | | |
| | | |
| | | |
| | |
| |
|
Demand and savings deposits | |
| 90,867 | | |
| 90,867 | | |
| 81,989 | | |
| 81,989 | |
| |
|
Time certificate of deposits | |
| 377,767 | | |
| 379,963 | | |
| 551,158 | | |
| 551,508 | |
| |
|
Short-term borrowings | |
$ | 40,000 | | |
$ | 40,000 | | |
$ | 40,000 | | |
$ | 40,001 | |
| |
** **
****
** **
****
**Note 13 Income Taxes:**
The Company accounts for its income taxes under ASC 740, Income
Taxes. Among other provisions, this standard requires deferred tax balances to be determined using the enacted income tax
rate for the years in which taxes will be paid or refunds received. The Company is subject to U.S. Federal income tax jurisdiction,
as well as multiple state and local jurisdictions as a result of doing business in most states. The Companys Federal tax
returns remain subject to examination from 2015 forward, while state income tax returns are generally open from 2013 forward, and
vary by individual state statute of limitation. The Company believes that its accrual for income taxes is adequate for adjustments,
if any, which may result from these examinations.
The provision for income taxes is summarized as follows:
|
| |
Years ended June 30, |
| |
|
| |
2017 | |
2016 | |
2015 |
| |
|
| |
(in thousands) |
| |
|
Current tax (benefit) expense: | |
| | | |
| | | |
| | |
| |
|
Federal | |
$ | 10,398 | | |
$ | 9,801 | | |
$ | 8,652 | |
| |
|
State | |
| 2,032 | | |
| 1,240 | | |
| 1,067 | |
| |
|
| |
| 12,430 | | |
| 11,041 | | |
| 9,719 | |
| |
|
Deferred tax (benefit) expense: | |
| | | |
| | | |
| | |
| |
|
Federal | |
| (3,905 | ) | |
| (5,064 | ) | |
| (3,678 | ) |
| |
|
State | |
| (924 | ) | |
| (557 | ) | |
| (281 | ) |
| |
|
| |
| (4,829 | ) | |
| (5,621 | ) | |
| (3,959 | ) |
| |
|
Total income tax provision | |
$ | 7,601 | | |
$ | 5,420 | | |
$ | 5,760 | |
| |
At June 30, 2017 and 2016, the Company had an income taxes receivable
balance of $1,088,000 and $121,000 respectively.
** **
****
| 48 | |
California First National Bancorp and Subsidiaries
** **
Deferred taxes result principally from the method of recording lease
income on capital leases and depreciation methods for tax reporting, which differ from financial statement reporting. Deferred
income tax liabilities (assets) are comprised of the following:
|
| |
June 30, |
| |
|
| |
2017 | |
2016 |
| |
|
| |
(in thousands) |
| |
|
Deferred income tax liabilities: | |
| | | |
| | |
| |
|
Tax operating leases | |
$ | 7,811 | | |
$ | 13,799 | |
| |
|
Deferred selling expenses | |
| 1,033 | | |
| 1,072 | |
| |
|
Depreciation | |
| 620 | | |
| 632 | |
| |
|
Other investments | |
| - | | |
| 673 | |
| |
|
Total liabilities | |
| 9,464 | | |
| 16,176 | |
| |
|
Deferred income tax assets: | |
| | | |
| | |
| |
|
Allowances and reserves | |
| (2,993 | ) | |
| (3,061 | ) |
| |
|
State income taxes | |
| (711 | ) | |
| (434 | ) |
| |
|
Other investments | |
| (186 | ) | |
| | |
| |
|
Stock-based compensation | |
| (5 | ) | |
| (7 | ) |
| |
|
Total assets | |
| (3,895 | ) | |
| (3,502 | ) |
| |
|
Net deferred income tax liabilities | |
$ | 5,569 | | |
$ | 12,674 | |
| |
The differences between the federal statutory income tax rate and
the Company's effective tax rate are as follows:
|
| |
Years ended June 30, |
| |
|
| |
2017 | |
2016 | |
2015 |
| |
|
Federal statutory rate | |
| 35.00 | % | |
| 35.00 | % | |
| 35.00 | % |
| |
|
State tax, net of Federal benefit | |
| 5.92 | | |
| 4.86 | | |
| 5.31 | |
| |
|
Other, mainly tax exempt leases | |
| (0.32 | ) | |
| (1.36 | ) | |
| (1.41 | ) |
| |
|
Derecognition of uncertain tax positions | |
| - | | |
| - | | |
| - | |
| |
|
Effective rate | |
| 40.60 | % | |
| 38.50 | % | |
| 38.90 | % |
| |
As of June 30, 2017, there was $188,000 of unrecognized tax benefits,
all of which, if recognized, would affect the effective tax rate. The Companys policy is to include interest and penalties
related to unrecognized tax benefits in income tax expense. As of June 30, 2017, accrued penalties and interest on unrecognized
tax benefits are estimated to be $35,000.
The following table sets forth the change in unrecognized tax benefits:
|
| |
Years ended June 30, |
| |
|
| |
2017 | |
2016 |
| |
|
| |
(in thousands) |
| |
|
Balance, beginning of period | |
$ | 188 | | |
$ | 188 | |
| |
|
Increase for tax positions in current year | |
| 36 | | |
| 47 | |
| |
|
Increase (decrease) for tax positions taken in prior
years | |
| (38 | ) | |
| (48 | ) |
| |
|
Increase (decrease) for interest and penalties | |
| 2 | | |
| 1 | |
| |
|
Balance, end of period | |
$ | 188 | | |
$ | 188 | |
| |
At June 30, 2017, there were no material changes to the liability
for uncertain tax positions and unrecognized tax benefits. The amount of unrecognized tax benefits may increase or decrease in
the future for various reasons; including additions related to current year tax provisions, the expiration of the statute of limitations
on open tax years, the status of examinations and changes in management judgment.
** **
****
**Note 14 Capital Structure and Stock-based Compensation:**
At June 30, 2017, the Company has 20,000,000 authorized shares of
common stock and is authorized to issue 2,500,000 shares of preferred stock, from time to time, in one or more series and to fix
the voting powers, designations, preferences and the relative participating, optional or other rights, if any, of any wholly unissued
series of preferred stock.
| 49 | |
California First National Bancorp and Subsidiaries
In November 1995, the Companys stockholders approved the
1995 Equity Participation Plan (the 1995 Plan). The 1995 Plan provides for the granting of options, restricted stock
and stock appreciation rights (SARs) to key employees, directors and consultants of the Company. Under the 1995 Plan,
the maximum number of shares of common stock that can be issued upon the exercise of options or SARs, or upon the vesting of restricted
stock awards, was initially 1,000,000, but the maximum number of available shares of common stock could increase by an amount equal
to 1% of the total number of issued and outstanding shares of common stock as of June 30 of the fiscal year immediately preceding
such fiscal year. Each grant or issuance under the 1995 Plan is set forth in a separate agreement and indicates, as determined
by the stock option committee, the type, terms, vesting period and conditions of the award.
