**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
      1934For
      the fiscal year ended
    June
      30, 2007
  o
    TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      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.)
 
 **18201
      Von Karman Avenue, Suite 800****Irvine,
      CA**
    **92612**(Address
      of principal executive offices)
    (Zip
      Code)
 
 Registrant's
      telephone number, including area code:
    (949)
      255-0500
 
 Securities
      registered pursuant to Section 12(b) of the Act:
    None
 
 Securities
      registered pursuant to Section 12(g) of the Act:
    Common
      Stock(Title
      of each class)
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes oNo þ
  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 oNo þ
 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 þNo o
 
 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.  o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
(Check one):
 Large
accelerated filer  o     Accelerated filer
 o     Non-accelerated filer
 þ
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).  Yes oNo þ
 
 The
aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of December 31, 2006 was $49,012,000.  Number of shares
outstanding as of September 10, 2007: Common Stock 11,139,795.
 
 **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, 2007.
 
  **California
      First National Bancorp and Subsidiaries****TABLE
      OF CONTENTS**PART
      I
    
    PAGEItem
      1.
    Business
    2-11Item
      1A.
    Risk
      Factors
    11-14Item
      1B.
    Unresolved
      Staff Comments
    14Item
      2.
    Properties
    15Item
      3.
    Legal
      Proceedings
    15Item
      4.
    Submission
      of Matters to a Vote of Security Holders
    15PART
      IIItem
      5.
    Market
      for Company's Common Equity and Related Stockholder Matters and Issuer
      Purchases of Equity Securities
    15-17Item
      6.
    Selected
      Financial Data
    18Item
      7.
    Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
    19-27Item
      7A.
    Quantitative
      and Qualitative Disclosures About Market Risk
    28Item
      8.
    Financial
      Statements and Supplementary Data
    29-51Item
      9.
    Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
    51Item
      9A.
    Controls
      and Procedures
    51Item
      9B.
    Other
      Information
    51PART
      IIIItem
      10.
    Directors, Executive Officers and Corporate Governance
    52Item
      11.
    Executive
      Compensation
    52Item
      12.
    Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
    52Item
      13.
    Certain
      Relationships and Related Transactions, and Director Independence
    52Item
      14.
    Principal
      Accountant Fees and Services
    52PART
      IVItem
      15.
    Exhibits
      and Financial Statement Schedules
    53Signatures
    54
   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 leasing and bank subsidiaries. The Company has
two leasing subsidiaries, California First Leasing Corporation ("CalFirst
Leasing") and Amplicon, Inc. ("Amplicon"), collectively the "Leasing Companies"
and a bank subsidiary, California First National Bank ("CalFirst Bank" or the
"Bank"), which is an FDIC-insured national bank.
 
 The Leasing Companies and CalFirst
Bank focus on leasing and financing capital assets, primarily computer systems
and networks and other technology-based assets, through centralized marketing
programs designed to offer cost-effective leasing alternatives. Leased assets
are re-marketed at lease expiration through sale or re-lease. CalFirst Bank also
purchases finance receivables from the Leasing Companies and other third
parties, and is expanding into commercial loans.  CalFirst Bank
gathers deposits from a centralized location primarily through posting rates on
the Internet.
  **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.  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.**
 
 **Leasing
Activities**
 
 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 39% and 36% of the leases booked
in fiscal 2007 and 2006, respectively, involved computer workstations and
networks, mid-range computers, computer automated design systems and computer
software. Other major property groups during fiscal 2007 included manufacturing
equipment (17%), furniture and fixtures (13%), transportation (10%) yellow
equipment (6%), and telecommunications systems (4%).
 
 Computer Systems. Advances in
technology, including the continually expanding capabilities of computer systems
and the Internet, have led to ongoing demand for more powerful computer servers
and communications networks. Computer networks typically consist of a central
server, which may be a mid-range computer or high-end microcomputer, multiple
personal computers and workstations, network communications hardware and
software, printers and associated products.  Computer networks
generally range in cost from $100,000 to $3,000,000.  The computer
systems and network products leased are manufactured by Apple Computers, Inc.
("Apple"), Cisco Systems, Inc. ("Cisco"), Dell Inc. ("Dell"), Gateway, Inc.
("Gateway"), Hewlett-Packard Company ("HP"), International Business Machines
Corporation ("IBM"), Lenova Group, Ltd and Sun Microsystems, Inc. ("Sun"), among
many others.
 
 2
 
  California
First National Bancorp and Subsidiaries
 Software.  Specialized
application software packages and operating system software products represent a
significant portion of property leased. These application software packages
typically range in cost from $50,000 to $1,000,000.  In addition to
leasing stand-alone software packages, an increasing percentage of the cost of
computer systems and networks consists of operating and application software.
The software leased is acquired from vendors such as Microsoft Corporation,
Oracle Corporation, Jenzabar, Inc., Parametric Technology Corporation, Infor
Global Solutions, MSC Software Corporation, and SAP AG, among many
others.
 
 Other Electronic and Production
Equipment. Advances in technology have expanded the scope of other
computer-based equipment utilized by our customer base.  Leased
property includes automated manufacturing and distribution management systems
that include complex computer controlled manufacturing and production systems,
printing presses and warehouse distribution systems. Telecommunications systems
include digital private branch equipment and switching equipment and more
recently has expanded toward Voice over Internet Protocol ("VoIP") systems,
wireless networks and satellite tracking systems.  Retail
point-of-sale and inventory tracking systems often integrate computers, scanners
and software. Other electronic equipment leased include ultrasound and imaging
systems, computer-based patient monitoring systems, testing equipment, and
copying equipment.
 
 A wide variety of personal property
in the "non-high technology" area, including machine tools, school buses,
trucks, exercise equipment and office and dormitory furniture are also
leased.
 
 **Marketing
Strategy**
  ****The Company's subsidiaries market through
centralized marketing programs and direct delivery channels, including the
telephone, the Internet, facsimile and express mail. The marketing programs
include a confidential database of current and potential users of business
property, a training program to introduce new marketing employees to leasing,
and an in-house computer and telecommunications system. The marketing programs
have been augmented through the expanded use of web sites and email to identify
and communicate with potential customers.
 
 The Company believes that a
centralized marketing program is more cost effective than field sales
representatives. Marketing through the telephone or the Internet, rather than
through field sales representatives, has enabled us to limit selling, general
and administrative expenses and allows the Company to offer more competitive
lease rates to customers.
 
 Potential customers are identified
through a variety of methods. Lists of target market participants and computer
users are purchased from private sources, direct mail and telephone campaigns
are conducted to generate sales leads, and proprietary records of contacts made
with potential customers are maintained by sales professionals. Prospect
management software is utilized to enhance the productivity of the sales force.
Specific information about potential customers is entered into a confidential
database accessible to sales professionals and their managers. As potential
customers are contacted, the database is updated and supplemented with
information about what computer and other property they are using, related lease
expiration dates and any future system needs or replacement plans. The database
allows sales professionals to efficiently identify the most likely purchaser or
lessee of capital assets and to concentrate efforts on these prospective
customers.
 
 The databases, combined with the
respective prospect management software and an integrated in-house
telecommunications system, permit sales management to monitor account executive
activity, daily prospect status and pricing information. The ability to monitor
account activity and offer immediate assistance in negotiating or pricing a
transaction makes it possible to be responsive to customers and
prospects.
 
 **Capital
Leases**
 
 Leases are generally for initial
terms ranging from two to five years. 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. The Leasing Companies or the Bank retain ownership of the property they
lease, and in the event of default by the lessee, they, or the lender to whom
the lease may have been assigned, 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 leases, 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 Leasing Companies or CalFirst
Bank will seek to sell the leased property.  The terms of the software
leases are substantially similar to equipment leases.
 
 3
 
  **California
First National Bancorp and Subsidiaries**
 The Leasing Companies and CalFirst
Bank conduct their leasing business in a manner designed to minimize risk,
however, they are subject to risks through their investment in lease receivables
held in their own portfolio, lease transactions in process, and residual
investments. The Leasing Companies and CalFirst Bank do not purchase leased
property until they have received a binding non-cancelable lease from the
customer.  A portion of the Leasing Companies' lease originations are
discounted to banks or finance companies, including CalFirst Bank, 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 Leasing Companies, unless the Leasing Companies 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 Leasing
Companies may not realize their residual investment in the leased
property.
 
 **Lease
Portfolio**
 
 The Company has pursued a strategy of
retaining lease transactions in its own portfolios.  During the fiscal
years ended June 30, 2007, 2006 and 2005, 97%, 91% and 93%, respectively, of the
total dollar amount of new leases completed by the Company's subsidiaries were
retained in the Company's portfolios, with 3%, 9% and 7% for fiscal years 2007,
2006 and 2005, respectively, of such leases discounted to unaffiliated financial
institutions. Approximately 33% and 30% of the new leases booked by the Leasing
Companies were assigned to CalFirst Bank during fiscal 2007 and 2006,
respectively.
 
 The Leasing Companies apply a
portfolio management system intended to develop portfolios with different
risk/reward profiles. Each lease transaction held by the Leasing Companies 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, the Leasing Companies avoid 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, 2007, 2006,
and 2005, the discounted minimum lease payments receivable related to leases
retained in the Leasing Companies' portfolio amounted to $97.2 million, $103.2
million and $107.9 million, respectively. Such amounts represented 44%, 51% and
61% of the Company's total investment in discounted lease payments receivable at
June 30, 2007, 2006 and 2005, 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, 2007,
2006 and 2005, the Bank's investment in discounted lease payments receivable
amounted to $124.8 million, $101.1 million and $68.0 million or 56%, 49% and
39%, respectively, of the Company's total portfolio.  Of such amounts,
approximately 63%, 62% and 74%, respectively, represented leases originated
directly by the Bank.
 
 Through its lease purchase
operations, the Bank purchases lease receivables on a non-recourse basis at
fixed interest rates that reflect the proposed lessee's financial condition and
current market conditions. The Bank 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. The Bank
verifies the completeness of all lease documentation prior to purchase, to
confirm that all documentation is correct and held, that liens have been
perfected, and legal documentation has been filed as appropriate. Pursuant to
the Bank's operating plan approved by regulators, no more than 50% of its lease
portfolio will represent purchases of lease receivables from the Leasing
Companies.
 
 4
 
  California
First National Bancorp and Subsidiaries
 The Leasing Companies 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 the Leasing Companies 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, 2007, 2006, and 2005, the Company's total investment in property acquired
for transactions in process amounted to $34.7 million, $41.7 million and $34.1
million, respectively. Of such amounts, approximately 81%, 76% and 76%,
respectively, for each year related to the Leasing Companies, with the balance
held by CalFirst Bank.
 
 **Credit
Risk Management**
 
 The Company's strategy for credit
risk management includes stringent credit authority centered at the most senior
levels of management. The strategy also emphasizes diversification on both a
geographic and customer level, and spreading risk across a breadth of leases
while minimizing the risk to any one area. The credit process includes a policy
of classifying all leases in accordance with a risk rating classification
system, monitoring changes in the risk ratings of lessees, identification of
problem leases and special procedures for the collection of problem leases. The
lease classification system is consistent with regulatory models under which
leases may be rated as "pass", "special mention", "substandard", "doubtful" or
"loss".
 
 The day-to-day management and
oversight of the Leasing Companies' portfolios is conducted by an Asset
Management ("AM") group that reports directly to the Chief Financial Officer.
The AM group monitors the performance of all leases held in the Leasing
Companies' portfolio, transactions in process as well as lease transactions
assigned to lenders, if the Leasing Companies retain 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. The AM group 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
will be placed on non-accrual status such that interest income related to the
lease no longer accretes into income.
 
 The Bank internally funds all Bank
originations and lease purchases, and consequently, the Bank retains the credit
risk on such leases.  The AM group at the Leasing Companies provides
servicing to the Bank and, as servicer, maintains a delinquency reporting and
monitoring system to identify potential problems in the Bank's portfolio early,
and provide Bank management with information in a timely
manner.  Strategies similar to those used on the Leasing Companies'
portfolio are utilized by the Bank.
 
 The Bank has developed policies and
procedures for identifying and qualifying third-party lessors. In sourcing
third-party lease originations, the Bank will target those seasoned leasing
companies whose principals are determined to be reputable, ethical and
experienced with positive leasing operations histories.  The Bank's
due diligence, including background checks, qualifications verification and
credit evaluation of the lessor firm and its principals, is considered to be as
important as that conducted for each lessee.
 
 **Allowance for Lease
Losses**
 
 The allowance for lease losses is an
estimate of probable and assessable losses in the Company's lease
portfolios applying the principles of SFAS 5, "Accounting for
Contingencies," SFAS 114, "Accounting by Creditors for Impairment of a
Loan," and SFAS 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures." The allowance recorded is based
on a quarterly review of all leases outstanding and transactions in process. The
determination of the appropriate amount of any provision is based on
management's judgment at that time and takes into consideration all known
relevant internal and external factors that may affect the lease portfolio. The
primary responsibility for setting reserves resides with the Chief Financial
Officer, who reports quarterly to the Company's Audit Committee and Board of
Directors regarding overall asset quality, problem leases and the adequacy of
valuation allowances.
 
 5
 
  California
First National Bancorp and Subsidiaries
 The Company individually analyzes the
net book value of each non-performing or problem lease 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. The
amount estimated as unrecoverable is recognized as a reserve specifically
identified for the lease. An analysis of the remaining portfolio is conducted,
taking into account recent loss experience, known and inherent risks in the
portfolio, levels of delinquencies, adverse situations that may affect lessees'
ability to repay, trends in volume and current and anticipated economic
conditions in the market. This portfolio analysis includes a stratification of
the lease portfolio by risk classification and estimation of potential losses
based on risk classification. The composition of the portfolio based on risk
ratings is monitored, and changes in the overall risk profile of the portfolio
is factored into the evaluation of inherent risks in the portfolio. 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
portfolio. This is due to several factors including inherent delays in obtaining
information regarding a lessee's financial condition or change in business
conditions; the judgmental nature of individual lease 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 leases, 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 doubtful accounts and allowance for
valuation of residual value.
 
 Bank management reports monthly to
the Bank's Board of Directors regarding overall asset quality, the adequacy of
valuation allowances and adherence to policies and procedures regarding asset
classification and valuation. A key component to the evaluation is the internal
lease classification process.  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.
 
 **Commercial
Loans**
 
 During fiscal 2007, CalFirst Bank
obtained authorization to expand its product offerings to include commercial
loans. Loans would be targeted primarily to existing Bank and Leasing Companies'
relationships. CalFirst Bank believes that commercial loans are a complementary
product that will leverage existing relationships, improve customer longevity
and potentially provide an additional source for bank
deposits.  Commercial loan products will include lines of credit, term
loans and commercial mortgages. Most commercial loans will be secured by a first
priority filing on the customer's assets, including accounts receivable and
inventory, capital equipment or commercial real estate, but unsecured loans or
lines of credit may be extended, depending on the nature of the credit.
Commercial loans will be of durations similar to leases, with fixed or floating
rates, and generally will be over $1 million in size.
 
 The Bank's existing underwriting
standards will continue to be maintained in accordance with its existing credit
policies. Loan operations will be administered by existing staff, including
documentation, lien perfection, funding, payments and collections. The Bank's
current computer systems are capable of fully processing loans and have the
requisite connectivity to the Company's accounting, customer service and
collections processes.
 
 CalFirst Bank began actively
marketing commercial loans during the last half of fiscal 2007, although no
loans were closed during the year. The first meaningful loans are expected to be
booked during the first quarter of fiscal 2008.  The volume of loan
transactions over the next year is expected to be relatively small.
  6
  California
First National Bancorp and Subsidiaries   **Banking
Operations**
 
 The Bank is focused on gathering
deposits from depositors nationwide for the primary purpose of funding its
investment in capital leases and loans. The Bank's 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**
 
 The Bank's deposits have been
gathered primarily through the Internet. Other strategies to identify depositors
are through direct mail, telephone campaigns, purchase of leads from private
sources and more extensive print advertisements. The Bank offers two types of
interest-bearing checking 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 Bank's lease 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. The
Bank generally offers interest rates on deposit accounts that are higher than
the national average.
 
