GENERAL

California First National Bancorp, a California corporation, is a bank holding company headquartered in Orange County, California. The Leasing Companies and CalFirst Bank focus on leasing and financing capital assets through centralized marketing programs designed to offer cost-effective leasing alternatives. Leased assets are re-marketed at lease expiration. CalFirst Bank also provides business loans to fund the purchase of assets leased by third parties, including the Leasing Companies and provides commercial loans to businesses, including real estate based and unsecured revolving lines of credit, and participates in commercial loan syndications. CalFirst Bank gathers deposits from a centralized location primarily through posting rates on the Internet.

The Company's direct finance, loan and interest income includes interest income earned on the Company's investment in lease receivables, residuals, 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 and gains realized on the sale of leases, and other income. Income from sales-type leases relates to the re-lease of lease property ("lease extensions") while income from operating leases generally involves lease extensions that are accounted for as an operating lease rather than as a sales-type lease.

The Company's operating results are subject to quarterly fluctuations resulting from a variety of factors, including the size and credit quality of the lease and loan portfolios, the volume and profitability of leased property being re-marketed through re-lease or sale, the interest rate environment, the volume of new lease or loan originations, including variations in the mix and funding of such originations, the market for investment securities and economic conditions in general. The Company's principal market risk exposure is interest rate risk, which is the exposure due to differences in the repricing characteristics of interest-earning assets and interest-bearing liabilities. The Company's balance sheet structure historically has been short-term in nature, with a greater portion of assets that reprice or mature within one year. With the increased investment in commercial loans and investment securities with longer maturities, this maturity gap has diminished. The Company's interest margin also is susceptible to timing lags related to varying movements in market interest rates. Many of Company's leases, loans and liquid investments are tied to U.S. treasury rates and the fed funds rate that 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 securities, leases and loans held in its own portfolio, lease transactions in process, and residual investments. The Company takes steps to manage risks through the implementation of strict credit management processes and on-going risk management review procedures.

Critical Accounting Policies and Estimates

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

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

Overview of Results and Trends

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

Net earnings for the third quarter ended March 31, 2009 were up 61% to $2.4 million from the net earnings of $1.5 million for the third quarter of fiscal 2008. For the nine months ended March 31, 2009, net earnings were up 26% to $6.7 million from the $5.3 million for the first nine months of fiscal 2008. The increase in net earnings for the third quarter and nine months of fiscal 2009 is primarily due to a reduction in selling, general and administrative (SG&A) expenses, higher income earned on the investment portfolio along with reduced rates paid on deposits and borrowings, and gains from the sale of leases.

New lease bookings of $117.3 million for the first nine months of fiscal 2008 increased 8.2%, and along with commercial loans boarded of $48.2 million contributed to a 33% increase in loan and lease assets booked to $165.6 million during the nine months ended March 31, 2009, compared to $124.3 million for the first nine months of fiscal 2008. As a result, the net investment in leases and loans of $286.5 million at March 31, 2009 increased 9.2% from June 30, 2008 and increased 14.1% from the balance at March 31, 2008.

The Bank's investment in leases and loans of $203.7 million at March 31, 2009 represented 71% of the Company's consolidated investment, and was up 21% from June 30, 2008. In addition, the Bank increased its investment securities portfolio to $85.1 million at March 31, 2009 from $2.6 million at June 30, 2008. The investments include certain U. S. agency mortgage-backed securities, investment grade bank issued trust-preferred securities and corporate bonds that offer a better yield than federal funds sold and other short-term investments. To fund this portfolio, demand, money market and time deposits increased by 32% to $205.5 million from $156.2 million at June 30, 2008, and the Bank used its availability under credit lines at the FHLB and the FRB through borrowings of $45.4 million at an average annual interest rate of 0.78%.

During the third quarter of fiscal 2009, new lease originations and loan commitments were down over 46% when compared to the prior year. As a result, at March 31, 2009 the backlog of approved lease and loan commitments of $52.6 million is 54% below the level of March 31, 2008. In the face of continued slow demand for leasing from its historical customer base, the Company will continue to pursue alternative investment opportunities.

Consolidated Statement of Earnings Analysis

Summary -- For the third quarter ended March 31, 2009, net earnings of $2.4 million increased $899,000, or 61%, compared to $1.5 million for the third quarter ended March 31, 2008. For the first nine months of fiscal 2009 net earnings of $6.7 million increased $1.4 million, or 26% compared to the nine months ended March 31, 2008. Diluted earnings per share increased 83% to $0.23 per share for the third quarter of fiscal 2009 compared to $0.13 per share for the third quarter of the prior year. For the nine months ended March 31, 2009, diluted earnings per share of $0.64 increased 38%, compared to $0.46 per shared for the same prior year period. Earning per share comparisons in both periods benefited from the Company's August 2008 purchase of common stock pursuant to a modified Dutch auction tender offer that reduced the fully diluted shares outstanding in the third quarter by 12% to 10.2 million.