On July 1, 2005, the Company implemented ASC Topic 718, Compensation
Stock Compensation (ASC 718). ASC 718 addresses accounting for equity-based compensation arrangements, including
employee stock options. The Company adopted the modified prospective method where stock-based compensation expense
is recorded beginning on the adoption date. Under this method, compensation expense is recognized using the fair-value based method
for all new awards granted after July 1, 2005. The fair value of each grant is estimated using the Black-Scholes option-pricing
model. There were no option grants in fiscal years 2017, 2016 and 2015. The Company has not awarded any new grants since fiscal
2013.
The Company recognized stock-based compensation expense for the
years ended June 30, 2017 and 2016 and 2015 of $4,800, $4,500 and $4,400, respectively. As of June 30, 2017, the Company had no
stock-based compensation expense to be recognized.
The following table summarizes activity related to stock options
for the periods indicated:
|
| |
June 30, | |
|
| |
2017 | |
2016 | |
2015 | |
|
| |
| |
Weighted | |
| |
Weighted | |
| |
Weighted | |
|
| |
| |
Average | |
| |
Average | |
| |
Average | |
|
| |
Shares | |
Exercise Price | |
Shares | |
Exercise Price | |
Shares | |
Exercise Price | |
|
Options outstanding at beginning of period | |
| 10,000 | | |
$ | 16.00 | | |
| 10,000 | | |
$ | 16.00 | | |
| 10,000 | | |
$ | 16.00 | | |
|
Exercised | |
| 4,000 | | |
| 16.00 | | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Granted | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Options outstanding at end of period | |
| 6,000 | | |
$ | 16.00 | | |
| 10,000 | | |
$ | 16.00 | | |
| 10,000 | | |
$ | 16.00 | | |
|
Options exercisable at end of period | |
| 4,000 | | |
| | | |
| 6,000 | | |
| | | |
| 4,000 | | |
| | | |
|
Shares available for issuance | |
| 2,322,643 | | |
| | | |
| 2,219,845 | | |
| | | |
| 2,115,246 | | |
| | | |
|
As of June 30, 2017 | |
|
Options Outstanding | |
Options Exercisable | |
|
| |
| |
Weighted Average | |
| |
| |
| |
|
Range of | |
Number | |
Remaining Contractual | |
Weighted Average | |
Number | |
Weighted Average | |
|
Exercise prices | |
Outstanding | |
Life (in years) | |
Exercise Price | |
Exercisable | |
Exercise Price | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
$16.00 |
- |
$16.00 | |
| 6,000 | | |
| 5.08 | | |
$ | 16.00 | | |
| 4,000 | | |
$ | 16.00 | | |
At June 30, 2017, the aggregate intrinsic value of options outstanding
and options exercisable was $11,400 and $5,700, respectively. The total intrinsic value of options exercised during the year ended
June 30, 2017 was $12,418. There were no options exercised during the year ended June 30, 2016. The total intrinsic value of options
exercised during the year ended June 30, 2015 was $0.
** **
****
**Note 15 Regulatory Capital Requirements:**
** **
The Company and CalFirst Bank are subject to regulatory
capital adequacy guidelines administered by federal banking agencies. Failure to meet minimum capital requirements can result in
the initiation of certain actions by the federal agencies that, if undertaken, could have a material effect on the Companys
financial statements. The Basel III capital standard became effective January 2, 2015 and phases in through 2019. It 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. Effective January 2, 2015
Basel III capital standards require the Company and Bank to maintain minimum ratios of core capital to adjusted average assets
of 4.0%, common equity tier 1 capital to risk-weighted assets of 4.5%, tier 1 capital to risk-weighted assets of 6.0% and total
risk-based capital to risk-weighted assets of 8.0%.
| 50 | |
California First National Bancorp and Subsidiaries
The following table presents capital and capital ratio information
for the Company and CalFirst Bank as of June 30, 2017 and June 30, 2016. Under Basel III, the Bank could make 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 Bank has elected to opt-out of the accumulated other comprehensive income (loss) requirement. 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 federal regulators.
|
| |
June 30, |
| |
|
| |
2017 | |
2016 |
| |
|
| |
(dollars in thousands) |
| |
|
California First National Bancorp | |
Amount | |
Ratio | |
Amount | |
Ratio |
| |
|
Common equity Tier 1 capital | |
$ | 196,140 | | |
| 33.09 | % | |
$ | 189,677 | | |
| 25.12 | % |
| |
|
Tier 1 risk-based capital | |
$ | 196,140 | | |
| 33.09 | % | |
$ | 189,677 | | |
| 25.12 | % |
| |
|
Total risk-based capital | |
$ | 203,338 | | |
| 34.30 | % | |
$ | 196,589 | | |
| 26.04 | % |
| |
|
Tier 1 leverage capital | |
$ | 196,140 | | |
| 26.01 | % | |
$ | 189,677 | | |
| 21.67 | % |
| |
|
| |
| | | |
| | | |
| | | |
| | |
| |
|
California First National Bank | |
| | | |
| | | |
| | | |
| | |
| |
|
Common equity Tier 1 capital | |
$ | 126,424 | | |
| 22.22 | % | |
$ | 116,379 | | |
| 15.88 | % |
| |
|
Tier 1 risk-based capital | |
$ | 126,424 | | |
| 22.22 | % | |
$ | 116,379 | | |
| 15.88 | % |
| |
|
Total risk-based capital | |
$ | 133,419 | | |
| 23.45 | % | |
$ | 123,091 | | |
| 16.79 | % |
| |
|
Tier 1 leverage capital | |
$ | 126,424 | | |
| 17.23 | % | |
$ | 116,379 | | |
| 13.94 | % |
| |
** **
****
****
**Note 16 Commitments and Contingencies:**
The Company has commitments to extend credit provided there is no
violation of any condition in the terms of the approval or agreement. At June 30, 2017 and 2016, the Company had approved lease
and loan commitments of $41.8 million and $57.0 million, respectively. These lease and loan commitments are approved transactions,
but it is likely that some portion of these commitments will not fund or be completed. The Company does not issue standby letters
of credit.