 To open a new account, a customer can
complete an on-line enrollment form on the Bank's Web site, or can call the
Bank's 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 Bank's 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. Each customer
automatically receives a free ATM card upon opening an account. In order to
obtain cash, the Bank's customers use other banks' automated teller machines
that are affiliated with the PlusTM system. The Bank generally will reimburse
customers for some portion of any ATM fees charged by other financial
institutions. The Bank believes that any inconvenience resulting from the Bank
not maintaining automated teller machines or a local branch office will be
offset by the Bank's higher investment yields and lower banking
fees.
 
 As part of the Bank's entry into
broader services for commercial customers, CalFirst Bank has undertaken a plan
to provide on-line cash management services for its commercial loan customers.
Leveraging on its existing Internet banking platform, the Bank will be
implementing remote deposit capture systems at selected customer sites.
Customers will be provided with a desktop scanner that will allow the customer
to scan items for deposit and electronically send images of the items securely
to the Bank's electronic banking system.  These systems are attractive
to commercial customers who will be able to perform more banking functions
on-site, avoid courier and other costs and enhance cash flow through faster
access to payments received. The Bank believes this innovative service will
provide an advantage in growing the commercial loan and deposit
base.  No remote deposit capture systems have been installed to date,
and the initial installation is not expected to occur until the second quarter
of fiscal 2008.
  **Operations**
 
 The Bank's operations have been
developed by outsourcing certain principal operational functions to leading bank
industry service providers and by sharing established systems utilized by the
Leasing Companies or the Company. Outsourced systems include the Bank's core
processing and electronic banking system, electronic bill payment systems and
depositary 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 Bank's success is the ability to provide
secure transmission of confidential information over the Internet. The Bank's
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 Bank's and
service provider's 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. During fiscal 2007, the Bank implemented two-factor authentication security to its Internet banking procedures and platform.
 
 7
 
  **California
First National Bancorp and Subsidiaries**
 The Leasing Companies provide certain
services to the Bank pursuant to formal agreements, including servicing the
Bank's lease portfolio on the Bank's behalf.
 
 **Investments**
 
 In addition to leases, the Company
had total investments of $48.7 million at June 30, 2007, which includes
interest-earning deposits with banks, money market securities, federal funds
sold, Federal Reserve Bank stock and other investments, compared to $41.9
million at June 30, 2006.  The Company is also authorized to invest in
high-quality United States agency obligations, mortgage pool securities, and
investment grade corporate bonds.
 
 **Customers**
 
 Leasing customers are primarily
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 Bank's deposit customers are
individuals from across the nation who place a substantial portion of their
savings in safe, government-insured investments 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
financing of capital assets with other independent leasing companies, commercial
finance companies, banks and other financial institutions, credit companies
affiliated with equipment manufacturers, such as IBM, Dell, and HP, 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 arrangements, financial technical proficiency and the offering
of a broad range of lease financing options. The level of competition varies
depending upon market and economic conditions, the interest rate environment,
and availability of capital. Competition has increased in recent years as
developments in the capital markets, and particularly the expansion of the
securitization market, has increased access to capital to certain lenders that
offer aggressive lease rates. Competition has also been heightened as credit
companies affiliated with manufacturers have become more aggressive with respect
to the financing terms offered.
 
 The Bank competes with other banks
and financial institutions to attract deposits. As a new entity, 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 and longer operating
histories. The market for Internet banking has seen increased competition over
the past several years as large national banks have deployed and aggressively
promoted their own on-line banking platforms. These competitors have improved
the functionality, dropped the fees and increased rates offered on on-line
deposit accounts. 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, the
Bank is subject to extensive regulation and periodic examination, principally by
the Office of the Comptroller of the Currency ("OCC"). The Bank's deposits are
insured up to $100,000 by the Federal Deposit Insurance Corporation ("FDIC") and
the Bank is a member bank within the San Francisco Federal Reserve
district.
 
 8
 
  **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. The
primary concern of banking regulation is "Safety and Soundness" with an emphasis
on asset quality and capital adequacy. These laws and regulations also
encompasses a broad range of other regulatory concerns including insider
transactions, the adequacy of the allowance for lease losses, inter-company
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 routinely
examines the Company, which exam includes the Leasing Companies.  The
OCC, which has primary supervisory authority over the Bank, regularly examines
banks in such areas as reserves, loans, investments, management practices, and
other aspects of operations. These examinations are designed for the protection
of the Bank's depositors rather than the Company's 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. Many of
these laws and regulations have undergone significant change in recent years.
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.
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.
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.
 
 In December 2002, the FRB approved
Regulation W ('Reg. W"), which implements, interprets and applies statutory
provision in sections 23A and 23B, and became effective April 1, 2003. Under
Reg. W, a bank does not have to comply with the quantitative limits of Section
23A when making a loan or extension of credit to an affiliate if 1) the
extension of credit was originated by the affiliate; 2) the bank makes an
independent evaluation of the creditworthiness of the borrower and commits to
purchase the extension of credit before the affiliate makes or commits to make
the extension of credit; 3) the bank does not make a blanket advance commitment
to purchase loans from the affiliate and 4) the dollar amount of all purchases
over any 12 month period by the bank from an affiliate does not represent more
than 50% of that affiliate's credit extensions during such period. The Company
believes the Bank's purchase of lease receivables from the Leasing Companies
conform to the requirements of Reg. W. In addition, the Company has agreed with
the FRB that the Bank's purchase of leases from the Leasing Companies will not
exceed 50% of the Bank's lease portfolio.
 
 At the time that Reg. W was published
in December 2002, the FRB proposed for public comment an amendment to Reg. W
that would limit the amount of extensions of credit that a bank could purchase
from an affiliate to 100% of the bank's capital and surplus. If Reg. W is
amended in accordance with this proposal, the ability of the Bank to purchase
lease receivables from the Leasing Companies would be impacted. The final
structure of Reg. W cannot be determined at this time, and there are no
assurances that future regulations or interpretations from the FRB will not
limit further or prohibit the Bank's purchases of leases from the Leasing
Companies.
 
 9
 
  California
First National Bancorp and Subsidiaries
 In
connection with its approval of the Company's purchase of the stock of the Bank,
the FRB and the OCC required the Company and the Bank to make certain
commitments with respect to the operation of the Bank. During fiscal 2006, in
light of the Bank's achievement of profitability, the commitments were modified
to include the following on an on-going basis: (i) the Bank and the Company have
entered into a binding written agreement setting forth the Company's obligations
to provide capital maintenance and liquidity support to the Bank, if and when
necessary; (ii) the Bank must obtain prior approval from the OCC before
implementing any significant deviation or change from its original operating
plan; and (iii) the Company must comply with Reg. W.
 
 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, 2007 and 2006, the Company exceeded all these
requirements.
 
 The Bank is also subject to
risk-based and leverage capital requirements mandated by the OCC. In general,
banks are required to maintain a minimum ratio of qualifying total capital to
risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to
risk-adjusted assets of 4%. In addition to the risk-based guidelines, banks are
generally required to maintain a minimum ratio of Tier 1 capital to adjusted
total assets, referred to as the leverage ratio, of 4%. At June 30, 2007 and
2006, the Bank had capital in excess of all minimum risk-based and leverage
capital requirements.
 
 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 their 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 Bank's 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 Bank's record of meeting the credit needs of
its community. The CRA also requires that the Bank publicly disclose their CRA
ratings. During fiscal 2005, CalFirst Bank was subjected to its first CRA
examination and received a "satisfactory" rating on the CRA performance
evaluation.
 
 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. The Company does
not depend on the Bank for such amounts, and believes the Leasing Companies have
sufficient cash flow and assets to meet the Company's requirements.
 
 On November 12, 1999, the
Gramm-Leach-Bliley Act ("Gramm-Leach") became law. Gramm-Leach significantly
changed the regulatory structure and oversight of the financial services
industry. Most importantly for the Company and the Bank, Gramm-Leach established
new requirements for financial institutions to provide new privacy protections
to consumers. In June of 2000, the Federal banking agencies jointly adopted a
final regulation providing for the implementation of these protections. It
requires a financial institution to provide notice to customers about its
privacy policies and practices, describes under what conditions a financial
institution may disclose nonpublic personal information about consumers to
non-affiliated third parties, and provides an "opt-out" method for consumers to
prevent the financial institution from disclosing that information to
non-affiliated third parties. Financial institutions were required to be in
compliance with the final regulation by July 1, 2001, and the Bank and the
Company believe that they were in compliance at such date, and continue to be in
compliance.
  On October
26, 2001, the USA Patriot Act became law. The United States Treasury Department
has issued a number of implementing regulations, which apply various
requirements of the USA Patriot Act to financial institutions such as CalFirst
Bank. These regulations impose obligations to maintain appropriate policies,
procedures and controls to detect, prevent and report money laundering and
terrorist financing and to verify the identity of customers. Failure of a
financial institution to maintain and implement adequate programs to combat
money laundering and terrorist financing, or to comply with all of the relevant
laws or regulations, could have serious legal and reputational consequences.
With its existing systems and controls required as an Internet bank, the Bank
believes it complies with the USA Patriot Act.
 10
 
  **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.
 
 The laws, regulations and policies
affecting financial services businesses are continually under review by Congress
and state legislatures and federal and state regulatory agencies. From time to
time, legislation is enacted which has the effect of increasing the cost of
doing business, limiting or expanding permissible activities or affecting the
competitive balance between banks and other financial intermediaries. Proposals
to change the laws and regulations governing the operations and taxation of
banks, bank holding companies and other financial intermediaries are frequently
made in Congress, in the California legislature and before various bank
regulatory agencies and other professional agencies. 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.
 
 **Employees**
 
 The Company and its subsidiaries had
194 employees as of June 30, 2007, including 129 sales managers and account
executives and 23 professionals engaged in finance and credit.  None
of the Company's employees 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 Information section of our Web
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 Web site
is not part of this or any other report we file with or furnish to the SEC and
is not incorporated by reference herein.
 
 **ITEM
1A.  RISK FACTORS**
 
 There are a number of factors,
including those specified below, that may adversely affect the Company's
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 Company's business or adversely impact its financial results or stock
price.
 
 **Industry
Risk Factors**
 
 **The
Company's business and financial results are subject to general business and
economic conditions.** The Company's business activities and earnings are
affected by general business conditions in the United States. An economic
downturn could result in a deterioration of credit quality of lessees, a change
in the allowance for lease losses, or reduced demand for leasing capital assets.
Changes in the financial performance and condition of lessees could negatively
affect the repayment of receivables. In addition, changes in securities markets
and monetary fluctuations could adversely affect the availability and terms of
funding necessary to meet the Company's liquidity needs.
 
 **Changes
in the domestic interest rate environment could reduce the Company's net direct
finance and interest income.**The Company's net direct finance and
interest income, which is the difference between income earned on leases 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.
 
 11
 
  **California
First National Bancorp and Subsidiaries**
 **Disruptions in the domestic
credit markets and interest rate environment, including changes in interest
spreads and the yield curve, could reduce net interest income.** Higher
interest rates and the inability to access capital markets could negatively
affect certain customers and result in increased lease losses.
 
 **Changes
in the laws, regulations and policies governing financial services companies
could alter the Company's 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 Company's cost of funds and the return
that can be earned on leases and investments, both of which affect the Company's
net direct finance and interest income.
 
 **The
Company and the Bank are regulated by governmental entities**. This
regulation is to protect depositors, federal deposit insurance funds and the
banking system as a whole. Changes in statutes, regulations or policies could
affect the Company in substantial and unpredictable ways. The Company cannot
predict whether any potential legislation will be enacted, and if enacted, the
effect that it or any regulations would have on the Company's financial
condition or results of operations.
 
 **The
financial services industry is highly competitive, and competitive pressures
could intensify and adversely affect the Company's 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 lease
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.**
 
 **Company
Risk Factors**
 
 **The Company's allowance for
lease losses may not be adequate to cover actual losses.**The Company's
subsidiaries have retained over 90% of lease transactions in their own
portfolios, which has increased the exposure to credit risk. The Company
maintains an allowance for lease losses to provide for probable and estimatable
losses in the portfolio. The Company's allowance for lease losses is based on
its historical experience as well as an evaluation of the risks associated with
its lease portfolio, including the size and composition of the lease portfolio,
current economic conditions and concentrations within the portfolio. The
allowance for lease 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
lease losses is not adequate, future provisions for lease losses could
materially and adversely affect financial results.
 
 **The
Company may suffer losses in its lease portfolio despite its underwriting
practices.**The Company seeks to mitigate the risks inherent in its
lease portfolio by adhering to specific credit practices. Although the Company
believes that its criteria are appropriate for the various kinds of leases it
makes, the Company may incur losses on leases that meet these
criteria.
 
 **The
Company may be adversely affected by significant changes in interest
rates**.  CalFirst Bank has grown to represent 50% of the
Company's assets, and bank deposits now exceed $100 million As a result, the
Company's sensitivity to changes in interest rates has increased from historical
levels. Although the Bank employs a matched funding strategy designed to
correlate the repricing characteristics of assets with liabilities, the impact
of interest rates movements is not always consistent during different market
cycles, and changes in the costs for deposits and yields on assets may not
coincide.
 
 **The
change in residual value of leased assets may have an adverse impact on the
Company's financial results.**A portion of the Company's leases is
subject to the risk that the residual value of the property under lease will be
less than the Company's recorded value. Adverse changes in the residual value of
leased assets can have a negative impact on the Company's 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 Company's
control.
 
 12
 
  **California
First National Bancorp and Subsidiaries**
 **The
financial services business involves significant operational risks.**
Operational risk is the risk of loss resulting from the Company's 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 business continuation and
disaster recovery. 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 portfolio, the interest rate environment, the volume of new
lease 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 Company's reputation and adversely impact its
business and financial results.**Reputation risk, or the risk to the
Company's business from negative publicity, is inherent in the Company's
business. Negative publicity can result from the Company's actual or alleged
conduct in any number of activities, including leasing practices, corporate
governance, and actions taken by government regulators in response to those
activities. Negative publicity can adversely affect the Company's ability to
keep and attract customers and can expose the Company to litigation and
regulatory action.
  **The
Company's reported financial results are subject to certain assumptions and
estimates and management's selection of accounting method**. The
Company's management must exercise judgment in selecting and applying many
accounting policies and methods so they comply with generally accepted
accounting principles and reflect management's judgment of the most appropriate
manner to report the Company's 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 Company's reporting different results than
would have been reported under a different alternative.
 
 **Certain accounting policies are
critical to presenting the Company's 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
lease losses, and income taxes.  For more information, refer to
"Critical Accounting Policies and Estimates".
  **Changes
in accounting standards could materially impact the Company's financial
statements.**The Financial Accounting Standards Board (FASB)
may change the financial accounting and reporting standards that govern the
preparation of the Company's 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. In some cases, the Company could
be required to apply a new or revised standard retroactively, resulting in the
Company's restating prior period financial statements.
  **Loss
of certain key officers would adversely affect the Company's
business.**The Company's business and operating results are substantially
dependent on the certain key employees, including the Chief Executive Officer,
Chief Operating Officer, Senior Vice President of Credit, Chief Financial
Officer, the President 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.
 
 13
 
  California
First National Bancorp and Subsidiaries
 **The
Company's business could suffer if the Company fails to attract and retain
qualified people.**The Company's 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 Company's
business infrastructure.**Third party vendors provide certain components
of the Company's business infrastructure, such as the Bank's 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 Company's ability to deliver products and services to
the Company's 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 Company's business.**Natural disasters
could harm the Company's operations directly through interference with
communications, including the interruption or loss of the Company's websites,
which would prevent the Company from gathering deposits, originating leases and
processing and controlling its flow of business, as well as through the
destruction of facilities and the Company's 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 the Leasing
Companies and the Bank. The Company receives substantially all of its cash from
dividends paid by the Leasing Companies. These dividends are the principal
source of funds to pay dividends on the Company's stock. Various regulations
limit the amount of dividends that the Bank may pay to the Company.
 
 **The
Company's stock price can be volatile.**The Company's stock price can
fluctuate widely in response to a variety of factors, including: actual or
anticipated variations in the Company's quarterly operating results; 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 Company's stock price to decrease regardless of the
Company's operating results. In addition, the volume of trading in the Company's
stock is very limited and can result in fluctuations in prices between
trades.
 