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

Net direct finance, loan and interest income was $5.9 million for the quarter ended March 31, 2009, a $472,000, or 8.7% increase compared to the same quarter of the prior year. Total direct finance, loan and interest income for the third quarter ended March 31, 2009 increased 11.0% to $7.6 million from $6.9 million earned during the third quarter of fiscal 2008. The increase was primarily due to an $803,000 increase in income earned on the commercial loan portfolio that stood at $70.4 million at March 31, 2009 and an $891,000 increase in investment income earned on average total cash and investments which had increased 128% to $128.3 million. Together, this income offset a $938,000 decrease in direct finance income that resulted from a 9% decline in the average net investment in leases. The average yield on leases held in the Company's own portfolio decreased 72 basis points to 9.8% while the average yield on loans decreased 40 basis points to 5.8%. With the expanded investment strategy, the average total investment in cash and securities increased to $128.3 million from $56.3 million for the third quarter of fiscal 2008, and the average yield earned on such investments increased 78 basis points to 4.34%. During the third quarter of fiscal 2009, interest expense paid on deposits and FHLB and FRB borrowings increased by $284,000 or 20% reflecting a 64% increase in average deposit balances to $193.2 million that was offset by a 150 basis point drop in average interest rates paid. During the third quarter, CalFirst Bank borrowed under Federal Home Loan Bank and Federal Reserve Bank lines at an average cost of 0.78%, and reduced its total average funding cost to 2.99% for the three months ended March 31, 2009 compared to 4.9% for the third quarter of fiscal 2008.

For the nine months ended March 31, 2009, net direct finance and interest income was $17.0 million, an $809,000 or 5.0% increase from the $16.2 million earned during the same period of the prior year. Total direct finance, loan and interest income increased 7.5% to $22.0 million for the first nine months of fiscal 2009 compared to the same period of the prior year. The increase was due to a $2.5 million increase in income earned on the commercial loan portfolio and a $1.5 million increase in investment income, which was offset by a $2.4 million decline in direct finance income related to leases. The average yield on leases held in the Company's own portfolio decreased by 60 basis points to 10.0% and the average yield on commercial loans decreased 148 basis points to 6.9%. The increased investment income reflected a 91% increase in the average investment in cash and securities to $97.3 million, with the average yield up 17 basis points to 4.1% for the nine months ended March 31, 2009. For the nine months ended March 31, 2009, interest expense on deposits and FHLB and FRB borrowings increased by $730,000 to $5.0 million, reflecting a 159 basis point decrease in the average interest rates paid on average deposit and borrowing balances that increased by 71% from the year before to $191.4 million.

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

                                    Quarter ended                            Nine Months ended
                                March 31, 2009 vs 2008                    March 31, 2009 vs 2008
                          Volume         Rate          Total        Volume         Rate          Total
                                                         (in thousands)
Interest income
Net investment in
leases                  $     (546 )   $    (392 )   $    (938 )   $  (1,448 )   $    (968 )   $  (2,416 )
Commercial loans               871           (68 )         803         3,086          (611 )       2,475
Discounted lease
rentals                         58           (19 )          39           193           (64 )         129
Federal funds sold            (154 )         (86 )        (240 )        (340 )        (358 )        (698 )
Investment securities        1,057           168         1,225         1,686           513         2,199
Interest-earning
deposits with banks            173          (267 )         (94 )         405          (426 )         (21 )
                             1,459          (664 )         795         3,582        (1,914 )       1,668
Interest expense
Non-recourse debt               58           (19 )          39           193           (64 )         129
Demand and money
market deposits                439          (202 )         237         1,333          (545 )         788
Time certificates of
deposits                       377          (407 )         (30 )         824          (982 )        (158 )
FHLB and FRB
borrowings                      77             -            77           100             -           100
                               951          (628 )         323         2,450        (1,591 )         859
Net direct finance,
loan and interest
income                  $      508     $     (36 )   $     472     $   1,132     $    (323 )   $     809