Leases
The Company leases its corporate offices under an operating lease
that expires in fiscal 2019. Rent expense was $693,400 (2017), $684,100 (2016) and $634,000 (2015).
|
| |
Future minimum |
| |
|
Years ending | |
lease payments |
| |
|
June 30, | |
(in thousands) |
| |
|
2018 |
| |
$ | 720 | |
| |
|
2019 |
| |
| 121 | |
| |
|
|
|
| |
$ | 841 | |
| |
Litigation
From time to time, the Company is party to legal actions and administrative
proceedings and subject to various claims arising out of the Companys normal business activities. Management does not expect
the outcome of any of these matters, individually and in the aggregate, to have a material adverse effect on the financial condition
and results of operations of the Company.
401(k) Plan
Employees of the Company may participate in a voluntary defined
contribution plan (the "401K Plan") qualified under Section 401(k) of the Internal Revenue Code of 1986. Under the 401K
Plan, employees who have met certain age and service requirements may contribute up to a certain percentage of their compensation.
The Company has made contributions of $83,288 (2017), $94,287 (2016) and $97,607 (2015).
| 51 | |
California First National Bancorp and Subsidiaries
****
**Note 17 Segment Reporting:**
** **
The Companys banking subsidiary, CalFirst Bank, and leasing
subsidiary, CalFirst Leasing, are considered to be two different business segments. The accounting policies of each segment are
the same as those described in Summary of Significant Accounting Policies (see Note 1). Below is a summary of each
segments financial results for fiscal years 2017, 2016 and 2015:
|
| |
| |
| |
Bancorp and | |
|
| |
|
| |
CalFirst | |
CalFirst | |
Eliminating | |
|
| |
|
| |
Bank | |
Leasing | |
Entries | |
Consolidated |
| |
|
| |
(in thousands) |
| |
|
Year end June 30, 2017: | |
| |
| |
| |
|
| |
|
Total interest income | |
$ | 28,337 | | |
$ | 893 | | |
$ | 18 | | |
$ | 29,248 | |
| |
|
Net interest income after provision for credit losses | |
| 20,509 | | |
| 1,242 | | |
| 18 | | |
| 21,769 | |
| |
|
Non-interest income | |
| 4,126 | | |
| 3,313 | | |
| - | | |
| 7,439 | |
| |
|
Net earnings | |
| 10,045 | | |
| 2,588 | | |
| (1,510 | ) | |
| 11,123 | |
| |
|
Total assets | |
$ | 673,449 | | |
$ | 67,868 | | |
$ | (25,732 | ) | |
$ | 715,585 | |
| |
|
| |
| | | |
| | | |
| | | |
| | |
| |
|
Year end June 30, 2016: | |
| | | |
| | | |
| | | |
| | |
| |
|
Total interest income | |
$ | 26,334 | | |
$ | 1,358 | | |
$ | 9 | | |
$ | 27,701 | |
| |
|
Net interest income after provision for credit losses | |
| 18,331 | | |
| 1,676 | | |
| 9 | | |
| 20,016 | |
| |
|
Non-interest income | |
| 2,300 | | |
| 2,586 | | |
| - | | |
| 4,886 | |
| |
|
Net earnings | |
| 7,232 | | |
| 2,376 | | |
| (960 | ) | |
| 8,648 | |
| |
|
Total assets | |
$ | 852,056 | | |
$ | 78,183 | | |
$ | (42,063 | ) | |
$ | 888,176 | |
| |
|
| |
| | | |
| | | |
| | | |
| | |
| |
|
Year end June 30, 2015: | |
| | | |
| | | |
| | | |
| | |
| |
|
Total interest income | |
$ | 21,092 | | |
$ | 1,912 | | |
$ | 1 | | |
$ | 23,005 | |
| |
|
Net interest income after provision for credit losses | |
| 15,730 | | |
| 2,154 | | |
| 1 | | |
| 17,885 | |
| |
|
Non-interest income | |
| 3,947 | | |
| 4,762 | | |
| - | | |
| 8,709 | |
| |
|
Net earnings | |
| 6,367 | | |
| 3,577 | | |
| (889 | ) | |
| 9,055 | |
| |
|
Total assets | |
$ | 671,785 | | |
$ | 90,337 | | |
$ | (31,048 | ) | |
$ | 731,074 | |
| |
****
** **
** **
****
| 52 | |
California First National Bancorp and Subsidiaries
** **
****
**Note 18 California First National Bancorp (Parent
Only) Financial Information:**
The condensed financial statements of California First National
Bancorp as of June 30, 2017 and 2016 and for the years ended June 30, 2017, 2016 and 2015 are presented as follows:
|
Condensed Balance Sheets | |
June 30, |
| |
|
(in thousands, except per share amounts) | |
2017 | |
2016 |
| |
|
| |
| |
|
| |
|
ASSETS | |
| | | |
| | |
| |
|
Cash and cash equivalents | |
$ | 2,990 | | |
$ | 3,910 | |
| |
|
Intercompany receivable | |
| 22 | | |
| 3 | |
| |
|
Investment in banking subsidiary | |
| 126,483 | | |
| 117,573 | |
| |
|
Investment in nonbanking subsidiaries | |
| 67,609 | | |
| 70,237 | |
| |
|
Other assets | |
| 428 | | |
| 169 | |
| |
|
Premises and other fixed assets | |
| 54 | | |
| 124 | |
| |
|
Total assets | |
$ | 197,586 | | |
$ | 192,016 | |
| |
|
| |
| | | |
| | |
| |
|
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| |
|
Liabilities | |
| | | |
| | |
| |
|
Accrued liabilities | |
$ | 381 | | |
$ | 470 | |
| |
|
Intercompany payable | |
| - | | |
| 123 | |
| |
|
Income taxes payable- deferred | |
| 1,071 | | |
| 401 | |
| |
|
Total liabilities | |
| 1,452 | | |
| 994 | |
| |
|
Stockholders' equity | |
| | | |
| | |
| |
|
Preferred stock; 2,500,000 shares authorized; none issued | |
| - | | |
| - | |
| |
|
Common stock, $.01 par value; 20,000,000 shares authorized: 10,283,807 (2017) and 10,279,807 (2016) issued and outstanding | |
| 103 | | |
| 103 | |
| |
|
Additional paid in capital | |
| 2,309 | | |
| 2,240 | |
| |
|
Retained earnings | |
| 193,728 | | |
| 187,334 | |
| |
|
Other comprehensive income, net of tax | |
| (6 | ) | |
| 1,345 | |
| |
|
Total stockholders equity | |
| 196,134 | | |
| 191,022 | |
| |
|
Total liabilities and stockholders equity | |
$ | 197,586 | | |
$ | 192,016 | |
| |
|
Condensed Statements of Earnings | |
Years Ended June 30, |
| |
|
(in thousands) | |
2017 | |
2016 | |