 **The Company is a "controlled
company" as defined by NASDAQ, with over 50% of the stock held by the Chief
Executive Officer, over 65% 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 Company's 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.
 
 **ITEM
1B.  UNRESOLVED STAFF COMMENTS**
 None.
 
 14
  California
First National Bancorp and Subsidiaries
   **ITEM
2.  PROPERTIES**
 
 At June 30, 2007, the Company and its
subsidiaries occupied approximately 49,000 square feet of office space in
Irvine, California leased from an unaffiliated party. The lease provides for
monthly rental payments that average $92,708 from July 2007 through August
2008.
 
 **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.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS**
  None.
 
 **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 endedJune
      30, 2007
    
    
    June
      30, 2006High
    
    
    Low
    
    
    High
    
    
    LowFirst
      Quarter
    
    $
    16.00
    
    
    $
    13.96
    
    
    $
    13.99
    
    
    $
    11.19Second
      Quarter
    
    
    14.90
    
    
    
    13.40
    
    
    
    13.63
    
    
    
    12.25Third
      Quarter
    
    
    14.15
    
    
    
    12.89
    
    
    
    14.46
    
    
    
    12.75Fourth
      Quarter
    
    $
    15.42
    
    
    $
    12.60
    
    
    $
    16.00
    
    
    $
    13.70
 
 The Company had approximately 29
stockholders of record and in excess of 400 beneficial owners as of September 3,
2007.
 
 The Board of Directors of the Company
has adopted a policy of paying regular quarterly cash dividends, subject to an
ongoing review of the Company's profitability, liquidity and future operating
cash requirements. On December 15, 2004, the Company paid a special dividend of
$2.00 per outstanding common share, which totaled $22.2 million, to stockholders
of record on December 1, 2004. The Board of Directors approved an increase in
the quarterly dividend from $.10 to $.11 per share in January 2006, and in
January 2007, approved an increase in the quarterly dividend to $.12 per
share.  For the fiscal years ended June 30, 2007, 2006, and 2005, the
Company declared cash dividends totaling $.46, $.42 and $2.30, respectively, per
common share.
  15
 
  **California
First National Bancorp and Subsidiaries**
   **Common
Stock Performance Graph**
 The graph
below shows a comparison of the five-year cumulative return among the Company,
the NASDAQ Composite Index and the Russell 2000. As required by Securities and
Exchange Commission rules, total return in each case assumes the reinvestment of
dividends paid.
  
   16
  California
First National Bancorp and Subsidiaries
  In April 2001, the Board of Directors authorized management, at its discretion, to repurchase up to 1,000,000 shares of common stock.  Since this authorization has no termination date, the Board of Directors reviews the authorization to repurchase common stock from time to time. During the year ended June 30, 2007, the Company repurchased 108,621 shares of common stock.  During the years ended June 30, 2006 and 2005, the Company did not repurchase any common stock.  As of September 3, 2007, 504,335 shares remain available under this authorization.  The following table summarizes share repurchase activity for the quarter ended June 30, 2007:
 Period
    
    Total
      number
      of
      sharesPurchased
    
    
    Average
      pricepaid
      per share
    
    
    Maximum
      number ofshares
      that may yet bePurchased
      under the planApril
      1, 2007 - April 30, 2007
    
    
    -
    
    
    $
    -
    
    
    
    602,956May
      1, 2007 - May 31, 2007
    
    
    4,200
    
    
    $
    14.69
    
    
    
    598,756June
      1, 2007 - June 30, 2007
    
    
    94,421
    
    
    $
    14.67
    
    
    
    504,33598,621
    
    
    $
    14.67
 
 **Equity
Compensation Plan Information**
 
 The following table provides
information about shares of the Company's Common Stock that may be issued upon
the exercise of options under all of our existing equity compensation plans as
of June 30, 2007.
 
 Plan
      category
    Number
      of shares of common
      stock
      to be issued
      upon
      exercise
      of
      outstanding options (1)
    
    Weighted
      average
      exercise
      price of
      outstanding
      options
    
    Number
      of shares of common stock
      remaining
      available for future
      issuance
      under equity
      compensation
      plans
      (excluding
      shares in first column)Equity
      compensation plansapproved
      by shareholders
    860,229
    
    $8.91
    
    1,175,263Equity
      compensation plansnot
      approved by shareholders
    None
    
    N/A
    
    N/ATotal
    860,229
    
    $8.91
    
    1,175,263 
    (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.
 
 17
  **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 DATA**
    
    **YEARS
      ENDED JUNE 30,**(in
      thousands, except per share amounts)
    
    **2007**
    
    
    **2006**
    
    
    **2005**
    
    
    **2004**
    
    
    **2003**Direct
      finance income
    
    $
    24,846
    
    
    $
    18,861
    
    
    $
    15,496
    
    
    $
    14,813
    
    
    $
    15,657Interest
      income on investments
    
    
    2,057
    
    
    
    1,329
    
    
    
    1,009
    
    
    
    578
    
    
    
    1,068Total
      direct finance and interest income
    
    
    26,903
    
    
    
    20,190
    
    
    
    16,505
    
    
    
    15,391
    
    
    
    16,725Interest
      expense on deposits
    
    
    4,706
    
    
    
    2,593
    
    
    
    1,054
    
    
    
    430
    
    
    
    237Provision
      for lease losses
    
    
    (120
    )
    
    
    482
    
    
    
    359
    
    
    
    164
    
    
    
    554Net
      direct finance and interest incomeafter
      provision for lease losses
    
    
    22,317
    
    
    
    17,115
    
    
    
    15,092
    
    
    
    14,797
    
    
    
    15,934Operating
      and sales-type lease income
    
    
    4,430
    
    
    
    4,498
    
    
    
    4,379
    
    
    
    5,255
    
    
    
    6,384Gain
      on sale of leases and leased property
    
    
    3,561
    
    
    
    10,390
    
    
    
    8,961
    
    
    
    9,625
    
    
    
    7,926Other
      fee income
    
    
    1,171
    
    
    
    780
    
    
    
    1,091
    
    
    
    930
    
    
    
    876Total
      other income
    
    
    9,162
    
    
    
    15,668
    
    
    
    14,431
    
    
    
    15,810
    
    
    
    15,186Gross
      profit
    
    
    31,479
    
    
    
    32,783
    
    
    
    29,523
    
    
    
    30,607
    
    
    
    31,120Selling,
      general and administrative expenses
    
    
    15,466
    
    
    
    15,278
    
    
    
    16,039
    
    
    
    15,388
    
    
    
    13,672Earnings
      before income taxes
    
    
    16,013
    
    
    
    17,505
    
    
    
    13,484
    
    
    
    15,219
    
    
    
    17,448Income
      taxes
    
    
    6,125
    
    
    
    6,783
    
    
    
    5,057
    
    
    
    5,859
    
    
    
    6,717Net
      earnings
    
    $
    9,888
    
    
    $
    10,722
    
    
    $
    8,427
    
    
    $
    9,360
    
    
    $
    10,731Diluted
      earnings per share
    
    $
    0.86
    
    
    $
    0.94
    
    
    $
    0.74
    
    
    $
    0.84
    
    
    $
    0.96Diluted
      common shares outstanding
    
    
    11,534
    
    
    
    11,461
    
    
    
    11,340
    
    
    
    11,190
    
    
    
    11,223Cash
      dividends per share
    
    $
    0.46
    
    
    $
    0.42
    
    
    $
    2.30
    
    
    $
    0.40
    
    
    $
    0.16Dividend
      payout ratio
    
    
    52.05
    %
    
    
    43.62
    %
    
    
    302.56
    %
    
    
    46.94
    %
    
    
    16.43
    %Return
      on average assets
    
    
    3.09
    %
    
    
    3.70
    %
    
    
    3.06
    %
    
    
    3.41
    %
    
    
    3.72
    %Return
      on average equity
    
    
    5.05
    %
    
    
    5.65
    %
    
    
    4.34
    %
    
    
    4.67
    %
    
    
    5.55
    %
 
 **BALANCE
      SHEET DATA**
    
    **AS
      OF JUNE 30,**(in
      thousands, except per share amounts)
    
    **2007**
    
    
    **2006**
    
    
    **2005**
    
    
    **2004**
    
    
    **2003**Cash
      and liquid securities
    
    $
    47,630
    
    
    $
    41,277
    
    
    $
    44,226
    
    
    $
    68,275
    
    
    $
    67,340Net
      investment in capital leases
    
    
    231,830
    
    
    
    213,956
    
    
    
    187,432
    
    
    
    153,075
    
    
    
    146,396Total
      assets
    
    
    329,187
    
    
    
    314,355
    
    
    
    278,492
    
    
    
    273,814
    
    
    
    278,691Demand,
      savings and time deposits
    
    
    105,470
    
    
    
    89,166
    
    
    
    54,098
    
    
    
    24,600
    
    
    
    7,594Non-recourse
      debt
    
    
    6,239
    
    
    
    8,424
    
    
    
    8,405
    
    
    
    17,541
    
    
    
    40,056Stockholders'
      equity
    
    $
    197,667
    
    
    $
    193,527
    
    
    $
    186,738
    
    
    $
    203,399
    
    
    $
    197,276Equity
      to total assets ratio
    
    
    60.05
    %
    
    
    61.56
    %
    
    
    67.05
    %
    
    
    74.28
    %
    
    
    70.79
    %Book
      value per common share
    
    $
    17.75
    
    
    $
    17.34
    
    
    $
    16.83
    
    
    $
    18.43
    
    
    $
    18.04
 
 18
  **California
First National Bancorp and Subsidiaries**
   **ITEM
7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS**
 
 **General**
 
 The Company's results include the
operations of CalFirst Leasing, Amplicon, and CalFirst Bank.  The
Company's direct finance income includes interest income earned on the Company's
investment in lease receivables and residuals. Other income primarily includes
gains realized on the sale of leased property, income from sales-type and
operating leases and gains realized on the sale of leases, and other fee income.
Income from sales-type leases relates to the re-lease of off-lease property
("lease extensions") and new lease transactions that qualify as sales-type
leases, generally where the fair value of the property subject to the lease
differs from the Company's carrying cost. Income from operating leases generally
involves lease extensions that are booked as operating leases rather than as a
sales-type leases.
 
 The Company's operating results are
subject to quarterly fluctuations resulting from a variety of factors, including
the volume and profitability of leased property being re-marketed through
re-lease or sale, the size and credit quality of the lease portfolio, the
interest rate environment, the volume of new lease originations, including
variations in the mix and funding of such originations, 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 interest-bearing liabilities represent about 34% of earning assets,
and therefore, changes in interest rates in general have a greater impact on the
income earned on the investment in lease receivables, securities and other
interest earning assets, with less impact from higher or lower interest expense. Distortions in the yield curve can result in
some impact on earnings due to the compression or widening of the difference between earning asset
yields and funding costs.
 
 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 lease receivables 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 following is a description of the most critical
accounting policies management applies, all of which require the use of
accounting estimates and management's judgment, based on the relevant
information available at the end of each period.
 
 **Allowance for Lease Losses --**The allowance for lease losses provides coverage for probable and
estimatable losses in the Company's lease portfolios. The allowance recorded is
based on a quarterly review of all leases outstanding and transactions in
process. The determination of the appropriate amount of any provision is based
on management's judgment at that time and takes into consideration all known
relevant internal and external factors that may affect the lease portfolio,
including levels of non-performing leases, lessees' financial condition, leased
property values as well as general economic conditions and credit quality
indicators. The Company's allowance includes an estimate of reserves needed to
cover specifically identified lease losses and certain unidentified but inherent
risks in the portfolio.
 
 **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 capital leases. Of the volume of capital leases booked during the
fiscal years ended June 30, 2007, 2006 and 2005, approximately 25.3%, 30.4% and
30.1%, respectively, were structured such that the Company owns the leased asset
at the end of the term and therefore, the Company 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.
 
 19
 
  **California
First National Bancorp and Subsidiaries**
 **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 our 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.
 
 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, 2007 of $9.9 million were down 7.8% from the $10.7 million from the prior
year. The decline was due to over a 45% reduction in income from end of term transactions,
partially offset by a 30.4% increase in net direct finance and interest income
after provision for lease losses. Selling, general and administrative
expenses ("SG&A") remained relatively flat for fiscal 2007 compared to
fiscal 2006. For the year ended June 30, 2007, new lease bookings of
$155.4 million were below the $163.8 million booked in the prior year. Of the
new leases booked during fiscal 2007, approximately 97% were retained in the
Company's own portfolios, compared to 91% in fiscal
2006. Consequently, the net investment in capital leases of $231.8
million at June 30, 2007 increased 8% from June 30, 2006. The Bank accounted for almost all of the growth in assets, with the Bank's investment in capital leases of $127.5 million at June 30, 2007 representing 55% of the Company's consolidated investment. To fund this portfolio, the Bank's demand, money market and time deposits increased by 18% to $105.5 million from
$89.2 million at June 30, 2006.
 
 During fiscal 2007, the Company
benefited from a rising interest rate environment, with the average yield on
leases held in its own portfolio increasing by about 160 basis points. In
addition, yields on cash and other interest-earning investments improved by 100
basis points. However, part of these gains was offset by the growth in deposits
at the Bank and an increase in average interest rates paid by 100 basis
points.
 
 New lease transactions approved
("lease originations") of approximately $171 million during fiscal 2007 were
down 8.2% from $187 million in fiscal 2006. However, the backlog of approved but
un-booked leases at June 30, 2007 is about 4% above the level of a year
ago.  Property acquired for transactions in process of $35 million was
down 17% from to the level at June 30, 2006.
 
  Looking forward to fiscal 2008,
management will continue to focus efforts on expanding the volume of lease
originations, but any such achievement is dependent upon economic and other
circumstances that are beyond management's control. In addition, attention is
being focused on the development of a commercial loan business, which is not
expected to contribute meaningfully to asset growth during fiscal 2008. Based on
the net investment in capital leases at June 30, 2007 and the current backlog of
approved leases, the volume of leases estimated to be booked in 2008 should be in line with 2007. As a result,
direct finance income should increase from the 2007 level, but the rate of growth is expected to be
substantially below the rate experienced in fiscal 2007.  The
Company's estimated residual values maturing over the next 12 months is $2.9
million at June 30, 2007, 15% below the $3.4 million at June 30, 2006 and
compared to $5.6 million at June 30, 2005. As a result, management expects the
decline in other income to be substantially less than in 2007. The ultimate
growth in direct finance income or outcome with respect to the investment in
residual values is subject to a variety of factors including the impact of
credit markets, interest rates, lessee's financial condition and choices. All
these factors are beyond management's control and therefore any expectations are
subject to change.
 
 20
  **California
First National Bancorp and Subsidiaries**
   **Consolidated
Statement of Earnings Analysis**
 
 **Summary**-- For
the fiscal year ended June 30, 2007, net earnings decreased 7.8% to $9.9 million,
compared to $10.7 million for fiscal 2006.  Diluted earnings per share
decreased 8.4% to $0.86 for fiscal year ended June 30, 2007, compared to $0.94
per share for fiscal 2006.  Net earnings reflect an increase in direct
finance income and a reduction in the provision for lease losses offset by
higher interest expense on deposits, and lower profits from end of term
transactions.  SG&A expense levels remained flat.
 
 **Net Direct Finance and
Interest Income  --**Net direct finance and interest income is
the difference between interest earned on the investment in capital leases,
securities and other interest earning investments and interest paid on deposits
or other borrowings. Net direct finance and interest income is affected by
changes in the volume and mix of interest earning assets and liabilities, the
movement of interest rates, and funding and pricing strategies.
 
 Net direct finance and interest
income was $22.2 million for the fiscal year ended June 30, 2007 compared to
$17.6 million for fiscal 2006 and $15.5 million in fiscal 2005.  The
26.1% increase in fiscal 2007 from fiscal 2006 was due to an increase of $6.0
million in direct finance income and $728,000 in interest income on cash and
investments, offset by a $2.1 million increase in interest expense on deposits.
The increase in direct finance income reflects a 13.2% increase in the average
investment in capital leases directly held by the Company, and a 160 basis point
improvement in average yields on such investment. The increase in interest
income on cash and investments resulted from a 100 basis point increase in
average yield and an 18% increase in the average balances.
 