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

                                    Quarter ended                              Quarter ended
(dollars in
thousands)                          March 31, 2009                             March 31, 2008
                         Average                      Yield/        Average                      Yield/
Assets                   Balance       Interest        Rate         Balance       Interest        Rate
Interest-earning
assets
  Interest-earning
deposits with banks     $  42,931     $       85           0.8 %   $  21,939     $      179           3.3 %
  Federal funds sold       11,183              7           0.3 %      29,504            247           3.3 %
  Investment
securities                 74,194          1,300           7.0 %       4,894             75           6.1 %
  Commercial loans         64,418            929           5.8 %       8,169            126           6.2 %
  Net investment in
leases, including
   discounted lease
rentals (1,2)             226,278          5,429           9.6 %     243,492          6,328          10.4 %
Total
interest-earning
assets                    419,004          7,750           7.4 %     307,998          6,955           9.0 %
Other assets               27,711                                     34,575
                        $ 446,715                                  $ 342,573

Liabilities and
Shareholders' Equity
Interest-bearing
liabilities
  Demand and savings
deposits                $  54,051            323           2.4 %   $   8,882             86           4.0 %
  Time deposits           139,135          1,326           3.8 %     108,879          1,356           5.1 %
  FHLB & FRB
borrowings                 37,944             77           0.8 %           -              -           0.0 %
  Non-recourse debt         8,711            119           5.5 %       5,066             80           6.3 %
Total
interest-bearing
liabilities               239,841          1,845           3.1 %     122,827          1,522           5.0 %
Other liabilities          19,215                                     18,444
Shareholders' equity      187,659                                    201,302
                        $ 446,715                                  $ 342,573

Net direct finance,
loan and interest
income                                $    5,905                                 $    5,433
Net direct finance,
loan and interest
income
  to average
interest-earning
assets                                                     5.6 %                                      7.1 %
Average
interest-earning
assets over
  average
interest-bearing
liabilities                                              174.7 %                                    250.8 %

                                  Nine months ended                          Nine months ended
                                    March 31, 2009                             March 31, 2008
                         Average                      Yield/        Average                      Yield/
Assets                   Balance       Interest        Rate         Balance       Interest        Rate
Interest-earning
assets
  Interest-earning
deposits with banks     $  37,680     $      447           1.6 %   $  20,202     $      468           3.1 %
  Federal funds sold       16,742            179           1.4 %      27,343            877           4.3 %
  Investment
securities                 42,903          2,343           7.3 %       3,381            144           5.7 %
  Commercial loans         54,938          2,821           6.8 %       5,539            346           8.3 %
  Net investment in
leases, including
   discounted lease
rentals (1,2)             225,749         16,571           9.8 %     239,973         18,858          10.5 %
Total
interest-earning
assets                    378,012         22,361           7.9 %     296,438         20,693           9.3 %
Other assets               33,265                                     40,408
                        $ 411,277                                  $ 336,846

Liabilities and
Shareholders' Equity
Interest-bearing
liabilities
  Demand and savings
deposits                $  48,386          1,037           2.9 %   $   7,601            248           4.3 %
  Time deposits           125,880          3,848           4.1 %     104,403          4,007           5.1 %
  FHLB & FRB
borrowings                 17,122            100           0.8 %           -              -           0.0 %
  Non-recourse debt         9,433            387           5.5 %       5,395            258           6.4 %
Total
interest-bearing
liabilities               200,821          5,372           3.6 %     117,399          4,513           5.1 %
Other liabilities          20,388                                     19,261
Shareholders' equity      190,068                                    199,826
                        $ 411,277                                  $ 336,846

Net direct finance,
loan and interest
income                                $   16,989                                 $   16,180
Net direct finance,
loan and interest
income
  to average
interest-earning
assets                                                     6.0                                        7.3 %
Average
interest-earning
assets over
  average
interest-bearing
liabilities                                              188.2 %                                    252.5 %

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

Provision for Credit Losses -- The Company recorded a provision for credit losses of $300,000 in the third quarter of fiscal 2009, compared to a $450,000 provision made during the same period of the prior year. The amount related to the deterioration in economic conditions and in the credit quality of certain customers during the quarter. For the nine months ended March 31, 2009, the Company recognized a $1.2 million provision for credit losses, which compared to a provision of $580,000 for the first nine months of fiscal 2008. The increased provision largely relates to the substantial growth and heightened credit risk within the commercial loan portfolio, as well as deterioration in the credit quality of certain customers.