2015 |
| |
|
Income: | |
| |
| |
|
| |
|
Dividends from non-bank subsidiary | |
$ | 5,000 | | |
$ | 8,000 | | |
$ | 5,000 | |
| |
|
Management fee income bank subsidiary | |
| 968 | | |
| 968 | | |
| 676 | |
| |
|
Management fee income non-bank subsidiaries | |
| 141 | | |
| 59 | | |
| 151 | |
| |
|
Other interest income | |
| 18 | | |
| 9 | | |
| 1 | |
| |
|
Total income | |
| 6,127 | | |
| 9,036 | | |
| 5,828 | |
| |
|
Non-interest Expenses: | |
| | | |
| | | |
| | |
| |
|
Salaries & benefits | |
| 1,625 | | |
| 1,508 | | |
| 1,209 | |
| |
|
Occupancy | |
| 156 | | |
| 146 | | |
| 95 | |
| |
|
Professional services | |
| 248 | | |
| 243 | | |
| 244 | |
| |
|
Other general & administrative | |
| 208 | | |
| 198 | | |
| 322 | |
| |
|
Total non-interest expenses | |
| 2,237 | | |
| 2,095 | | |
| 1,870 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
Income (Loss) before taxes and equity in undistributed earnings of subsidiaries | |
| 3,890 | | |
| 6,941 | | |
| 3,958 | |
| |
|
Income tax expense | |
| 400 | | |
| (99 | ) | |
| (154 | ) |
| |
|
Equity in undistributed earnings of subsidiaries | |
| 7,633 | | |
| 1,608 | | |
| 4,943 | |
| |
|
Net Income | |
$ | 11,123 | | |
$ | 8,648 | | |
$ | 9,055 | |
| |
| 53 | |
California First National Bancorp and Subsidiaries
|
Condensed Statements of Cash Flows | |
Years Ended June 30, |
| |
|
(in thousands) | |
2017 | |
2016 | |
2015 |
| |
|
| |
| |
| |
|
| |
|
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | | |
| | |
| |
|
Net income | |
$ | 11,123 | | |
$ | 8,648 | | |
$ | 9,055 | |
| |
|
Adjustments to reconcile net earnings to cash flows: | |
| | | |
| | | |
| | |
| |
|
Deferred income taxes | |
| 670 | | |
| 122 | | |
| 49 | |
| |
|
Equity in undistributed earnings of subsidiaries | |
| (7,633 | ) | |
| (1,608 | ) | |
| (4,943 | ) |
| |
|
Net change in other liabilities | |
| (89 | ) | |
| (22 | ) | |
| (3 | ) |
| |
|
Net change in other assets | |
| (254 | ) | |
| 500 | | |
| 510 | |
| |
|
Other, net | |
| 70 | | |
| 73 | | |
| 64 | |
| |
|
Net cash provided by (used) for operating activities | |
| 3,887 | | |
| 7,713 | | |
| 4,732 | |
| |
|
| |
| | | |
| | | |
| | |
| |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | | |
| | |
| |
|
Payments for investments in and (advances to) subsidiaries | |
| (142 | ) | |
| 69 | | |
| (44 | ) |
| |
|
Net cash provided by (used for) investing activities | |
| (142 | ) | |
| 69 | | |
| (44 | ) |
| |
|
| |
| | | |
| | | |
| | |
| |
|
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | | |
| | |
| |
|
Proceeds from issuance of common stock | |
| 64 | | |
| - | | |
| - | |
| |
|
Payments to repurchase common stock | |
| - | | |
| (2,360 | ) | |
| - | |
| |
|
Dividends paid | |
| (4,729 | ) | |
| (4,603 | ) | |
| (4,393 | ) |
| |
|
Net cash used for financing activities | |
| (4,665 | ) | |
| (6,963 | ) | |
| (4,393 | ) |
| |
|
| |
| | | |
| | | |
| | |
| |
|
NET CHANGE IN CASH AND CASH EQUIVALENTS | |
| (920 | ) | |
| 819 | | |
| 295 | |
| |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |
| 3,910 | | |
| 3,091 | | |
| 2,796 | |
| |
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD | |
$ | 2,990 | | |
$ | 3,910 | | |
$ | 3,091 | |
| |
****
**Note 19 Selected Quarterly Financial Data (Unaudited):**
Summarized quarterly financial data for the fiscal years ended June
30, 2017 and 2016 is as follows:
|
| |
Three Months Ended |
| |
|
| |
September 30, | |
December 31, | |
March 31, | |
June 30, |
| |
|
| |
(dollars in thousands, except per share amounts) |
| |
|
2017 | |
| |
| |
| |
|
| |
|
Total interest income | |
$ | 7,244 | | |
$ | 8,553 | | |
$ | 7,151 | | |
$ | 6,300 | |
| |
|
Net interest income after provision for credit losses | |
| 5,006 | | |
| 6,005 | | |
| 5,305 | | |
| 5,453 | |
| |
|
Non-interest income | |
| 915 | | |
| 3,405 | | |
| 1,776 | | |
| 1,343 | |
| |
|
Net earnings | |
$ | 1,958 | | |
$ | 4,190 | | |
$ | 2,511 | | |
$ | 2,464 | |
| |
|
| |
| | | |
| | | |
| | | |
| | |
| |
|
Basic earnings per common share | |
$ | 0.19 | | |
$ | 0.41 | | |
$ | 0.24 | | |
$ | 0.24 | |
| |
|
Diluted earnings per common share | |
$ | 0.19 | | |
$ | 0.41 | | |
$ | 0.24 | | |
$ | 0.24 | |
| |
|
Dividends declared per common share | |
$ | - | | |
$ | 0.46 | | |
$ | - | | |
$ | - | |
| |
|
| |
| | | |
| | | |
| | | |
| | |
| |
|
2016 | |
| | | |
| | | |
| | | |
| | |
| |
|
Total interest income | |
$ | 6,250 | | |
$ | 6,570 | | |
$ | 6,837 | | |
$ | 8,044 | |
| |
|
Net interest income after provision for credit losses | |
| 4,457 | | |
| 4,556 | | |
| 5,022 | | |
| 5,981 | |
| |
|
Non-interest income | |
| 896 | | |
| 708 | | |
| 497 | | |
| 2,785 | |
| |
|
Net earnings | |
$ | 1,724 | | |
$ | 1,558 | | |
$ | 1,611 | | |
$ | 3,755 | |
| |
|
| |
| | | |
| | | |
| | | |
| | |
| |
|
Basic earnings per common share | |
$ | 0.16 | | |
$ | 0.15 | | |
$ | 0.15 | | |
$ | 0.37 | |
| |
|
Diluted earnings per common share | |
$ | 0.16 | | |
$ | 0.15 | | |
$ | 0.15 | | |
$ | 0.37 | |
| |
|
Dividends declared per common share | |
$ | - | | |
$ | 0.44 | | |
$ | - | | |
$ | - | |
| |
** **
****
| 54 | |
California First National Bancorp and Subsidiaries
** **
ITEM 9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed
to ensure that information required to be disclosed in the reports that it 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 Commissions
rules and forms. 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 and 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.