 The increase in net direct finance income in fiscal 2006 was due to an increase of $3.4 million in direct finance income
and a $320,000 increase in interest income earned on cash and investments,
offset by a $1.5 million increase in interest expense on deposits. The increase
in direct finance income reflected an 18.3% increase in the average investment
in capital leases directly held by the Company and a 20 basis point increase in
average yields on such investment. The increase in interest income on cash and
investments resulted from the increase in interest rates earned offset by a
decrease in the level of average balances.
  The following table presents the components of the increases (decreases) in net direct finance and interest income by volume and rate:
 
 (in thousands)
          
          **2007 compared to 2006**
          
          
          **2006 compared to 2005****Volume**
          
          
          **Rate**
          
          
          **Total**
          
          
          **Volume**
          
          
          **Rate**
          
          
          **Total****Direct finance and interest income**Net investment in capital leases
          
          $
          2,484
          
          
          $
          3,501
          
          
          $
          5,985
          
          
          $
          2,875
          
          
          $
          490
          
          
          $
          3,365Discounted lease rentals
          
          
          8
          
          
          
          (5
          )
          
          
          3
          
          
          
          (322
          )
          
          
          (50
          )
          
          
          (372
          )Federal funds sold
          
          
          294 19
          
          
          
          227
          
          
          
          521
          
          
          
          109 19
          
          
          
          253
          
          
          
          362Investment securities
          
          
          5
          
          
          
          7
          
          
          
          12
          
          
          
          (43
          )
          
          
          7
          
          
          
          (36
          )Interest-earning deposits with banks
          
          
          12
          
          
          
          183
          
          
          
          195
          
          
          
          (245
          )
          
          
          239
          
          
          
          (6
          )Total finance and interest income
          
          
          2,803
          
          
          
          3,913
          
          
          
          6,716
          
          
          
          2,374
          
          
          
          939
          
          
          
          3,313**Interest expense**Non-recourse debt
          
          
          8
          
          
          
          (5
          )
          
          
          3
          
          
          
          (322
          )
          
          
          (50
          )
          
          
          (372
          )Demand and savings deposits
          
          
          (167
          )
          
          
          71
          
          
          
          (96
          )
          
          
          88
          
          
          
          114
          
          
          
          202Time deposits
          
          
          1,364
          
          
          
          845
          
          
          
          2,209
          
          
          
          704 314
          
          
          
          633
          
          
          
          1,337Total interest expense
          
          
          1,205
          
          
          
          911
          
          
          
          2,116
          
          
          
          470
          
          
          
          697
          
          
          
          1,167**Net direct finance and interest income**
          
          $
          1,598
          
          
          $
          3,002
          
          
          $
          4,600
          
          
          $
          1,904
          
          
          $
          242
          
          
          $
          2,146
 21
 
  **California
First National Bancorp and Subsidiaries**
 
 
 The
following table presents the Company's average balance sheets, direct finance
income and interest earned or interest paid, the related yields and rates on
major categories of the Company's interest-earning assets and interest-bearing
liabilities:
 
 **Year
      ended June 30, 2007**
    
    **Year
      ended June 30, 2006**
    
    **Year
      ended June 30, 2005**Average
    
    
    
    Yield/
    
    Average
    
    
    
    Yield/
    
    Average
    
    
    
    Yield/**Assets**
    
    Balance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    RateInterest-earning
      assetsInterest-earning
      deposits with banks
    
    $  25,859
    
    $     826
    
    3.2%
    
    $  25,376
    
    $     631
    
    2.5%
    
    $  41,239
    
    $     637
    
    1.5%Federal
      funds sold
    
    21,398
    
    1,157
    
    5.4%
    
    14,619
    
    636
    
    4.4%
    
    10,475
    
    274
    
    2.6%Investment
      securities
    
    1,350
    
    74
    
    5.5%
    
    1,258
    
    62
    
    4.9%
    
    2,231
    
    98
    
    4.4%Net
      investment in capital leasesincluding
      discounted lease rentals (1)
    
    233,403
    
    25,316
    
    10.8%
    
    206,972
    
    19,329
    
    9.3%
    
    180,224
    
    16,335
    
    9.1%Total
      interest-earning assets
    
    282,010
    
    27,374
    
    9.7%
    
    248,225
    
    20,658
    
    8.3%
    
    234,169
    
    17,344
    
    7.4%Other
      assets
    
    38,267
    
    
    
    
    
    41,780
    
    
    
    
    
    41,181$320,277
    
    
    
    
    
    $290,005
    
    
    
    
    
    $275,350**Liabilities
      and Shareholders' Equity**Interest-bearing
      liabilitiesDemand
      and savings deposits
    
    $   7,041
    
    318
    
    4.5%
    
    $  11,817
    
    414
    
    3.5%
    
    $    8,336
    
    211
    
    2.5%Time
      deposits
    
    88,809
    
    4,388
    
    4.9%
    
    54,627
    
    2,179
    
    4.0%
    
    29,773
    
    843
    
    2.8%Non-recourse
      debt
    
    7,365
    
    471
    
    6.4%
    
    7,239
    
    468
    
    6.5%
    
    11,742
    
    839
    
    7.1%Total
      interest-bearing liabilities
    
    103,215
    
    5,177
    
    5.0%
    
    73,683
    
    3,061
    
    4.2%
    
    49,851
    
    1,893
    
    3.8%Other
      liabilities
    
    20,784
    
    
    
    
    
    26,562
    
    
    
    
    
    31,278Shareholders'
      equity
    
    196,278
    
    
    
    
    
    189,760
    
    
    
    
    
    194,221$320,277
    
    
    
    
    
    $290,005
    
    
    
    
    
    $275,350Net
      interest income
    
    
    
    $22,197
    
    
    
    
    
    $17,597
    
    
    
    
    
    $15,451Net
      direct finance and interest income toaverage
      interest-earning assets
    
    
    
    
    
    7.9%
    
    
    
    
    
    7.1%
    
    
    
    
    
    6.6%Average
      interest-earning assets overaverage
      interest-bearing liabilities
    
    
    
    
    
    273.2%
    
    
    
    
    
    336.9%
    
    
    
    
    
    469.7%
  
 (1)
    Direct
      finance income and interest expense on average discounted lease rentals
      and non-recourse debt of $7.4 million, $7.2 million and $11.7 million at
      June 30, 2007, 2006 and 2005, respectively, offset each other and do not
      contribute to the Company's net interest and finance income. Average
      balance is based on month-end balances, includes non-accrual leases, and
      is presented net of unearned
income.
 22
 
  **California
First National Bancorp and Subsidiaries**
 **Provision for Lease
Losses  --**The Company recorded a negative provision for lease losses of $120,000 in fiscal 2007 due to a recovery of
$633,000 received early in the year. Separate from this recovery, the
deterioration in the credit quality of certain leases during the first nine
months of the year required a provision of $513,000. The net
recovery of $120,000 compared to a provision of $482,000 in fiscal 2006
and $359,000 in fiscal 2005. The provisions made in fiscal 2005 and
fiscal 2006 primarily related to 14% growth in the net investment in capital
leases in fiscal 2006 and 22% growth in fiscal 2005, along with some increase in
the risk profile of the portfolio during fiscal 2005.
 
 **Other
Income**  -- Other income accounted for 29% of the Company's
gross profit during the year ended June 30, 2007, compared to 48% during 2006
and 49% during 2005.  Total other income of $9.2 million for the year
ended June 30, 2007 decreased $6.5 million, or 42%, from $15.7 million in 2006
and $5.3 million, or 37%, below the level earned in 2005.  The decrease
in other income in fiscal 2007 compared to fiscal 2006 primarily reflects a
decrease of $6.8 million in gain on sale of leases and leased property as a
significantly lower volume of leases came to the end of term during the
period.  Operating and sales-type lease income declined $68,000,
reflecting only a slight decrease in lease extensions when compared to the prior
year.  Other fee income increased $391,000 to $1.2
million.
 
 The increase in other income in
fiscal 2006 compared to fiscal 2005 primarily reflected an increase of $1.4
million in gain on sale of leases and leased property as the volume of leased
property sold on leases coming to end of term increased during the
period. Operating and sales-type lease income increased by $119,000,
reflecting only a slight increase in lease extensions when compared to the prior
year. Other fee income decreased $311,000 to $780,000.
 
 **Selling, General, and
Administrative Expenses** -- The Company's selling, general and
administrative expenses ("SG&A") increased $188,000, or 1%, to $15.5 million
recognized for the year ended June 30, 2007. This compared to SG&A expenses
in fiscal 2006 of $15.3 million, which had decreased by $761,000, or 5%, from
$16.0 million in fiscal 2005.  The increase in SG&A expenses
during fiscal 2007 is due to higher costs resulting from the growth in the sales
force, which offset the benefit from lower variable costs resulting from efforts
to control costs.
 
 The decrease in SG&A expenses
during fiscal 2006 compared to fiscal 2005 is due to lower costs resulting from
a slightly smaller sales force and lower variable costs resulting from efforts
to control costs.  SG&A expenses in fiscal 2006 also reflect a
lower deferral of initial direct costs of $3.6 million, compared to $4.0 million
in fiscal 2005.
 
 **Income Taxes** --
Income taxes were accrued at a tax rate of 38.25% for the fiscal year ended June
30, 2007 compared to 38.75% for fiscal year ended June 30, 2006, and 38.5% for
fiscal year ended June 30, 2005 representing the Company's estimated annual tax
rates for each respective year. The income tax rate decreased in fiscal 2007 due
in part to an increased volume of leases where interest earned is exempt from
certain taxes. Tax-exempt leases represented approximately 8.1% of new lease
bookings in fiscal 2007, compared to 7.7% during fiscal 2006 and 13% in fiscal
2005.
 
 **Financial
Condition Analysis**
 
 **Lease Portfolio
Analysis**
 
 The Company currently funds a high
percentage of new lease transactions internally, while only a small portion of
leases are assigned to financial institutions. During the fiscal year ended June
30, 2007, approximately 97% of the total dollar amount of new leases booked by
the Company were held in its own portfolio, compared to 91% during fiscal 2006
and 93% during fiscal 2005. During the fiscal year ended June 30, 2007, the
Company's net investment in capital leases increased by $17.9 million. This
increase includes a $17.8 million increase in the Company's investment in lease
receivables, and a $108,000 increase in the investment in estimated residual
values. The increase in the investment in capital leases is primarily
due to the higher volume of new lease transactions retained by the
Company, while the increase in investment in residual values is due to a
slightly higher volume of residual values being booked on new leases on which
the Company retains a residual investment than the volume of residual values
being recognized at end of term.
 
 23
   **California
First National Bancorp and Subsidiaries**
   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 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, 2007, the
Company's investment in property acquired for transactions in process was $34.7
million, down from $41.7 million at June 30, 2006, but even with $34.1 million
at June 30, 2005.
 
 The Company's risk assets are
comprised almost exclusively of leases for capital assets to businesses and
other commercial or non-profit organizations. All leases are secured by the
underlying property being leased. The Company's strategy is to develop lease
portfolios with risk/reward profiles that meet its objectives. Through the use
of non-recourse financing, the Company avoids risks that do not meet these
requirements.  The strategy emphasizes diversification on both a
geographic and customer level, and spreading the Company's risk across a breadth
of leases while minimizing the risk to any one customer.  At June 30,
2007, no lessee accounted for more than 3% of the Company's net investment in
capital leases, and two lessees combined represented less than 5% of the
Company's net investment in capital leases.  The investment in capital
leases is diversified by geographic regions, with the Company's portfolio spread
across all fifty states. At June 30, 2007, California (16%) was the only state
that represented more than 10% of the Company's net investment in capital
leases. The Company has no exposure to foreign lessees. The Company's leases are
with lessees in a wide spectrum of industries; however, at June 30, 2007
approximately 35% of the Company's net investment in capital leases was with
public and private colleges, universities, elementary and secondary schools
located throughout the United States. No other industry sector represented more
than 10%.  The educational portfolio includes over 698 leases with
over 343 different lessees. One university represented approximately 2% of the
Company's net investment in capital leases. The Company believes the exposure to
this sector is warranted based on the historically good credit profile of this
group.
 
 The Company monitors the performance
of all leases held in its own portfolio, transactions in process, as well as
lease transactions assigned to lenders, if the Company retains a residual
investment in the leased property subject to those leases. An ongoing review of
all leases ten or more days delinquent is conducted. Lessees who are delinquent
with the Company or an assignee are coded in the Company's accounting and
tracking systems in order to provide management visibility, periodic reporting,
and appropriate reserves. The accrual of interest income on leases will be
discontinued when the lessee becomes ninety days or more past due on its lease
payments with the Company, unless the Company believes the investment is
otherwise recoverable. Leases may be placed on non-accrual earlier if the
Company has significant doubt about the ability of the lessee to meet its lease
obligations, as evidenced by consistent delinquency, deterioration in the
lessee's financial condition or other relevant factors.
 
 The
following table summarizes the Company's non-performing capital
leases.
 
 **June
      30,****Non-performing
      Capital Leases**
    
    **2007**
    
    
    **2006**
    
    
    **2005**
    
    
    **2004**
    
    
    **2003**(in
      thousands)Non-accrual
      leases
    
    $
    1,133
    
    
    $
    1,010
    
    
    $
    945
    
    
    $
    2,011
    
    
    $
    3,979Restructured
      leases
    
    
    452
    
    
    
    996
    
    
    
    -
    
    
    
    354
    
    
    
    1,122Leases
      past due 90 days (other than above)
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Total
      non-performing capital leases
    
    $
    1,585
    
    
    $
    2,006
    
    
    $
    945
    
    
    $
    2,365
    
    
    $
    5,101Non-performing
      assets as % of net investmentin
      capital leases before allowances
    
    
    0.7
    %
    
    
    0.9
    %
    
    
    0.5
    %
    
    
    1.5
    %
    
    
    3.4
    %
 
 Non-performing assets decreased
during fiscal 2007 due primarily to write-offs taken and payments
received.  The restructured lease balance continues to be influenced
by Hurricane Katrina vicinity leases, which are characterized as restructured
due to accommodations provided to the lessees affected in that
area.  Direct finance income that would have been recorded had
non-accrual leases at each respective fiscal year end been current in accordance
with their original terms would have been $148,655, $46,395 and $96,429 during
fiscal 2007, 2006 and 2005, respectively. The amount of direct finance income
actually recorded on non-performing capital leases was $173,620, $60,961 and
$71,297 during fiscal 2007, 2006 and 2005, respectively.
 
 24
 
  **California
First National Bancorp and Subsidiaries**
 In addition to the non-performing
capital leases identified above, there were $733,000 of investment in capital
leases at June 30, 2007 for which management has concerns regarding the ability
of the lessees to continue to meet existing lease obligations, compared with
$1.8 million at June 30, 2006.  This amount consists of leases
classified as substandard or doubtful, or with lessees that currently are
experiencing financial difficulties or that management believes may experience
financial difficulties in the future. Although these leases have been identified
as potential problem leases, they may never become non-performing. These
potential problem leases are considered in the determination of the allowance
for lease losses. The decrease in amount at June 30, 2007 reflects the pay-off
of special mention credits from the prior year, which offset the addition of
other substandard leases.
  **Allowance
for Lease Losses**
 
 The allowance for lease losses and
the residual valuation allowance provide coverage for probable and estimatable
losses in the Company's lease portfolios. The allowance recorded is based on a
quarterly review of all leases outstanding and transactions in process. Lease
receivables or residuals are charged off when they are deemed completely
uncollectible. The determination of the appropriate amount of any provision is
based on management's judgment at that time and takes into consideration all
known relevant internal and external factors that may affect the lease
portfolio.
 
