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California First National Bancorp Reports Operating Results (10-K)

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gurufocus
Sep 25, 2009
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California First National Bancorp (CFNB, Financial) filed Annual Report for the period ended 2009-06-30.

alt=California First National Bank is a FDIC-insured national bank that gathers deposits using telephone the Internet and direct mail from a centralized location and will lease capital assets to businesses and organizations and provide business loans to fund the purchase of assets leased by third parties. California First National Bancorp has a market cap of $112.7 million; its shares were traded at around $11.11 with a P/E ratio of 12.4 and P/S ratio of 3.1. The dividend yield of California First National Bancorp stocks is 4.2%.

Highlight of Business Operations:

The Company leases and finances most capital assets used by businesses and organizations, with a focus on high technology equipment and software systems. The leases are structured individually and can provide end-of-term options to accommodate a variety of our customers objectives. Approximately 29% and 39% of the leases booked in fiscal 2009 and 2008, respectively, involved computer workstations and networks, mid-range computers and computer software. Other major property groups during fiscal 2009 included furniture and fixtures (29%), manufacturing equipment (21%), transportation (8%), telecommunications systems (5%) and medical equipment (3%).

The Company has pursued a strategy of retaining lease transactions in its own portfolios. During the fiscal years ended June 30, 2009, 2008 and 2007, 88%, 92% and 97%, respectively, of the total dollar amount of new leases completed by the Company s subsidiaries were retained in the Company s portfolios, with 12%, 8% and 3% for fiscal years 2009, 2008 and 2007, respectively, of such leases discounted to unaffiliated financial institutions. Approximately 34% and 40% of the new leases booked by CalFirst Leasing were assigned to CalFirst Bank during fiscal 2009 and 2008, respectively.

CalFirst Leasing applies a portfolio management system intended to develop portfolios with different risk/reward profiles. Each lease transaction held by CalFirst Leasing must meet or exceed certain credit or profitability requirements established, on a case-by-case basis, by the credit committee for the portfolio. Through the use of non-recourse financing, CalFirst Leasing avoids risks that do not meet their risk/reward requirements. Certain portfolios hold leases where the credit profile of the lessee or the value of the underlying leased property is not acceptable to other financial institutions. At June 30, 2009, 2008, and 2007, the discounted minimum lease payments receivable related to leases retained in CalFirst Leasing s portfolio amounted to $75.5 million, $85.4 million and $97.2 million, respectively. Such amounts represented 37%, 41% and 44% of the Company s total investment in discounted lease payments receivable at June 30, 2009, 2008 and 2007, respectively.

The Bank s strategy is to develop a conservative, diversified portfolio of leases with high credit quality lessees. The Bank s credit committee has established underwriting standards and criteria for the lease portfolio and monitors the portfolio on an ongoing basis. The Bank 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. At June 30, 2009, 2008 and 2007, the Bank s net investment in lease payments receivable amounted to $128.4 million, $124.5 million and $124.8 million or 63%, 59% and 56%, respectively, of the Company s total portfolio. Of such amounts, approximately 65%, 62% and 63%, respectively, represented leases originated directly by the Bank.

CalFirst Leasing and the Bank often make 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 CalFirst Leasing or the Bank 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, 2009, 2008, and 2007, the Company s total investment in property acquired for transactions-in-process amounted to $12.4 million, $29.0 million and $34.7 million, respectively. Of such amounts, approximately 53%, 70% and 79%, respectively, for each year related to CalFirst Leasing, with the balance held by CalFirst Bank.

Among the regulations that affect the Company and the Bank are provisions of Section 23A of the Federal Reserve Act. Section 23A 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 bank s capital and surplus and, as to all affiliates combined, to 20% of a bank's capital and surplus. The Bank and the Company must also comply with certain provisions designed to avoid the Bank buying low-quality assets. 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 services provided by the Company or its subsidiaries to the Bank are in accordance with this provision.

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