Managements Report on Internal Control
Over Financial Reporting
The management of California First National Bancorp is responsible
for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting
is a process designed by, or under the supervision of, the Companys principal executive and principal financial officers
and effected by the Companys board of directors, management and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
|
| | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the Company; | |
|
| | Provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and directors of the Company; and | |
|
| | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the Companys assets that could have a material effect on the financial statements. | |
Because of inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject
to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
Management assessed the effectiveness of the Companys internal
control over financial reporting as of June 30, 2017. In making its assessment, management used the criteria set forth in the Internal
Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The assessment included the documentation and understanding of the Companys internal control over financial reporting. Management
evaluated the design effectiveness and tested the operating effectiveness of internal controls over financial reporting to form
its conclusion.
Based on this evaluation, management concluded that, as of June
30, 2017, the Companys internal control over financial reporting is effective to provide reasonable assurance that the Companys
financial statements are fairly presented in conformity with generally accepted accounting principles.
Vavrinek, Trine, Day and Co., LLP, independent registered public
accounting firm, is not required to nor has it reported on the effectiveness of the Companys internal control over financial
reporting as of June 30, 2017.
Changes in Internal Control Over Financial
Reporting
There were no significant changes made during the most recent fiscal
year to the Company's internal controls or other factors that could significantly affect the Company's internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
** **
| 55 | |
California First National Bancorp and Subsidiaries
** **
****
**PART III**
** **
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
**Directors**
** **
**Patrick E. Paddon,**age 66, founded the Company in 1977, has
served as the President and a Director of the Company since its inception and has been Chief Executive Officer since 1990. In October
2013, Mr. Paddon was appointed to the Board of our subsidiary, California First National Bank (CalFirst Bank), and
in October 2015 assumed the position of Chief Executive Officer of CalFirst Bank. Mr. Paddon is qualified to be a director and
Chairman of the Board based upon over forty years of leadership experience with the Company and his extensive knowledge of its
business, operations, customers, capabilities and resources. Mr. Paddon is the spouse of Ms. Jewett.
**Glen T. Tsuma,**age 64, joined the Company in May 1981 and
has been Chief Operating Officer since August 1989 and Secretary since October 1991. In June 2011, Mr. Tsuma was appointed to the
Board and named Vice Chairman of CalFirst Bank. Prior to joining the Company, he was an audit manager with Arthur Young & Company.
Mr. Tsumas thirty six year involvement with the Company and extensive knowledge of the business, operations, customers,
capabilities and resources qualify him to continue as a director.
**Michael H. Lowry,**age 72, was elected to the Board of Directors
in August 1992. In May 2011, Mr. Lowry was appointed to the Board of CalFirst Bank. From 1994 until he retired in December 2010,
Mr. Lowry was a Managing Director of Nomura Securities North America, LLC, an investment banking firm. Prior to joining Nomura
Securities, Mr. Lowry had been employed by the investment banking firm of Bear Stearns & Co., Inc. from 1991 to 1993 and by
the investment banking firm of Kidder, Peabody & Co. Incorporated from 1970 to 1990. Mr. Lowry has committed over twenty five
years of service to the Board and is qualified to continue based on this and his experience in various aspects of investment banking
and finance, including extensive knowledge and expertise related to capital markets, the financial services industry and working
with Boards of Directors on transactional and corporate governance matters.
**Harris Ravine,**age 74, was elected to the Board of
Directors in February 1994, and has been Chairman of the Board of CalFirst Bank since May 2001. Mr. Ravine was Chief
Operating Officer from March 2009 through June 2017 for Rocky Mountain Public Broadcasting, Inc., the holder and operator of
five public broadcasting licenses in the State of Colorado. Prior to that, he was Managing Director with The Ravine Group,
an advisory services and investment firm. Mr. Ravine has been a director of the Company for over twenty three years and
is qualified to continue based on his service to the Company as well as his prior experience as chief executive of a
public company and as executive officer for a lessor of midrange computers. Mr. Ravines over 40 years with
various businesses and legal training adds important experience in terms of enterprise risk management and corporate
governance,
**Danilo Cacciamatta,**age 71, was elected to the Board of Directors
in June 2001 and has been a member of the Board of CalFirst Bank since May 2001. Mr. Cacciamatta was the Chief Executive Officer
of Cacciamatta Accountancy Corporation until May 2010, a position he held for more than ten years. Mr. Cacciamattas years
of experience in public accounting, which included sixteen years with KPMG Peat Marwick and a focus on the banking industry, brings
important technical and financial expertise to the Board, including the ability to understand and explain accounting, regulatory
and tax matters. The Board has determined that Mr. Cacciamatta qualifies as an audit committee financial expert under
SEC rules and regulations.
**Named Executive Officers**
**S. Leslie Jewett,**age 62, joined the Company in September
1991 as Vice President - Finance. In April 1994, Ms. Jewett was named Chief Financial Officer of the Company and has been a member
of the Board of CalFirst Bank since May 2001. From October 1, 2011 thru October 2015, Ms. Jewett also served as President of CalFirst
Bank. From 1981 to 1990, she held various management positions at Kidder, Peabody & Co. Incorporated, including Senior Vice
President, Corporate Finance. Ms. Jewett has a BA from Swarthmore College and an MBA from Stanford University. Ms. Jewett is the
spouse of Mr. Paddon.