 **Years
      Ended June 30,**
    
    **2007**
    
    
    **2006**
    
    
    **2005**
    
    
    **2004**
    
    
    **2003**(dollars
      in thousands)Property
      acquired for transactions in process before allowance
    
    $
    34,788
    
    
    $
    41,748
    
    
    $
    34,120
    
    
    $
    30,558
    
    
    $
    20,365Net
      investment in capital leases before allowance
    
    
    235,106
    
    
    
    217,525
    
    
    
    190,859
    
    
    
    156,458
    
    
    
    150,609Net investment in "risk assets"
    
    $
    269,894
    
    
    $
    259,273
    
    
    $
    224,979
    
    
    $
    187,016
    
    
    $
    170,974Allowance
      for lease losses at beginning of year
    
    $
    3,637
    
    
    $
    3,495
    
    
    $
    3,461
    
    
    $
    4,291
    
    
    $
    5,502Charge-off
      of lease receivables
    
    
    (850
    )
    
    
    (391
    )
    
    
    (377
    )
    
    
    (1,359
    )
    
    
    (2,215
    )Recovery
      of amounts previously written off
    
    
    677
    
    
    
    51
    
    
    
    52
    
    
    
    365
    
    
    
    450Provision
      for lease losses
    
    
    (120
    )
    
    
    482
    
    
    
    359
    
    
    
    164
    
    
    
    554Allowance
      for lease losses at end of year
    
    $
    3,344
    
    
    $
    3,637
    
    
    $
    3,495
    
    
    $
    3,461
    
    
    $
    4,291Allowance
      for lease losses as percent of netinvestment in capital leases before allowances
    
    
    1.4
    %
    
    
    1.7
    %
    
    
    1.8
    %
    
    
    2.2
    %
    
    
    2.9
    %Allowance
      for lease losses as percent of net investment in "risk
    assets"
    
    
    1.2
    %
    
    
    1.4
    %
    
    
    1.6
    %
    
    
    1.9
    %
    
    
    2.5
    %
 
 The allowance for lease losses
decreased to $3.34 million (1.4% of net investment in capital leases) at June
30, 2007 from $3.64 million (1.7% of net investment in capital leases) at June
30, 2006. The allowance at June 30, 2007 consisted of $912,900 allocated to
specific accounts that were considered impaired and $2.43 million that was
available to cover losses inherent in the portfolio. This compared to $752,900
allocated to specific impaired accounts at June 30, 2006 and $2.88 million that
was available to cover losses inherent in the portfolio at such
date.  The allowance allocated to specific accounts increased $160,000
while the unallocated allowance decreased $455,000 during fiscal
2007.  The decrease in the 2007 unallocated allowance reflects higher
specific reserves provided for at the Leasing Companies, while most growth in
lease portfolio has occurred within CalFirst Bank, which tends to be of higher
credit quality, and therefore includes lower inherent losses. At June 30, 2007,
the volume of transactions in process was down 17% from the end of the prior
year, however the volume of unfunded lease commitments increased
19%.  Based on the above factors, the Company considers the allowance
for doubtful accounts of $3.3 million at June 30, 2007 adequate to cover losses
specifically identified as well as inherent in the lease portfolios. However, no
assurance can be given that the Company will not, in any particular period,
sustain lease losses that are sizeable in relation to the amount reserved, or
that subsequent evaluations of the lease portfolio, in light of factors then
prevailing, including economic conditions and the on-going credit review
process, will not require significant increases in the allowance for lease
losses. Among other factors, a continued economic slowdown may have an adverse
impact on the adequacy of the allowance for lease losses by increasing credit
risk and the risk of potential loss even further. As the Company has retained a
significantly greater percentage of leases in its own portfolio, this creates
increased exposure to delinquencies, repossessions, foreclosures and losses than
the Company has historically experienced.
 
 25
  **California
First National Bancorp and Subsidiaries**
   **Liquidity
and Capital Resources**
 
 The Company funds its operating
activities through internally generated funds, bank deposits, non-recourse debt,
and as necessary, through access to credit facilities. At June 30, 2007 and
2006, the Company's cash and cash equivalents were $46.1 million and $40.7
million, respectively.  Stockholders' equity at June 30, 2007 was
$197.7 million, or 60% of total assets, compared to $193.5 million, or 62% of
total assets, at June 30, 2006.  At June 30, 2007, the Company and the
Bank exceed their regulatory capital requirements and are considered
"well-capitalized" under guidelines established by the FRB and the
OCC.
 
 Deposits at CalFirst Bank totaled
$105.5 million at June 30, 2007, compared to $89.2 million at June 30, 2006. The
$16.3 million increase was used to fund leases and maintain liquidity at the
Bank.  Average deposit balances have risen steadily over the past
three years commensurate with the growth in the Bank's lease
portfolio.  The Bank is competitive with major institutions in terms
of its structure of interest rates, and generally offers interest rates on
deposit accounts that are higher than the national average.  Rates
paid by the Bank on deposits have risen in varying degrees in response to the
general increase in market rates. The following table presents average balances
and average rates paid on deposits for years ended June 30, 2007, 2006 and
2005:
 
 (dollars
      in thousands)
    
    **Years
      ended June 30,****2007**
    
    
    **2006**
    
    
    **2005**Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    AverageBalance
    
    
    Rate
      Paid
    
    
    Balance
    
    
    Rate
      Paid
    
    
    Balance
    
    
    Rate
      PaidNon-interest
      bearing demand deposits
    
    $
    1,383
    
    
    
    n/a
    
    
    $
    1,202
    
    
    
    n/a
    
    
    $
    1,163
    
    
    
    n/aInterest-bearing
      demand deposits
    
    
    70
    
    
    
    0.50
    %
    
    
    48
    
    
    
    0.50
    %
    
    
    95
    
    
    
    0.50
    %Savings
      deposits
    
    
    6,971
    
    
    
    4.55
    %
    
    
    11,769
    
    
    
    3.51
    %
    
    
    8,241
    
    
    
    2.56
    %Time
      deposits less than $100,000
    
    
    45,010
    
    
    
    4.91
    %
    
    
    31,024
    
    
    
    3.94
    %
    
    
    18,288
    
    
    
    2.88
    %Time
      deposits, $100,000 or more
    
    $
    43,799
    
    
    
    4.97
    %
    
    $
    23,603
    
    
    
    4.05
    %
    
    $
    11,485
    
    
    
    2.75
    %
 
 The
following table shows the maturities of certificates of deposits at the dates
indicated:
 
 June
      30, 2007Less
      than
    
    
    Greater
      than$100,000
    
    
    $100,000(in
      thousands)Under
      3 months
    
    $
    6,917
    
    
    $
    11,6073 -
      6 months
    
    
    2,761
    
    
    
    3,3836 -
      12 months
    
    
    24,568
    
    
    
    21,579After
      12 months
    
    
    12,921
    
    
    
    13,442$
    47,167
    
    
    $
    50,011
 
 The Leasing Companies' capital
expenditures for leased property purchases are sometimes financed by assigning
certain base lease term payments to banks or other financial institutions,
including CalFirst Bank.  The assigned lease payments are discounted
at fixed rates such that the lease payments are sufficient to fully amortize the
aggregate outstanding debt. At June 30, 2007, the Company had outstanding
non-recourse debt aggregating $6.2 million relating to property under capital
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.
 
 26
 
  **California
First National Bancorp and Subsidiaries**
 The Leasing Companies also have
access to a $25 million line of credit with a bank ("Lender"). The purpose of
the line is to provide resources as needed for investment in transactions in
process and capital leases.  The agreement provides for borrowings
based on the Lender's prime rate or LIBOR, at the Leasing Companies' option,
requires a commitment fee on the unused line balance and allows for advances
through March 31, 2008.  The agreement is unsecured; however, the
Leasing Companies' obligations are guaranteed by the Company.  Under
the provisions of the agreement, the Leasing Companies must maintain a minimum
net worth and profitability. Pursuant to the agreement, the Leasing Companies
are prohibited from repaying any indebtedness owed by them to the Company. A
repayment of principle to the Company was made during fiscal 2007, and the
Lender waived compliance with the covenant for the period in which it occurred.
No borrowings have been made under this line of credit as of August 31,
2007.
  **Contractual
Obligations and Commitments**
 
 The following table summarizes
various contractual obligations to make and receive future payments at June 30,
2007. Commitments to purchase property for unfunded leases are binding and
generally have fixed expiration dates or other termination clauses. Since the
Company expects some of the commitments to expire without being funded, the
total commitment amounts do not necessarily represent the Company's future
liquidity requirements.
 
 **Due
      by Period****Less
      Than**
    
    
    
    
    
    **After****Contractual
      Obligations**
    
    **Total**
    
    
    **1
      Year**
    
    
    **1-5
      Years**
    
    
    **5
      Years**(dollars
      in thousands)Time
      deposits less than $100,000
    
    $
    47,167
    
    
    $
    34,246
    
    
    $
    12,921
    
    
    $
    -Time
      deposits $100,000 or more
    
    
    50,011
    
    
    
    36,569
    
    
    
    13,442
    
    
    
    -Deposits
      without a stated maturity
    
    
    8,292
    
    
    
    8,292
    
    
    
    -
    
    
    
    -Operating
      lease rental expense
    
    
    1,298
    
    
    
    1,112
    
    
    
    186
    
    
    
    -Lease
      property purchases (1), (2)
    
    
    85,310
    
    
    
    85,310
    
    
    
    -
    
    
    
    -Total contractual commitments
    
    $
    192,078
    
    
    $
    165,529
    
    
    $
    26,549
    
    
    $
    -**Contractual
      Cash Receipts**Lease
      payments receivable (3)
    
    $
    253,802
    
    
    $
    109,482
    
    
    $
    143,725
    
    
    $
    595Cash
      and cash equivalents
    
    
    46,122
    
    
    
    46,122
    
    
    
    -
    
    
    
    -Total projected cash availability
    
    
    299,924
    
    
    
    155,604
    
    
    
    143,725
    
    
    
    595Net
      projected cash inflow
    
    $
    107,846
    
    
    $
    (9,925
    )
    
    $
    117,176
    
    
    $
    595
  
 (1)
    Disbursements
      to purchase property on approved leases are estimated to be completed
      within one year, but it is likely that some portion could be deferred to
      fiscal 2009.
 (2)
    Does
      not include amounts to be received related to transactions-in-process
      already funded and the unfunded lease property purchases included above,
      which together aggregate to $122.7 million at June 30, 2007. The timing
      and amount of repayment cannot be determined until a lease
      commences.
 (3)
    Based
      upon contractual cash flows; amounts could differ due to prepayments,
      lease restructures, charge-offs and other
  factors.
 The need for cash for operating
activities will increase as the Company expands.  The Company believes
that existing cash balances, cash flow from operations, cash flows from its
financing and investing activities, and assignments (on a non-recourse basis) of
lease payments will be sufficient to meet its foreseeable financing
needs.
 
 Inflation has not had a significant
impact upon the operations of the Company.
 
 **Recent Accounting
Pronouncements**
 
 See Note 1, "Summary of Significant
Accounting Policies," of the Company's consolidated financial statements for
disclosure of recent accounting pronouncements.
 
 27
  **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 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 is primarily short-term in nature, with a
greater portion of assets that reprice or mature within one year.  As
a result, the Company's exposure to interest rate risk largely results from
declines in interest rates and the impact on net direct finance and interest
income.
 
 At June 30, 2007, the Company had
$46.1 million invested in securities of very short duration, including $24.4
million in federal funds sold and securities purchased under agreements to
resell. The Company's gross investment in lease payments receivable of $253.8
million consists of leases with fixed rates, however, $109.5 million of such
investment is due within one year of June 30, 2007. This compares to the Bank's
interest bearing deposit liabilities of $105.5 million, 75% of which mature
within one year. The Leasing Companies have no interest-bearing debt, and
non-recourse debt does not represent an interest rate risk to the Company
because it is fully amortized through direct payments from lessees to the
purchaser of the lease receivable. Based on the foregoing, at June 30, 2007, the
Company had assets of $155.6 million subject to changes in interest rates over
the next twelve months, compared to repricing liabilities of $79.1
million.  Given the current structure of the consolidated balance
sheet, if interest rates decrease, interest income on the Company's short-term
investment position decreases, and future lease rates from direct financing
leases, which often are based on United States Treasury rates, will tend to be
lower. Conversely, as interest rates rise, the Company's earnings will benefit
as yields on cash investments and lease investments improve, with less
offsetting impact from rising interest expense.
 
 As the banking operations of the
Company have grown and the Bank's deposits represent a greater portion of the
Company's assets, the Company is subject to increased interest rate risk. The
Bank has an Asset/Liability Management Committee and policies established to
manage its interest rate risk. The Bank measures its asset/liability position
through duration measures and sensitivity analysis, and calculates the potential
effect on earnings using maturity gap analysis. The interest rate sensitivity
modeling includes the creation of prospective twelve month "baseline" and "rate
shocked" net interest income simulations. After a "baseline" net interest income
is determined, using assumptions that the Bank deems reasonable, market interest
rates are raised or lowered by 100 to 300 basis points instantaneously, parallel
across the entire yield curve, and a "rate shocked" simulation is run. Interest
rate sensitivity is then measured as the difference between calculated
"baseline" and "rate shocked" net interest income.
 
 28
  **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
      NumberReport
      of Independent Registered Public Accounting Firm
    30Consolidated
      Balance Sheets at June 30, 2007 and 2006
    31Consolidated
      Statements of Earnings for the years ended June 30, 2007, 2006 and
      2005
    32Consolidated
      Statements of Stockholders' Equity for the years ended June 30, 2007, 2006
      and 2005
    33Consolidated
      Statements of Cash Flows for the years ended June 30, 2007, 2006 and
      2005
    34Notes
      to Consolidated Financial Statements
    35-51
 
 29
  **California
First National Bancorp and Subsidiaries**
 
 **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, 2007 and 2006 and the related
consolidated statements of earnings, changes in stockholders' equity, and cash
flows for each of the three years in the period ended June 30,
2007.  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.  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, 2007 and 2006, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 2007, in conformity with accounting principles generally accepted in
the United States of America.
 