Non-interest Income -- Total non-interest income of $1.4 million for the quarter ended March 31, 2009 decreased $32,000, or 2.2%, from the quarter ended March 31, 2008. In the third quarter of fiscal 2009, the Company included a charge of $869,000 in other income related to the impairment of two closed-end fund investments. These investments continue to pay dividends at the same rate but based on the decline in the net asset value of the funds and the market in general, the impairment may be other than temporary and a valuation adjustment was recorded in the third quarter of fiscal 2009. Offsetting this adjustment was a $675,000 increase in gain on sale of leases and a $209,000 increase in income from end of term transactions.

For the nine months ended March 31, 2009, total non-interest income was up 4.5% to $5.3 million compared to $5.1 million for the nine months ended March 31, 2008. Gains recognized on the sale of leases increased by $1.0 million, while income from end of term transactions was relatively unchanged. Other income decreased by $808,000 reflecting the impairment charge noted above.

Selling, General, and Administrative ("S,G&A") Expenses -- S,G&A expenses decreased 21% to $3.2 million for the quarter ended March 31, 2009 compared to the quarter ended March 31, 2008. For the first nine months of fiscal 2009, S,G&A expenses decreased 15% to $10.4 million compared to the first nine months of the prior year. The decrease in S,G&A expenses during both periods is due to lower fixed and variable costs resulting from efforts to lower overhead, including substantial reductions in personnel costs.

Included in SG&A expenses were Federal Deposit Insurance Corporation ("FDIC") insurance premiums of $24,000 and $69,000, respectively, for the three and nine month periods ended March 31, 2009. The Bank's FDIC insurance premium rates were not increased during 2009, although amounts paid increased in connection with the growth in deposits. In March 2009, the FDIC proposed a one-time special assessment of 20 bps on all assessable deposits as of June 30, 2009, but has indicated that it would reduce the special assessment 10 basis points under certain circumstances. Based on this, approximately $200,000 to $400,000 of additional FDIC expense is expected to be recognized in the first quarter of fiscal 2010.

Taxes - Income taxes were accrued at a tax rate of 37.50% for the three and nine months ended March 31, 2009 and 2008 representing the estimated annual tax rate for the fiscal years ending June 30, 2009 and 2008, respectively.

Financial Condition Analysis

As of March 31, 2009, consolidated total assets were up 20.4% to $465.5 million, compared to $386.6 million at June 30, 2008. The increase in total assets includes a $4.0 million decrease of the net investment in leases to $216.2 million, a 66.7% or $28.2 million increase in commercial loans to $70.4 million, an $81.3 million increase in investment securities to $87.4 million and an $8.4 million decrease in cash and equivalents, including federal funds sold.

Lease and Loan Portfolio Analysis

The Company's strategy is to develop lease and loan portfolios with risk/reward profiles that meet its objectives. The Company currently funds most new lease transactions internally, with a portion of lease receivables assigned to other financial institutions. During the first nine months ended March 31, 2009, approximately 85% of the total dollar amount of new leases booked by the Company were held in its own portfolios, compared to 97% during the first nine months of fiscal 2008. At March 31, 2009, the Company's net investment in leases decreased by $4.0 million from June 30, 2008. This decrease includes a $2.8 million decrease in the investment in net lease receivables and a $1.2 million decrease in estimated residual values. The decrease in the investment in residual values is due to a larger volume of leases maturing than booked on which the Company realized a residual value. The Company's commercial loan portfolio increased $28.2 million to $70.4 million from June 30, 2008 and increased $54.8 million from March 31, 2008. The increase in loans held at the Bank since June 30, 2008 related to additional purchases of participations in syndicated transactions originated by other financial institutions.

The Company often makes payments to purchase leased property prior to the commencement of the lease. The disbursements for these lease transactions in process are generally made to facilitate the lessees' property implementation schedule. The lessee is contractually obligated by the lease to make rental payments directly to the Company during the period that the transaction is in process, and the lessee generally is obligated to reimburse the Company for all disbursements under certain circumstances. Income is not recognized while a transaction is in process and prior to the commencement of the lease. At March 31, 2009, the Company's investment in property acquired for transactions in process of $12.3 million related to approximately $46.1 million of approved lease commitments. This investment in transactions in process decreased from $29.0 million at June 30, 2008, which related to approved lease commitments of $100.2 million, and was down from $28.0 million at March 31 2008, which related to approved lease commitments of $96.5 million. In addition to the approved lease commitments, CalFirst Bank had unfunded loan commitments at March 31, 2009 of $6.6 million.

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

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

                                                             March 31, 2009       June 30, 2008
Non-performing Leases                                              (dollars in thousands)
Non-accrual leases                                          $          2,025     $         2,132
Restructured leases                                                      167                 398
Leases past due 90 days (other than above)                                 -                  39
. . .