**Thomas M. Duggan**, age 63, joined the Company in May 1994
as director of management information systems. He became Vice President of Information Technology for the Company in July 2001
and Senior Vice President of Information Technology and Operations in September 2013. Mr. Duggan has a BA from San Diego State
University.
**Corporate Governance Policies and Practices**
Over 60% of the Companys Common Stock
is owned by Patrick Paddon, Chairman and Chief Executive Officer, and therefore, the Company is a controlled company
and exempt from complying with certain corporate governance requirements required by The NASDAQ Stock Market, Inc. (NASDAQ),
such as a majority independent board and compensation and nominating committees comprised solely of independent directors. Notwithstanding
such exemption, a majority of the Board of Directors is independent and the Companys independent directors review and approve
compensation matters related to the Named Executive Officers.
| 56 | |
California First National Bancorp and Subsidiaries
The position of Chairman of the Board of Directors
and Chief Executive Officer are both held by Mr. Paddon. As founder of the Company and majority shareholder, the Board of Directors
believes this leadership structure is appropriate for the Company. Mr. Paddon has extensive knowledge of the Companys strategy
and challenges, operations and financial condition, and is best situated to set agendas and lead discussions on matters affecting
the Companys business.
** **
The Companys management is responsible
for the day-to-day management of the risks that the Company faces, while the Board of Directors has overall responsibility for
risk oversight with a focus on the most significant risks related to credit, market, liquidity, operational and regulatory risk
as well as overall enterprise risk. The whole Board of Directors reviews and approves the activities of the Audit Committee that
regularly evaluates financial statement and accounting risks and internal controls for the Company and CalFirst Bank. At least
annually, the Audit Committee reviews the Companys risk assessment and risk management policies, and approves an annual
plan for internal and external audits to be conducted that is derived from such assessment.
** **
It is the intent of the Company to conduct its
business operations in accordance with the highest degree of integrity and ethical standards. As a result, the Company holds its
employees, officers and directors to an explicit Code of Ethics and requires reporting of conflicts with or breaches of this code.
The Company also has adopted a Code of Ethics for Senior Financial Management and has obtained executed agreements related to such
policy from its chief executive officer and principal financial and principal accounting officer. A copy of each Code of Ethics
is available for review under the Corporate Governance section of the Companys web site at Calfirstbancorp.com. Any waivers
from the Code of Ethics for Senior Financial Management must be reviewed by the Audit Committee and will be disclosed on the website.
The information contained on the Companys website is not part of this or any other report we file with or furnish to the
SEC and is not incorporated by reference herein.
** **
**Director Meetings**
The Companys business is conducted by
management under the direction and oversight of the Board of Directors. The Board of Directors holds regularly scheduled quarterly
meetings, with Audit Committee meetings generally occurring at the same time, as necessary. In accordance with NASDAQ governance
requirements, at each quarterly board meeting time is available for the independent directors to meet without management present.
The Board of Directors met four times in person or by telephone during the year ended June 30, 2017, with all directors participating
in such board meetings in person or by telephone
**Audit Committee**
The Audit Committee of the Board of Directors
is made up of only the independent directors identified above. The Board of Directors has determined that each Audit Committee
member has sufficient knowledge in financial and auditing matters to serve on the committee, and further that Mr. Cacciamatta
is an audit committee financial expert as that term is defined in regulations issued by NASDAQ pursuant to the Sarbanes-Oxley
Act of 2002. The Audit Committee has responsibility for oversight of: (a) the financial reports and other financial information
provided by the Company to any governmental or regulatory body, the public or other users thereof, (b) the Company's systems of
internal accounting and financial controls, and (c) the annual audit of the Company's financial statements. The Audit Committee
has the sole authority and responsibility for selecting the firm of independent public accountants to be retained by the Company
to perform the audit and meets at least quarterly with the independent public accountants. The Audit Committee must approve, in
advance, all non-audit fees paid to the independent accountants and review and approve all related-party transactions. The Audit
Committee has authority to engage legal counsel or other experts or consultants, as it deems appropriate to carry out its responsibilities.
The Board of Directors adopted an Audit Committee Charter in June 2000, which was amended in August 2002 and subsequently amended
and restated on October 22, 2004.
In light of the Companys position as
a controlled company, the Company does not have a nominating committee or compensation committee.
**ITEM 11. EXECUTIVE COMPENSATION**
**Compensation Philosophy**
The Company's compensation practices for the
Named Executive Officers have generally been designed to bind the interests of the Company's key executives to the long-term performance
of the Company and its shareholders. The Company tries to achieve overall compensation levels that are sufficiently competitive
to retain talented executives and motivate those executives to achieve superior results while protecting the interests of the shareholders.
The Company believes that compensation should be set at responsible levels consistent with the Companys focus on controlling
costs.
Compensation for all Named Executive Officers
is comprised primarily of 1) base salary, 2) equity participation through common stock ownership or common stock options, and 3)
certain perquisites. Of the four Named Executive Officers set forth in the tables below, two are the Companys largest shareholders
and together control approximately 76% of the Companys common stock. Three of the Named Executive Officers are involved
in the credit approval and commitment process. With their substantial interest in the Companys equity, the Company believes
the Named Executive Officers will focus on the long-term prudent growth of the Company and its earnings potential.
| 57 | |
California First National Bancorp and Subsidiaries
The Company believes that there is no aspect
of the compensation program that is reasonably likely to lead any officer to take any unnecessary or inappropriate risks that could
have a material adverse effect on the Company. The Company does not maintain an incentive plan for any officer with the ability
to commit the Company to any investment, lease or loan that promotes the growth of assets, as the Company believes such a program
might result in short-term asset growth without consistency in asset and earnings quality. Given the nature of the Companys
accounting model and income recognition, incentive plans based on current period earnings are avoided as a large portion of earnings
are related to and impacted by decisions and activities that occurred in prior years. Therefore, compensation assessment is based
on more subjective factors related to the quality and development of the Companys portfolios, management of people and operations.
Performance based incentive plans are in place for sales and finance professionals not directly responsible for the credit decision
and policy making process.
The Company believes that the cash compensation
paid to the Company's Named Executive Officers is generally less than that paid to others in comparable positions. The base compensation
for Mr. Paddon and Mr. Tsuma reflects their status as significant shareholders of the Company. The equity ownership of the Company's
key executive officers is generally greater than other comparable companies, with the key executive officers of the Company beneficially
owning approximately 78% of the Company's common stock outstanding. Through having a substantial portion of each executive's long-term
compensation derived from participation in the Company's common stock, the Company believes that the financial interests of the
executive officers are aligned with those of the Company's other shareholders.