 **Vavrinek,
Trine, Day & Co., LLP**
 
 Laguna
Hills, California
 September 4,
2007
 
 30
  **California
First National Bancorp and Subsidiaries**
   **CONSOLIDATED
BALANCE SHEETS**
 (in
thousands, except share amounts)
 
 
 June
      30,ASSETS
    
    2007
    
    
    2006Cash
      and due from banks
    
    $
    21,732
    
    
    $
    23,217Federal
      funds sold and securities purchased under
      agreements to resell
    
    
    24,390
    
    
    
    17,530Total cash and cash equivalents (Note 1)
    
    
    46,122
    
    
    
    40,747Investment
      securities (Note 3)
    
    
    2,563
    
    
    
    1,134Receivables
      (Note 4)
    
    
    1,345
    
    
    
    1,905Property
      acquired for transactions in process (Note 1)
    
    
    34,720
    
    
    
    41,680Net
      investment in capital leases (Note 5)
    
    
    231,830
    
    
    
    213,956Property
      on operating leases, less accumulated
      depreciation of $21 (2007) and $530 (2006)
    
    
    303
    
    
    
    46Income
      tax receivable (Note 8)
    
    
    4,331
    
    
    
    4,744Other
      assets
    
    
    1,734
    
    
    
    1,719Discounted
      lease rentals assigned to lenders (Note 5)
    
    
    6,239
    
    
    
    8,424$
    329,187
    
    
    $
    314,355LIABILITIES
      AND STOCKHOLDERS' EQUITYLiabilities:Accounts
      payable
    
    $
    3,865
    
    
    $
    3,263Accrued
      liabilities
    
    
    3,695
    
    
    
    4,702Demand
      and savings deposits
    
    
    8,292
    
    
    
    9,778Time
      certificates of deposit
    
    
    97,178
    
    
    
    79,388Lease
      deposits
    
    
    4,771
    
    
    
    5,534Non-recourse
      debt (Note 5)
    
    
    6,239
    
    
    
    8,424Deferred
      income taxes, net (Note 8)
    
    
    7,480
    
    
    
    9,739131,520
    
    
    
    120,828Commitments
      and contingencies (Note 11)Stockholders'
      equity (Note 9):Preferred
      stock; 2,500,000 shares authorized; none issued
    
    
    -
    
    
    
    -Common
      stock; $.01 par value; 20,000,000 shares authorized;
      11,138,425 (2007) and 11,161,508 (2006) issued and
    outstanding
    
    
    111
    
    
    
    112Additional
      paid in capital
    
    
    4,091
    
    
    
    3,756Retained
      earnings
    
    
    193,485
    
    
    
    189,659Other
      comprehensive loss, net of tax
    
    
    (20
    )
    
    
    -197,667
    
    
    
    193,527$
    329,187
    
    
    $
    314,355
 
 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 30,2007
    
    
    2006
    
    
    2005(restated)Direct
      finance income
    
    $
    24,846
    
    
    $
    18,861
    
    
    $
    15,496Interest
      income on investments
    
    
    2,057
    
    
    
    1,329
    
    
    
    1,009Total
      direct finance and interest income
    
    
    26,903
    
    
    
    20,190
    
    
    
    16,505Interest
      expense on deposits
    
    
    4,706
    
    
    
    2,593
    
    
    
    1,054Provision
      for lease losses
    
    
    (120
    )
    
    
    482
    
    
    
    359Net
      direct finance and interest income after
      provision for lease losses
    
    
    22,317
    
    
    
    17,115
    
    
    
    15,092Other
      incomeOperating
      and sales-type lease income
    
    
    4,430
    
    
    
    4,498
    
    
    
    4,379Gain
      on sale of leases and leased property
    
    
    3,561
    
    
    
    10,390
    
    
    
    8,961Other
      fee income
    
    
    1,171
    
    
    
    780
    
    
    
    1,091Total
      other income
    
    
    9,162
    
    
    
    15,668
    
    
    
    14,431Gross
      profit
    
    
    31,479
    
    
    
    32,783
    
    
    
    29,523Selling,
      general and administrative expenses
    
    
    15,466
    
    
    
    15,278
    
    
    
    16,039Earnings
      before income taxes
    
    
    16,013
    
    
    
    17,505
    
    
    
    13,484Income
      taxes
    
    
    6,125
    
    
    
    6,783
    
    
    
    5,057Net
      earnings
    
    $
    9,888
    
    
    $
    10,722
    
    
    $
    8,427Basic
      earnings per common share
    
    $
    0.88
    
    
    $
    0.96
    
    
    $
    0.76Diluted
      earnings per common share
    
    $
    0.86
    
    
    $
    0.94
    
    
    $
    0.74Dividends
      declared per common share outstanding
    
    $
    0.46
    
    
    $
    0.42
    
    
    $
    2.30Average
      common shares outstanding - basic
    
    
    11,184,208
    
    
    
    11,125,473
    
    
    
    11,073,194Average
      common shares outstanding - diluted
    
    
    11,533,729
    
    
    
    11,460,912
    
    
    
    11,340,255
  
 The
accompanying notes are an integral
 part of
these consolidated financial statements.
   32
  **California
First National Bancorp and Subsidiaries**
   **CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY**
 (in
thousands, except for share amounts)
 
 Additional
    
    
    
    
    
    AccumulatedCommon
      Stock
    
    
    Paid
      in
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    TotalBalance,
      June 30, 2004
    
    
    11,038,825
    
    
    $
    110
    
    
    $
    2,480
    
    
    $
    200,684
    
    
    $
    125
    
    
    $
    203,399Net
      earnings (restated)
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    8,427
    
    
    
    -
    
    
    
    8,427Reclassification
      adjustment -Realized
      gain on investmentsecurity,
      net
      of tax
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (125
    )
    
    
    (125
    )Shares
      issued -Stock
      options exercised
    
    
    59,858
    
    
    
    1
    
    
    
    533
    
    
    
    -
    
    
    
    -
    
    
    
    534Dividends
      declared
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (25,497
    )
    
    
    -
    
    
    
    (25,497
    )Balance,
      June 30, 2005
    
    
    11,098,683
    
    
    
    111
    
    
    
    3,013
    
    
    
    183,614
    
    
    
    -
    
    
    
    186,738Net
      earnings
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    10,722
    
    
    
    -
    
    
    
    10,722Shares
      issued -Stock
      options exercised
    
    
    62,825
    
    
    
    1
    
    
    
    556
    
    
    
    -
    
    
    
    -
    
    
    
    557Stock
      based compensation expense
    
    
    
    
    
    
    
    
    
    
    187
    
    
    
    
    
    
    
    
    
    
    
    187Dividends
      declared
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (4,677
    )
    
    
    -
    
    
    
    (4,677
    )Balance,
      June 30, 2006
    
    
    11,161,508
    
    
    
    112
    
    
    
    3,756
    
    
    
    189,659
    
    
    
    -
    
    
    
    193,527Comprehensive
      incomeNet
      earnings
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    9,888
    
    
    
    -
    
    
    
    9,888Unrealized
      loss on investment
      securities,
      net of tax
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (20
    )
    
    
    (20
    )Total
      comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,868Shares
      issued -Stock
      options exercised
    
    
    85,538
    
    
    
    -
    
    
    
    868
    
    
    
    -
    
    
    
    -
    
    
    
    868Shares
      repurchased
    
    
    (108,621
    )
    
    
    (1
    )
    
    
    (665
    )
    
    
    (915
    )
    
    
    -
    
    
    
    (1,581
    )Stock
      based compensation expense
    
    
    -
    
    
    
    -
    
    
    
    132
    
    
    
    -
    
    
    
    -
    
    
    
    132Dividends
      declared
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (5,147
    )
    
    
    -
    
    
    
    (5,147
    )11,138,425
    
    
    $
    111
    
    
    $
    4,091
    
    
    $
    193,485
    
    
    $
    (20
    )
    
    $
    197,667
 
 The
accompanying notes are an integral
 part of
these consolidated financial statements.
   33
  **California
First National Bancorp and Subsidiaries**
   **CONSOLIDATED
STATEMENTS OF CASH FLOWS**
 (in
thousands)
   Years
      Ended June 30,2007
    
    
    2006
    
    
    2005CASH
      FLOWS FROM OPERATING ACTIVITIES:
    
    
    
    
    
    
    
    (restated)Net
      Earnings
    
    $
    9,888
    
    
    $
    10,722
    
    
    $
    8,427Adjustments
      to reconcile net earnings to cash flows provided by (used for) operating
      activities:Depreciation
    
    
    601
    
    
    
    844
    
    
    
    839Stock-based
      compensation expense
    
    
    132
    
    
    
    187
    
    
    
    -Leased
      property on operating leases, net
    
    
    (323
    )
    
    
    (259
    )
    
    
    (170
    )Interest
      accretion of estimated residual values
    
    
    (1,285
    )
    
    
    (1,414
    )
    
    
    (1,519
    )Gain
      on sale of leased property and sales-type lease income
    
    
    (4,206
    )
    
    
    (11,034
    )
    
    
    (8,730
    )Provision
      for lease losses
    
    
    (120
    )
    
    
    482
    
    
    
    359Deferred
      income taxes, including income taxes payable
    
    
    (2,247
    )
    
    
    (5,966
    )
    
    
    (1,580
    )Decrease
      (increase) in receivables
    
    
    560
    
    
    
    (269
    )
    
    
    (172
    )Decrease
      (increase) in income taxes receivable
    
    
    413
    
    
    
    (4,744
    )
    
    
    -Net
      (decrease) increase in accounts payable and accrued
      liabilities
    
    
    (405
    )
    
    
    (217
    )
    
    
    2,221(Decrease)
      increase in customer lease deposits
    
    
    (764
    )
    
    
    171
    
    
    
    336Net
      cash provided by (used for) operating activities
    
    
    2,244
    
    
    
    (11,497
    )
    
    
    11CASH
      FLOWS FROM INVESTING ACTIVITIES:Investment
      in leases and transactions in process
    
    
    (139,527
    )
    
    
    (157,969
    )
    
    
    (154,664
    )Payments
      received on lease receivables
    
    
    126,386
    
    
    
    118,828
    
    
    
    112,667Proceeds
      from sales of leased property and sales-type leases
    
    
    7,838
    
    
    
    16,955
    
    
    
    13,958Purchase
      of investment securities
    
    
    (1,670
    )
    
    
    (26
    )
    
    
    (31
    )Pay
      down of investment securities
    
    
    209
    
    
    
    376
    
    
    
    2,379Net
      increase in other assets
    
    
    (550
    )
    
    
    (189
    )
    
    
    (406
    )Net
      cash used for investing activities
    
    
    (7,314
    )
    
    
    (22,025
    )
    
    
    (26,097
    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      increase in time certificates of deposit
    
    
    17,791
    
    
    
    39,422
    
    
    
    18,983Net
      (decrease) increase in demand and money market deposits
    
    
    (1,486
    )
    
    
    (4,354
    )
    
    
    10,515Payments
      to repurchase common stock
    
    
    (1,581
    )
    
    
    -
    
    
    
    -Dividends
      to stockholders
    
    
    (5,147
    )
    
    
    (4,677
    )
    
    
    (25,497
    )Proceeds from exercise of stock options
    
    
    868
    
    
    
    557
    
    
    
    534Net
      cash provided by financing activities
    
    
    10,445
    
    
    
    30,948
    
    
    
    4,535NET
      CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    5,375
    
    
    
    (2,574
    )
    
    
    (21,551
    )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    40,747
    
    
    
    43,321
    
    
    
    64,872CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    46,122
    
    
    $
    40,747
    
    
    $
    43,321SUPPLEMENTAL
      SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES(Decrease)
      increase in lease rentals assigned to lenders and related non-recourse
      debt
    
    $
    (2,185
    )
    
    $
    19
    
    
    $
    (9,136
    )Estimated
      residual values recorded on leases
    
    $
    (2,380
    )
    
    $
    (2,603
    )
    
    $
    (2,704
    )SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      paid during the year for:Interest
    
    $
    4,715
    
    
    $
    2,605
    
    
    $
    1,067Income
      Taxes
    
    $
    7,972
    
    
    $
    17,493
    
    
    $
    6,644
   The
accompanying notes are an integral
 part of
these consolidated financial statements.
   34
  **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") and its
subsidiaries have two principal lines of business, leasing and banking. The
Company leases high-technology and other capital assets to customers located
throughout the United States. The Company is also engaged in the re-marketing of
leased assets at lease expiration. The Company's banking subsidiary, California
First National Bank ("CalFirst Bank") is an FDIC-insured national bank that
gathers deposits using the telephone, the Internet, and direct mail from a
centralized location and leases capital assets to businesses and organizations
and provides business loans to fund the purchase of assets leased by third
parties.
 
 Basis
of Presentation
 
 The
consolidated financial statements include the accounts of California First
National Bancorp and its wholly owned subsidiaries, California First Leasing
Corporation and Amplicon, Inc., (collectively, the "Leasing Companies"), and
CalFirst Bank. All intercompany balances and transactions have been eliminated
in consolidation.
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles 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.
Actual results could differ from those estimates.
 
 Cash
and Cash Equivalents
 
 For
purposes of these statements, cash and cash equivalents include cash in banks,
cash in demand deposit accounts, money market accounts and federal funds sold,
all of which have initial maturities of less than ninety days. Included in cash
and cash equivalents at June 30, 2007 and 2006 was $25,954,581 and $18,789,000,
respectively, that was held by the Bank and was only available to fund the
Bank's operations.
 
 Investment
Securities
 
 Investment
securities that the Company has the intent and ability to hold until maturity
are classified as "held-to-maturity" and are stated at cost adjusted for
amortization of premium or accretion of discount under criteria established with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."  All other securities are
classified as available for sale and reported at fair value. Changes in
unrealized gains and losses, net of related deferred taxes, for
available-for-sale securities are recorded in comprehensive
income.  The Company did not have any "available for sale" securities
at June 30, 2006.
 
 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 on the balance sheet net of
unearned income as net investment in capital 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 Company's 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.
 
 35
 
  **California
First National Bancorp and Subsidiaries**
 For
capital 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 on
the balance sheet net of unearned income as net investment in capital
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.
 
 The
Company assigns, on a non-recourse basis, the minimum lease payments receivable
related to certain leases to financial institutions at fixed interest rates.
When leases are assigned to unaffiliated financial institutions without
recourse, the discounted value of the minimum lease payments receivable is
recategorized 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 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 selling, general and administrative ("S,G&A") costs
directly related to originating direct financing lease transactions is deferred
through a reduction to SG&A 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
Company's estimated residual. Rental income is recorded monthly or quarterly
when due.
 
 Allowance
for Lease Losses
 
 The
allowance for lease losses and residual valuation allowance is periodically
reviewed for adequacy considering levels of past due leases and non-performing
assets, lessees' 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 lessees or
industries may necessitate additions or deductions to the allowance for lease
losses or the residual valuation allowance.
 
 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.
 
 36
 
  **California
First National Bancorp and Subsidiaries**
 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 30,2007
    
    
    2006
    
    
    2005(in
      thousands, except share and per share amounts)Net
      earnings
    
    $
    9,888
    
    
    $
    10,722
    
    
    $
    8,427Weighted
      average number of common shares outstandingassuming
      no exercise of outstanding options
    
    
    11,184,208
    
    
    
    11,125,473
    
    
    
    11,073,194Dilutive
      stock options using the treasury stock method
    
    
    349,521
    
    
    
    335,439
    
    
    
    267,061Dilutive
      common shares outstanding
    
    
    11,533,729
    
    
    
    11,460,912
    
    
    
    11,340,255Basic
      earnings per common share
    
    $
    0.88
    
    
    $
    0.96
    
    
    $
    0.76Diluted
      earnings per common share
    
    $
    0.86
    
    
    $
    0.94
    
    
    $
    0.74
 
 The
Company did not include the following number of antidilutive stock options in
its calculation of diluted earnings per share:
 
 Years
      ended June 30,2007
    
    2006
    
    2005Antidilutive
      stock option shares
    11,543
    
    77,918
    
    151,795
 
 Recent
Accounting Pronouncements
 
 In
June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"),
"Accounting for Uncertainty in Income Taxes." This Interpretation clarifies the
accounting for uncertainty in income taxes recognized in a company's financial
statements in accordance with FASB Statement No. 109, "Accounting for
Income Taxes." FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. Guidance is also
provided on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. FIN 48 is effective for the Company
as of July 1, 2007. Based on the current assessment, the adoption of FIN
No. 48 is expected to increase beginning retained earnings by $750,000 to
$1.25 million upon adoption.
 
 In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, "Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements"
("SAB 108"). This guidance was issued to resolve diversity in current
practice among registrants. The bulletin establishes that registrants must
quantify the impact of correcting all misstatements on the financial statements
by using both the rollover and iron curtain approaches to evaluate the errors.
The rollover approach quantifies the misstatement based on the amount of the
error originating in the current year income statement and the iron curtain
approach quantifies a misstatement based on the amount of the error existing in
the balance sheet at the end of the fiscal year. The bulletin contains guidance
on correcting errors under the dual approach and transition guidance. The
adoption of SAB 108 did not have a material impact on our financial
position or results of operations.
 
 In
September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements."**The statement defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The statement
also establishes a framework for measuring fair value by creating a three-level
fair value hierarchy that ranks the quality and reliability of information used
to determine fair value, and requires new disclosures of assets and liabilities
measured at fair value based on their level in the hierarchy. We do not expect
the adoption of this statement to have a material impact on our financial
position or results of operations.
 37
 
  California
First National Bancorp and Subsidiaries
 In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities; including an Amendment of FASB
Statement No. 115" ("FAS 159").  FAS 159 permits entities with an
irrevocable option to report most financial assets and liabilities at fair
value, with subsequent changes in fair value reported in earnings. The election
can be applied on an instrument-by-instrument basis. The statement establishes
presentation and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes for similar types
of assets and liabilities.  Unrealized gains and losses on items for
which the fair value option has been elected will be recognized in earnings at
each subsequent reporting date. The provisions of FAS 159 are effective for the
fiscal year beginning July 1, 2008. The Company is currently evaluating the
impact of the provisions of FAS 159.
 
 **Note
2 - Restatement:**
 
 Subsequent
to the issuance of the Company's June 30, 2005 financial statements, the Company
determined that (1) a restatement of prior period results needed to be made to
correctly account for certain lease extensions as operating leases instead of as
sales-type leases, and (2) certain information in the Consolidated Statements of
Cash Flows should be restated to comply with the guidance under Statement of
Financial Accounting Standards No. 95, "Statement of Cash Flows" ("SFAS No.
95").
 