The following summary compensation table discloses
compensation paid by the Company to the Named Executive Officers for the fiscal years ended June 30, 2017 and 2016, respectively.
|
Name and Principal Position | |
Year | |
Salary | |
Bonus | |
Option
Awards | |
All
Other Compensation (1) | |
Total | |
|
Patrick
Paddon | |
| 2017 | | |
$ | 180,000 | | |
| - | | |
| - | | |
|
$ | 7,337 | | |
$ | 187,337 | | |
|
President. Chief Executive Officer | |
| 2016 | | |
$ | 180,000 | | |
| - | | |
| - | | |
|
$ | 7,079 | | |
$ | 187,079 | | |
|
Glen
T. Tsuma | |
| 2017 | | |
$ | 180,000 | | |
| - | | |
| - | | |
|
$ | 7,301 | | |
$ | 187,301 | | |
|
Chief Operating Officer | |
| 2016 | | |
$ | 180,000 | | |
| - | | |
| - | | |
|
$ | 6,989 | | |
$ | 186,989 | | |
|
S.
Leslie Jewett | |
| 2017 | | |
$ | 275,000 | | |
| - | | |
| - | | |
|
$ | 3,908 | | |
$ | 278,908 | | |
|
Chief Financial Officer | |
| 2016 | | |
$ | 275,000 | | |
| - | | |
| - | | |
|
$ | 3,908 | | |
$ | 278,908 | | |
|
Thomas M. DugganSenior Vice President Information Technology and Operations | |
| 2017 2016 | | |
$
$ | 230,000 230,000 | | |
| -
$22,000 | | |
| -
- | | |
|
$
$ | 2,000 2,000 | | |
$
$ | 232,000 254,000 | | |
________________
****
|
(1) |
Includes contribution under the Companys 401(k) Plan, certain professional fees, and club memberships. | |
** **
**Stock Options**
There were no stock option grants issued to
or exercised by the Named Executive Officers during fiscal 2017, and there are no unexercised stock options held by a Named Executive
Officer at June 30, 2017.
** **
**Other Benefits**
The Companys Named Executive Officers
are eligible to receive the same health benefits that are available to other employees and a contribution to their benefit premium
that is the same as provided to other employees. The Company maintains a tax-qualified 401(k) Plan, which provides for broad-based
employee participation. All employees are eligible to receive non-discretionary matching contributions by the Company in an amount
equal to 50% of the employees pretax contributions, subject to a maximum of $2,000. The only special benefits provided the
Named Executive Officers included the payment of certain tax preparation fees (approved by the audit committee), payment of health
club membership fees and the payment of a business club membership which is predominantly used for corporate or other business
purposes. All these costs are included in the column labeled "All Other Compensation" in the Summary Compensation Table
above.
The Company has not entered into any employment
agreements with any of the Named Executive Officers and all Named Executive Officers are considered at will employees.
The Company has no commitments for payments to be made or benefits provided in the event the employment of the Named Executive
Officer is terminated.
The Company does not maintain or make contributions
to a defined benefit plan for any employees. The Company indemnifies each of the executive officers to the fullest extent permitted
under California law against expenses and, in certain cases, judgments, settlements or other payments incurred by the officer or
director in suits brought by the Company, derivative actions brought by shareholders and suits brought by other third parties related
to the officers or directors service to the Company.
| 58 | |
California First National Bancorp and Subsidiaries
**Director Compensation**
** **
The following table summarizes director compensation
during fiscal year 2017. Each non-employee director is paid an annual retainer of $30,000 plus expenses for service on the Company
or CalFirst Banks Board. Directors who are employees of the Company do not receive any fees for their services as directors
and are not listed in the table. Directors are entitled to participate in the Companys 1995 Stock Option Plan. During fiscal
2017, there were no stock option grants issued to Directors.
|
Name | |
Fees Earned Or Paid in Cash | |
Stock Awards | |
All Other Compensation | |
Total Compensation |
| |
|
Michael H. Lowry | |
$ | 30,000 | | |
| - | | |
| - | | |
$ | 30,000 | |
| |
|
Harris Ravine | |
$ | 30,000 | | |
| - | | |
| - | | |
$ | 30,000 | |
| |
|
Danilo Cacciamatta | |
$ | 30,000 | | |
| - | | |
| - | | |
$ | 30,000 | |
| |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information
as to the number of shares of the Company's Common Stock beneficially owned by each person who is known by the Company to beneficially
own more than five percent of the outstanding shares of the Company's Common Stock, by each director, by our Chief Executive Officer,
Chief Financial Officer and two other highest paid officers of the Company or its subsidiaries with policy making authority (Named
Executive Officers), and all directors and Named Executive Officers as a group.
|
Name and Address of Beneficial Owners (1) | |
Amount
of Company's
Common Stock
Beneficially Owned | |
Percent
of Company's
Common Stock
Beneficially Owned |
|
| |
|
| |
| |
|
|
| |
|
Principal Shareholders | |
| | | |
| | |
| |
|
Patrick E. Paddon | |
| 6,471,084 | | |
| 62.9% | |
| |
|
Glen T. Tsuma | |
| 1,344,422 | | |
| 13.1% | |
| |
|
Timothy E Moriarty c/o McGrath, Doyle & Phair 150 Broadway, Suite 1915 New York, NY 10038 | |
| 521,112 | | |
| 5.1% | |
| |
|
Dimensional Fund Advisors, Inc. 6300 Bee Cave Road, Building One Austin, TX 78746 | |
| 503,677 | | |
| 4.9% | |
| |
|
Independent Directors | |
| | | |
| | |
| |
|
Michael H. Lowry | |
| 21,336 | | |
| * | |
| |
|
Harris Ravine | |
| 14,200 | | |
| * | |
| |
|
Danilo Cacciamatta | |
| 39,063 | | |
| * | |
| |
|
Named Executive Officers | |
| | | |
| | |
| |
|
S. Leslie Jewett | |
| 186,082 | | |
| 1.8% | |
| |
|
Thomas M. Duggan | |
| - | | |
| * | |
| |
|
| |
| | | |
| | |
| |
|
Directors and Named Executive Officers, as group (7 persons) | |
| 8,076,187 | | |
| 78.5% | |
| |
________________
|
* | | Less than one percent |
|
|
1) | | The address of each shareholder is 28 Executive Park, Irvine, California 92614, unless
noted above. |
|
**Section 16(a) of the 34 Act**
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's Directors, named executive officers and any persons holding 10% or more of the Company's Common Stock to
report their ownership of Common Stock and any changes in that ownership to the Securities and Exchange Commission. Based upon
a review of information furnished to the Company for the fiscal year ended June 30, 2017, all required forms were filed on a timely
basis.
** **
****
| 59 | |
California First National Bancorp and Subsidiaries
****
** **
**ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE**
**Transactions with Related Persons**
Apart from service as an executive officer or
on the Board of Directors, there are no additional relationships between the Company and any Related Person, nor are there any
related party transactions between any Related Persons and the Company. A "Related Person" is any director or executive
officer of the Company, any shareholder owning in excess of 5% of the total equity of the Company, and any "immediate family
member" of any such person. The Company does not have a written policy regarding Related Person Transactions because the Company
has not, and does not expect to, engage in any Related Person Transactions other than in rare circumstances. Any Related Person
Transaction would be considered based on facts and circumstances at such time.
The Companys
subsidiary, CalFirst Bank, is an FDIC-insured national bank that gathers deposits through the offer of money market, savings and
checking accounts, as well as certificates of deposits. Some of our Related Persons maintain deposit accounts with CalFirst Bank.
None of these transactions are considered material Related Person transactions under Item 404 of Regulation S-K
because the transactions involved CalFirst Bank as a depositary of funds.
**Director Independence**
** **
The Board of Directors has determined that Messrs.
Lowry, Ravine and Cacciamatta are considered to be independent directors in accordance with guidelines established
by NASDAQ, and it has determined that none of them has a material relationship with the Company that would impair their independence
from management or otherwise compromise their ability to act as an independent director.
** **
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
** **
The Audit Committee engaged Vavrinek, Trine, Day & Co., LLP
to serve as the Company's independent registered public accounting firm for the years ended June 30, 2017 and 2016.
**Fees Billed for Services Rendered by Vavrinek, Trine, Day
& Co., LLP**
Fees paid to VTD for fiscal years ended June 30, 2016 and 2015 are as follows:
|
| |
2017 | |
2016 |
| |
|
Audit Fees (1) | |
$ | 122,000 | | |
$ | 107,000 | |
| |
|
Audit Related Fees (2) | |
| 11,250 | | |
| 11,250 | |
| |
|
| |
$ | 133,250 | | |
$ | 118,250 | |
| |
________________
|
1) |
Includes fees for annual audit of Company?s financial statements, quarterly review of interim financial statements and consultations
on accounting matters. | |
|
2) |
Includes fees related to employee benefit plan audits. | |
No amounts were paid to VTD for Tax or Other Fees and Expenses.
| 60 | |
California First National Bancorp and Subsidiaries
** **
**PART IV**
** **
**ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**
(a) Financial Statements
and Schedules
All financial statements are set forth
under Item 8 of this annual report on Form 10-K. Financial statement schedules have been omitted since they are either not required,
not applicable, or the information is otherwise included.
(b) Exhibits:
|
Exhibit # |
|
Description of Exhibit |
|
Page No. | |
|
2.1 |
|
Agreement of Merger dated as of May 22, 2001 among Amplicon, Inc., California First National Bancorp and CFNB Merger Sub (incorporated by reference to Exhibit 2.1 to Registrant's Statement on Form 8-K dated May 25, 2001) |
|
| |
|
|
|
|
|
| |
|
3.1 |
|
Articles of Incorporation of California First National Bancorp (incorporated by reference to Exhibit 3.1 to Registrant's Statement on Form 8-K dated May 25, 2001) |
|
| |
|
|
|
|
|
| |
|
3.2 |
|
Bylaws of California First National Bancorp (incorporated by reference to Exhibit 3.2 to Registrant's Statement on Form 8-K dated May 25, 2001) |
|
| |
|
|
|
|
|
| |
|
10.1 |
|
1995 Equity Participation Plan, as amended to date (incorporated by reference to Exhibit 10.1 to Registrants Statement on Form S-8 File No. 333-15683) |
|
| |
|
|
|
|
|
| |
|
10.2 |
|
Capital Assurances and Liquidity Maintenance Agreement between California First National Bancorp and California First National Bank, effective as of May 23, 2001 (incorporated by reference to Exhibit 10.1 to Registrant's Statement on Form 8-K dated May 25, 2001) |
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10.3 |
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Agreement by and between California First National Bank and the Office of the Comptroller of the Currency dated as of May 23, 2001 (incorporated by reference to Exhibit 10.2 to Registrant's Statement on Form 8-K dated May 25, 2001) |
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31.1 |
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Rule 13a-14(a)/15d-14(a) Certifications of Principal Executive Officer |
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63 | |
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31.2 |
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Rule 13a-14(a)/15d-14(a) Certifications of Principal Financial Officer |
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64 | |
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32.0 |
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Section 1350 Certifications by Principal Executive Officer and Principal Financial Officer |
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65 | |
** **
** **
** **
****
| 61 | |
California First National Bancorp and Subsidiaries
** **
****
**SIGNATURES**
Pursuant to the requirements of Section 13 or 15 (d) 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
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By: |
/s/ S. Leslie Jewett |
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Date |
September 27, 2017 | |
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S. Leslie Jewett
Chief Financial Officer
(Principal Financial and Accounting Officer) |
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| |
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes each
of Patrick E. Paddon, S. Leslie Jewett and Glen T. Tsuma as attorney-in-fact to sign on his behalf, individually in each capacity
stated below, and to file all amendments and/or supplements to this Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
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Signature |
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Title |
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Date | |
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/s/ Patrick E. Paddon |
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President, Chief Executive |
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September 27, 2017 | |
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Patrick E. Paddon |
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Officer and Director |
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/s/ Glen T. Tsuma |
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Vice President, Chief Operating |
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September 27, 2017 | |
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Glen T. Tsuma |
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Officer and Director |
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/s/ S. Leslie Jewett |
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Chief Financial Officer |
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September 27, 2017 | |
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S. Leslie Jewett |
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(Principal Financial and Accounting Officer) |
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/s/ Michael H. Lowry |
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Director |
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September 26, 2017 | |
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Michael H. Lowry |
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/s/ Harris Ravine |
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Director |
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September 25, 2017 | |
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Harris Ravine |
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/s/ Danilo Cacciamatta |
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Director |
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September 27, 2017 | |
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Danilo Cacciamatta |
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62