 Accounting
for Lease Extensions
 
 A review
of the accounting for lease extensions accounted for as sales-type leases
identified that certain lease extensions classified as sales-type leases should
have been classified as operating leases. The difference in lease classification
results in different timing of income recognition within the extension term and
a change in classification of such leases on the balance sheet from net
investment in capital leases to property on operating leases.
 
 The effect
of the restatement on the Company's previously reported Consolidated Statement
of Earnings for the year ended June 30, 2005 is as follows:
 
 Year
      ended June 30, 2005As
      Previously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustment
    
    
    Restated(dollars
      in thousands, except per share amounts)Operating
      and sales-type income
    
    $
    3,975
    
    
    $
    404
    
    
    $
    4,379Earnings
      before income taxes
    
    $
    13,080
    
    
    $
    404
    
    
    $
    13,484Income
      taxes
    
    
    4,905
    
    
    
    152
    
    
    
    5,057Net
      earnings
    
    $
    8,175
    
    
    $
    252
    
    
    $
    8,427Basic
      earnings per share
    
    $
    0.74
    
    
    $
    0.02
    
    
    $
    0.76Diluted
      earnings per share
    
    $
    0.72
    
    
    $
    0.02
    
    
    $
    0.74
 
 Consolidated
Statement of Cash Flows
 
 Certain
reclassifications have been made to the Consolidated Statement of Cash Flows for
the year ended June 30, 2005 in order to a) recognize cash flows related to the
gain on sale of leased property and sales-type lease income as investing
activities rather than operating activities, b) recognize cash flows related to
property acquired for transactions in process as investing activities rather
than as operating cash flows, and c) separately present cash outflows and
inflows related to lease investments. The restatement solely affected the
classification of these activities and the subtotals of cash flows from
operating and investing activities presented in the Consolidated Statements of
Cash Flows, but they had no impact on the net increase (decrease) in
cash and cash equivalents set forth in such statement for any previously
reported periods.
 
 38
 
  California
First National Bancorp and Subsidiaries
 The effect
of the restatement on the Company's previously reported Consolidated Statement
of Cash Flows for the year ended June 30, 2005 is as follows:
 
 (in
      thousands)
    
    Year
      ended June 30, 2005As
      Previously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedCASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Earnings
    
    $
    8,175
    
    
    $
    252
    
    
    $
    8,427Adjustments
      to reconcile net earnings to cash flowsprovided
      by (used for) operating activities:Depreciation
    
    
    60
    
    
    
    779
    
    
    
    839Stock-based
      compensation expense
    
    
    -
    
    
    
    -
    
    
    
    -Sale
      of leased property previously on operating leases, net
    
    
    62
    
    
    
    (62
    )
    
    
    -Leased
      property on operating leases, net
    
    
    -
    
    
    
    (170
    )
    
    
    (170
    )Interest
      accretion of estimated residual values
    
    
    (1,519
    )
    
    
    -
    
    
    
    (1,519
    )Decrease
      in estimated residual values
    
    
    5,228
    
    
    
    (5,228
    )
    
    
    -Gain
      on sale of leased property and sales-type lease income
    
    
    -
    
    
    
    (8,730
    )
    
    
    (8,730
    )Provision
      for lease losses
    
    
    -
    
    
    
    -
    
    
    
    -Property
      acquired for transactions in process to be sold
    
    
    (3,571
    )
    
    
    3,571
    
    
    
    -Deferred
      income taxes, including income taxes payable
    
    
    (1,732
    )
    
    
    152
    
    
    
    (1,580
    )Decrease
      in income taxes receivable
    
    
    -
    
    
    
    -
    
    
    
    -Decrease
      (increase) in receivables
    
    
    -
    
    
    
    -
    
    
    
    -Lease
      receivables and transactions in process held for sale
    
    
    -
    
    
    
    -
    
    
    
    -Proceeds
      from lease receivables held for sale
    
    
    -
    
    
    
    -
    
    
    
    -Net
      increase in accounts payable and accrued liabilities
    
    
    -
    
    
    
    -
    
    
    
    -Increase
      in customer lease deposits
    
    
    -
    
    
    
    -
    
    
    
    -All
      other operating cash flows
    
    
    2,744
    
    
    
    -
    
    
    
    2,744Net
      cash provided by (used for) operating activities
    
    
    9,447
    
    
    
    (9,436
    )
    
    
    11CASH
      FLOWS FROM INVESTING ACTIVITIES:Net
      increase in minimum lease payments receivable
    
    
    (35,014
    )
    
    
    35,014
    
    
    
    -Purchase
      of leased property on operating leases
    
    
    (60
    )
    
    
    60
    
    
    
    -Investment
      in leases and transactions in process
    
    
    -
    
    
    
    (154,664
    )
    
    
    (154,664
    )Payments
      received on lease transactions
    
    
    -
    
    
    
    112,667
    
    
    
    112,667Estimated
      residual values recorded on leases
    
    
    (2,955
    )
    
    
    2,955
    
    
    
    -Proceeds
      from sales of leased property and sales-type leases
    
    
    -
    
    
    
    13,958
    
    
    
    13,958Purchase
      of investment securities
    
    
    (31
    )
    
    
    -
    
    
    
    (31
    )Pay
      down of investment securities
    
    
    2,379
    
    
    
    -
    
    
    
    2,379Net
      decrease in other assets
    
    
    148
    
    
    
    (554
    )
    
    
    (406
    )Net
      cash used for investing activities
    
    
    (35,533
    )
    
    
    9,436
    
    
    
    (26,097
    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      increase in time certificates of deposit
    
    
    18,983
    
    
    
    -
    
    
    
    18,983Net
      (decrease) increase in demand and money market deposits
    
    
    10,515
    
    
    
    -
    
    
    
    10,515Payments
      to repurchase common stock
    
    
    -
    
    
    
    -
    
    
    
    -Dividends
      to stockholders
    
    
    (25,497
    )
    
    
    -
    
    
    
    (25,497
    )Proceeds
      from exercise of stock options
    
    
    534
    
    
    
    -
    
    
    
    534Net
      cash provided by financing activities
    
    
    4,535
    
    
    
    -
    
    
    
    4,535NET
      CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (21,551
    )
    
    
    -
    
    
    
    (21,551
    )CASH
      & CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    64,872
    
    
    
    -
    
    
    
    64,872CASH
      & CASH EQUIVALENTS AT END OF PERIOD
    
    $
    43,321
    
    
    $
    -
    
    
    $
    43,321SUPPLEMENTAL
      SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIESDecrease
      in lease rentals assigned to lenders and related non-recourse
      debt
    
    $
    (9,136
    )
    
    $
    -
    
    
    $
    (9,136
    )Estimated
      residual values recorded on leases
    
    $
    -
    
    
    $
    (2,704
    )
    
    $
    (2,704
    )
 
 
 39
  **California
First National Bancorp and Subsidiaries**
   **Note
3 - Investment Securities:**
 
 The
amortized cost, fair value, and carrying value of investment securities held at
June 30, 2007 were as follows:
 
 Amortized
    
    
    Gross
      Unrealized
    
    
    Fair
    
    
    CarryingCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Value(in
      thousands)Held-to-maturity:Federal
      Reserve Bank Stock
    
    $
    1,055
    
    
    $
    -
    
    
    $
    -
    
    
    $
    1,055
    
    
    $
    1,055Mortgage-backed
      security
    
    
    320
    
    
    
    -
    
    
    
    (24
    )
    
    
    296
    
    
    
    320Total
      held-to-maturities
    
    
    1,375
    
    
    
    -
    
    
    
    (24
    )
    
    
    1,351
    
    
    
    1,375Available-for-saleMarketable
      securities
    
    
    1,220
    
    
    
    -
    
    
    
    (32
    )
    
    
    1,188
    
    
    
    1,188Total
      investment securities
    
    $
    2,595
    
    
    $
    -
    
    
    $
    (56
    )
    
    $
    2,539
    
    
    $
    2,563
 
 The
unrealized loss on the Company's investment in the mortgaged-backed securities
was caused by changes in interest rates. The contractual cash flows are
guaranteed by an agency of the U. S. government, and accordingly, it is expected
that the securities would not be settled at a price less than the amortized cost
of the Company's investment.  Because the decline in market value is
attributable to changes in interest rates and not credit quality, and the
Company has the ability and intent to hold those investments to maturity, the
Company does not consider those investments to be other-than-temporarily
impaired at June 30, 2007.
 
 There was
no decline in the fair value of the investment available-for-sale below the cost
that was deemed to be other than temporary at June 30, 2007.
 
 The
amortized cost, fair value, and carrying value of investment securities held at
June 30, 2006 were as follows:
 
 Amortized
    
    
    Gross
      Unrealized
    
    
    Fair
    
    
    CarryingCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Value(in
      thousands)Held-to-maturity:Federal
      Reserve Bank Stock
    
    $
    605
    
    
    
    -
    
    
    $
    -
    
    
    $
    605
    
    
    $
    605Mortgage-backed
      security
    
    
    529
    
    
    
    -
    
    
    
    (38
    )
    
    
    491
    
    
    
    529Total
      investment securities
    
    $
    1,134
    
    
    
    -
    
    
    $
    (38
    )
    
    $
    1,096
    
    
    $
    1,134
 
 The
amortized cost and estimated fair value of investment securities at June 30,
2007, by contractual maturity, are shown below.  Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
 
 Amortized
    
    
    FairCost
    
    
    Value(in
      thousands)Held-to-maturity:Due
      after 10 years
    
    $
    1,375
    
    
    $
    1,351Available-for-saleLess than 12 months
    
    
    1,220
    
    
    
    1,188$
    2,595
    
    
    $
    2,539
 
 40
 
  **California
First National Bancorp and Subsidiaries**
 **Note
4 - Receivables:**
 
 The
Company's receivables consist of the following:
 
 June
      30,2007
    
    
    2006(in
      thousands)Other
      lessee receivables
    
    $
    1,344
    
    
    $
    1,732Miscellaneous
      receivables
    
    
    1
    
    
    
    173$
    1,345
    
    
    $
    1,905
 
 **Note
5 - Capital Leases:**
 
 The
Company's net investment in capital leases consists of the
following:
 
 June
      30,(in
      thousands)
    
    2007
    
    
    2006Minimum
      lease payments receivable
    
    $
    253,802
    
    
    $
    234,337Estimated
      residual value
    
    
    12,847
    
    
    
    12,644266,649
    
    
    
    246,981Less
      allowance for lease losses
    
    
    (3,124
    )
    
    
    (3,339
    )Less
      valuation allowance for estimated residual value
    
    
    (152
    )
    
    
    (230
    )263,373
    
    
    
    243,412Less
      unearned income
    
    
    (31,543
    )
    
    
    (29,456
    )Net
      investment in capital leases
    
    $
    231,830
    
    
    $
    213,956
 
 The
minimum lease payments receivable and estimated residual value are discounted
using the internal rate of return method related to each specific capital
lease.  Unearned income includes the offset of initial direct costs of
$4,609,693 and $4,275,670 at June 30, 2007 and 2006, respectively.
 
 At June
30, 2007, 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:
 
 Years
      ending
      June
      30,
    
    Minimum
      Lease
      Payments
      Receivable
    
    
    Estimated
      Residual
      Value
    
    
    Total(in
      thousands)2008
    
    $
    109,482
    
    
    $
    2,864
    
    
    $
    112,3462009
    
    
    80,420
    
    
    
    4,678
    
    
    
    85,0982010
    
    
    42,124
    
    
    
    3,402
    
    
    
    45,5262011
    
    
    15,651
    
    
    
    1,228
    
    
    
    16,8792012
    
    
    5,530
    
    
    
    397
    
    
    
    5,927Thereafter
    
    
    595
    
    
    
    278
    
    
    
    873253,802
    
    
    
    12,847
    
    
    
    266,649Less
      unearned income
    
    
    (28,709
    )
    
    
    (2,834
    )
    
    
    (31,543
    )Less
      allowances
    
    
    (3,124
    )
    
    
    (152
    )
    
    
    (3,276
    )$
    221,969
    
    
    $
    9,861
    
    
    $
    231,830
 
 41
  **California
First National Bancorp and Subsidiaries**
 
 A summary of the
allowance for lease losses and selected statistics is as follows:
 
 (in
      thousands)
    
    2007
    
    
    2006Allowance
      for lease losses at beginning of year
    
    $
    3,569
    
    
    $
    3,427Charge-off
      of lease receivables
    
    
    (850
    )
    
    
    (391
    )Recovery
      of amounts previously written off
    
    
    677
    
    
    
    51Provision
      for lease losses
    
    
    (120
    )
    
    
    482Allowance
      for lease losses at end of year
    
    $
    3,276
    
    
    $
    3,569Allowance
      for lease losses as percent of netinvestment
      in capital leases before allowances
    
    
    1.4
    %
    
    
    1.6
    %
 
 The allowance for lease losses set forth above does not include a valuation allowance of $68,000 that is recorded as an offset to Property acquired for transactions in process.
 
 Non-recourse
debt, which relates to the discounting of capital lease receivables, bears
interest at rates ranging from 6.74% to 8.13%. Maturities of such obligations at
June 30, 2007 are as follows:
 
 Years
      ending
    
    CapitalJune
      30,
    
    Leases(in
      thousands)2008
    
    $
    2,3092009
    
    
    1,6692010
    
    
    1,0992011
    
    
    5682012
    
    
    39Total
      non-recourse debt
    
    
    5,684Deferred
      interest expense
    
    
    555Discounted
      lease rentals assigned to lenders
    
    $
    6,239
 
 Deferred
interest expense of $555,000 at June 30, 2007 will be amortized against direct
finance income related to the Company's discounted lease rentals assigned to
lenders of $6,239,000 using the effective yield method over the applicable lease
term.
 
 **Note
6 - Credit Facilities:**
 
 In March
2007, the Leasing Companies entered into amendment 1 to the $25 million line of
credit with a bank ("Lender").  The agreement provides for borrowings
based on the Lender's prime rate or LIBOR, at the Leasing Companies' option,
requires a commitment fee on the unused line balance and allows for advances
through March 31, 2008.  The agreement is unsecured, however, the
Leasing Companies' obligations are guaranteed by the Company.  Under
the provisions of the agreement, the Leasing Companies must maintain a minimum
net worth and profitability.  Pursuant to the agreement, the Leasing
Companies are prohibited from repaying any indebtedness owed by them to the
Company. A repayment of principle to the Company was made during fiscal 2007,
and the Lender waived compliance with the covenant for the period in which it
occurred.  No borrowings have been made on this line of credit as of
August 31, 2007.
 
 **Note
7 - Fair Value of Financial Instruments:**
 
 The
Company has estimated the fair value of its financial instruments in compliance
with Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("SFAS No. 107").  For cash and
cash equivalents and demand and savings deposits the estimated fair value is
based on respective market prices, which was equal to book value for all periods
presented.  For investment securities, the fair values were based on
quoted market prices when available.  For securities, which had no
quoted market prices, fair values were estimated by discounting cash flows using
current rates on similar securities.  For time certificates of
deposits, the fair values were estimated by discounting cash flows using
interest rates currently offered for like liabilities with similar
terms.  The fair value of the Company's net investment in capital
leases is not a required disclosure under SFAS No. 107.
 
 42
 
  California
First National Bancorp and Subsidiaries
 The
estimated fair values of financial instruments were as follows:
 
 June
      30, 2007
    
    
    June
      30, 2006Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedAmount
    
    
    Fair
      Value
    
    
    Amount
    
    
    Fair
      Value(in
      thousands)Financial
      Assets:Cash
      and cash equivalents
    
    $
    46,122
    
    
    $
    46,122
    
    
    $
    40,747
    
    
    $
    40,747Investment
      securities
    
    
    2,563
    
    
    
    2,539
    
    
    
    1,134
    
    
    
    1,096Financial
      Liabilities:Demand and savings deposits
    
    
    8,292
    
    
    
    8,292
    
    
    
    9,778
    
    
    
    9,778Time
      certificates of deposit
    
    $
    97,178
    
    
    $
    93,032
    
    
    $
    79,388
    
    
    $
    76,106
 
 **Note
8 - Income Taxes:**
 
 The
Company accounts for its income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for 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.  From time to time, various governmental taxing authorities
audit the Company.  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 30,2007
    
    
    2006
    
    
    2005(in
      thousands)Current
      tax expense:Federal
    
    $
    6,954
    
    
    $
    11,153
    
    
    $
    8,250State
    
    
    1,293
    
    
    
    1,229
    
    
    
    1,8138,247
    
    
    
    12,382
    
    
    
    10,063Deferred
      tax expense (benefit):Federal
    
    
    (1,789
    )
    
    
    (5,026
    )
    
    
    (3,945
    )State
    
    
    (333
    )
    
    
    (573
    )
    
    
    (1,061
    )(2,122
    )
    
    
    (5,599
    )
    
    
    (5,006
    )$
    6,125
    
    
    $
    6,783
    
    
    $
    5,057
 
 43
 
  **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
      30,2007
    
    
    2006(in
      thousands)Deferred
      income tax liabilities:Tax
      operating leases
    
    $
    7,613
    
    
    $
    9,933Deferred
      selling expenses
    
    
    1,890
    
    
    
    1,753Depreciation
      other than on operating leases
    
    
    (98
    )
    
    
    44Total
      liabilities
    
    
    9,405
    
    
    
    11,730Deferred
      income tax assets:Allowances
      and reserves
    
    
    (1,369
    )
    
    
    (1,489
    )State
      income taxes
    
    
    (453
    )
    
    
    (430
    )Stock-based
      compensation
    
    
    (103
    )
    
    
    (72
    )Total
      assets
    
    
    (1,925
    )
    
    
    (1,991
    )Net
      deferred income tax liabilities
    
    $
    7,480
    
    
    $
    9,739
 
 The
differences between the federal statutory income tax rate and the Company's
effective tax rate are as follows:
 
 Years
      ended June 30,2007
    
    
    2006
    
    
    2005Federal
      statutory rate
    
    
    35.00
    %
    
    
    35.00
    %
    
    
    35.00
    %State
      tax, net of federal benefit
    
    
    5.25
    
    
    
    4.70
    
    
    
    4.70Other
    
    
    (2.00
    )
    
    
    (0.95
    )
    
    
    (2.20
    )Effective
      rate
    
    
    38.25
    %
    
    
    38.75
    %
    
    
    37.50
    %
 
 At June
30, 2007 and 2006, the Company had an income taxes receivable balance of
$4,331,000 and $4,744,000, respectively.
 
 **Note
9 - Capital Structure and Stock-based Compensation:**
 
 At June
30, 2007, 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.
 
 In
November 1995, the Company's stockholders approved the 1995 Equity Participation
Plan (the "1995 Plan"), which replaced a previous 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
December 15, 2004, the Company paid a special dividend of $2.00 per outstanding
common share, which totaled $22.2 million, to stockholders of record on December
1, 2004.  In connection with the distribution, stock options under the
Company's two stock option plans held by employees and directors of the Company
that were not exercised prior to the distribution date were re-priced to
preserve the economic benefit of the stock options at such time.  The
re-pricing was implemented in accordance with the provisions for an equity
restructuring under FASB Interpretation No. 44 ("FIN 44"), "Accounting for
Certain Transactions Involving Stock Compensation -- an Interpretation of APB
Opinion No. 25."  Accordingly, no compensation expense resulted from
the re-pricing of the options.  However, because FIN 44 limited the
re-pricing adjustments, an additional 136,618 options were granted in order to
preserve the economic benefit of the stock options.  The exercise
price of the re-priced options range from $5.20 to $15.27.
 
 44
 
  California
First National Bancorp and Subsidiaries
 On July 1,
2005, the Company implemented Statement of Financial Accounting Standards
123(R), "Share-Based Payments" ("SFAS 123R") which replaced SFAS 123 and
supercedes APB Opinion No. 25 and the related implementation guidance.
SFAS 123R 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 and prior periods are not restated.  Under this
method, compensation expense is recognized using the fair-value based method for
all new awards granted after July 1, 2005.  Additionally, compensation
expense for unvested stock options that are outstanding at July 1, 2005 is
recognized over the requisite service period based on the fair value of those
options as previously calculated at the grant date under the pro-forma
disclosures of SFAS 123. The fair value of each grant is estimated using the
Black-Scholes option-pricing model.
 
 During the
years ended June 30, 2007 and 2006, the Company recognized pre-tax stock-based
compensation expense of $132,108 and $187,348, respectively, as a result of
adopting SFAS 123R. Such expense related to options granted during the fiscal
years 2002 through 2004.  The Company has not awarded any new grants
since fiscal 2004 and has calculated the stock-based compensation expense based
upon the original grant date fair value as allowed under SFAS 123R.
 
 The
following table summarizes activity related to stock options for the periods
indicated:
 
 As
      of June, 302007
    
    
    2006
    
    
    2005Shares
    
    
    Weighted
      Average
      Exercise
      Price
    
    
    Shares
    
    
    Weighted
      Average
      Exercise
      Price
    
    
    Shares
    
    
    Weighted
      Average
      Exercise
      PriceOptions
      outstanding at
      the
      beginning of the year
    
    
    945,767
    
    
    $
    9.02
    
    
    
    1,017,518
    
    
    $
    9.02
    
    
    
    944,758
    
    
    $
    10.34Granted
      (1)
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    136,618
    
    
    
    9.01Exercised
    
    
    (85,538
    )
    
    
    10.15
    
    
    
    (62,825
    )
    
    
    8.86
    
    
    
    (59,858
    )
    
    
    8.92Canceled/expired
    
    
    -
    
    
    
    -
    
    
    
    (8,926
    )
    
    
    9.33
    
    
    
    (4,000
    )
    
    
    11.13Options
      outstanding at
      the
      end of the year
    
    
    860,229
    
    
    $
    8.91
    
    
    
    945,767
    
    
    $
    9.02
    
    
    
    1,017,518
    
    
    $
    9.02Shares
      available for issuance
    
    
    1,175,263
    
    
    
    
    
    
    
    1,063,648
    
    
    
    
    
    
    
    945,735Options
      exercisable
    
    
    817,747
    
    
    
    
    
    
    
    875,811
    
    
    
    
    
    
    
    824,284
  
 (1)
    All
      2005 option grants were the result of the special dividend in December
      2004, which resulted in all unexercised options as of the record date
      being re-priced under FIN 44 to preserve the economic benefit of the stock
      options at such time.
 
 As
      of June 30, 2007Options
      outstanding
    
    Options
      exercisableRange
      of
      Exercise
      Prices
    
    Number
      Outstanding
    
    Weighted
      Average
      Remaining
      Contractual
      Life (in
      years)
    
    Weighted
      Average
      Exercise
      Price
    
    Number
      Exercisable
    
    Weighted
      Average
      Exercise
      Price$5.20
      - $  8.81
    
    580,081
    
    3.41
    
    $  7.49
    
    556,993
    
    $  7.449.85
      -  15.27
    
    280,148
    
    2.79
    
    11.83
    
    260,754
    
    11.82$5.20
      - $15.27
    
    860,229
    
    3.21
    
    $  8.91
    
    817,747
    
    $  8.94
 
 45
  **California
First National Bancorp and Subsidiaries**
 
 At June
30, 2007, the aggregate intrinsic value of options outstanding and options
exercisable were $4,890,000 and $4,706,000, respectively.  The total
intrinsic value of options exercised during the year ended June 30, 2007 was
$340,000.  As of June 30, 2007, approximately $75,000 of total
unrecognized compensation expense related to unvested shares is expected to be
recognized over a weighted average period of approximately 16
months.
 
 Prior to
the adoption to SFAS 123R on July 1, 2005, the Company accounted for stock-based
awards using the intrinsic value method in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees.  In accordance with
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure," (SFAS No. 148), the Company adopted the disclosure requirements
of SFAS No. 123 as amended by SFAS No. 148 through June 30, 2005.
 
 The
following table illustrates the effect on the year ended June 30, 2005 on net
income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS 123, as amended by SFAS No. 148:
 
 (in
      thousands, except per share amounts)
    
    Year
      endedJune
      30, 2005Net
      earnings
    
    $
    8,427Proforma
      compensation
    
    
    (522
    )Income
      tax effect
    
    
    196Proforma
      net earnings
    
    $
    8,101Proforma
      Basic EPS
    
    $
    0.73Proforma
      Diluted EPS
    
    $
    0.71
 
 **Note
10 - 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 Company's
financial statements. The Company currently is required to maintain (i) Tier 1
risked-based capital equal to at least six percent (6%) of its risk-weighted
assets; (ii) total risked-based capital (the sum of Tier 1 and Tier 2 capital)
equal to ten percent (10%) of risk-weighted assets; and (iii) a minimum Tier 1
"leverage ratio" (measuring Tier 1 risked-based capital as a percentage of
adjusted total assets) of at least five percent (5%). CalFirst Bank is subject
to risk-based and leverage capital requirements mandated by the Office of the
Comptroller of the Currency. The Bank is required to maintain (i) a minimum
ratio of Tier 1 risked-based capital to risk-adjusted assets of four percent
(4%); (ii) a minimum ratio of qualifying total capital to risk-adjusted assets
of eight percent (8%) and (iii) for the first three years of operations, a
minimum ratio of Tier 1 risked-based capital to adjusted total assets, leverage
ratio, of 5%.
 
  46
 
  **California
First National Bancorp and Subsidiaries**
  The following table presents capital and capital ratio information for the Company and its banking subsidiary as of June 30, 2007 and 2006.  At June 30, 2007, the Company and CalFirst Bank exceeded all capital requirements by significant amounts.
  June
      30,2007
    
    
    2006(dollars
      in thousands)**California
      First National Bancorp**
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTier
      1 risk-based capital
    
    $
    197,688
    
    
    
    60.1
    %
    
    $
    193,527
    
    
    
    62.1
    %Total
      risk-based capital
    
    $
    200,368
    
    
    
    60.9
    %
    
    $
    196,096
    
    
    
    63.2
    %Tier
      1 leverage capital
    
    $
    197,688
    
    
    
    62.0
    %
    
    $
    193,527
    
    
    
    64.5
    %**California
      First National Bank**Tier
      1 risk-based capital
    
    $
    38,136
    
    
    
    21.7
    %
    
    $
    36,333
    
    
    
    26.3
    %Total
      risk-based capital
    
    $
    39,271
    
    
    
    22.3
    %
    
    $
    37,354
    
    
    
    27.0
    %Tier
      1 leverage capital
    
    $
    38,136
    
    
    
    23.9
    %
    
    $
    36,333
    
    
    
    28.3
    %
 
 **Note
11 - Commitments and Contingencies:**
 
 Leases
 
 The
Company leases its corporate offices under an operating lease that expires in
fiscal 2009.  Rent expense was $1,117,486 (2007), $1,063,521 (2006)
and $979,637, (2005).
 
 Future
      minimumYears
      ending
    
    lease
      payments___June
      30,__
    
    (in
      thousands)2008
    
    $
    1,1122009
    
    
    186$
    1,298
 
 Litigation
 
 From time
to time, the Company is party to legal actions and administrative
proceedings and subject to various claims arising out of the Company's 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  $133,015 (2007), $122,924 (2006) and $135,056 (2005).
 
 **Note
12 - Segment Reporting:**
 
 The
Company has two leasing subsidiaries, Amplicon and CalFirst Leasing ("Leasing
Companies"), involved in leasing and financing capital assets, and re-marketing
leased assets at lease expiration.
 
 The
Company's banking subsidiary, CalFirst Bank, is an FDIC-insured national bank
that gathers deposits from a centralized location and is involved in leasing and
remarketing capital assets in a manner similar to the Leasing Companies.
CalFirst Bank also provides business loans to fund the purchase of assets leased
by the Leasing Companies and other third parties.
 
 
 47
 
  **California
First National Bancorp and Subsidiaries**
  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 segment’s financial results for 2007, 2006 and 2005:
  Bancorp
      andLeasing
    
    
    
    
    
    EliminatingCompanies
    
    
    CalFirst
      Bank
    
    
    Entries
    
    
    Consolidated(in
      thousands)Year
      end June 30, 2007Net
      direct finance and interest incomeafter
      provision for lease losses
    
    $
    17,121
    
    
    $
    5,026
    
    
    $
    170
    
    
    $
    22,317Other
      income
    
    
    8,213
    
    
    
    944
    
    
    
    5
    
    
    
    9,162Gross
      profit
    
    $
    25,334
    
    
    $
    5,970
    
    
    $
    175
    
    
    $
    31,479Net
      earnings
    
    $
    5,926
    
    
    $
    1,797
    
    
    $
    2,165
    
    
    $
    9,888Total
      assets
    
    $
    172,881
    
    
    $
    167,160
    
    
    $
    (10,854
    )
    
    $
    329,187Year
      end June 30, 2006Net
      direct finance and interest incomeafter
      provision for lease losses
    
    $
    13,315
    
    
    $
    3,743
    
    
    $
    57
    
    
    $
    17,115Other
      income
    
    
    14,935
    
    
    
    733
    
    
    
    -
    
    
    
    15,668Gross
      profit
    
    $
    28,250
    
    
    $
    4,476
    
    
    $
    57
    
    
    $
    32,783Net
      earnings
    
    $
    8,248
    
    
    $
    1,278
    
    
    $
    1,196
    
    
    $
    10,722Total
      assets
    
    $
    180,876
    
    
    $
    133,793
    
    
    $
    (314
    )
    
    $
    314,355Year
      end June 30, 2005Net
      direct finance and interest incomeafter
      provision for lease losses
    
    $
    12,098
    
    
    $
    2,959
    
    
    $
    35
    
    
    $
    15,092Other
      income
    
    
    13,844
    
    
    
    593
    
    
    
    (6
    )
    
    
    14,431Gross
      profit
    
    $
    25,942
    
    
    $
    3,552
    
    
    $
    29
    
    
    $
    29,523Net
      earnings
    
    $
    7,123
    
    
    $
    1,242
    
    
    $
    62
    
    
    $
    8,427Total
      assets
    
    $
    198,461
    
    
    $
    94,073
    
    
    $
    (14,042
    )
    
    $
    278,492
   48
 
  **California
First National Bancorp and Subsidiaries**
 **Note
13 - California First National Bancorp (Parent Only) Financial
Information:**
 
 The
condensed financial statements of California First National Bancorp as of June
30, 2007, and 2006 and for the years ended June 30, 2007 and 2006 are presented
below:
 
 **Condensed
      Balance Sheets**
    
    June
      30,(in
      thousands, except share amounts)
    
    2007
    
    
    2006AssetsCash
      and cash equivalents
    
    $
    5,911
    
    
    $
    5,117Intercompany
      receivables
    
    
    512
    
    
    
    252Investments
      in bank subsidiary
    
    
    38,136
    
    
    
    36,339Investments
      in non-bank subsidiaries
    
    
    106,676
    
    
    
    100,770Intercompany
      note receivable
    
    
    48,041
    
    
    
    51,898Other
      assets
    
    
    1,640
    
    
    
    712Premises
      and other fixed assets
    
    
    331
    
    
    
    425$
    201,247
    
    
    $
    195,513LiabilitiesAccrued
      liabilities
    
    $
    1,686
    
    
    $
    1,825Payable
      to non-bank subsidiaries
    
    
    1,894
    
    
    
    1613,580
    
    
    
    1,986Stockholders'
      EquityPreferred
      stock; 2,500,000 shares authorized, none issued
    
    
    -
    
    
    
    -Common
      stock, $0.01 par value; 20,000,000 shares authorized;11,138,425
      (2007) and 11,161,508 (2006)issued
      and outstanding
    
    
    111
    
    
    
    112Additional
      paid-in capital
    
    
    4,242
    
    
    
    3,907Retained
      earnings
    
    
    193,314
    
    
    
    189,508197,667
    
    
    
    193,527$
    201,247
    
    
    $
    195,513
 
 **Condensed
      Statements of Earnings**
    
    June
      30,(in
      thousands)
    
    2007
    
    
    2006IncomeDividends
      from non-bank subsidiary
    
    $
    -
    
    
    $
    32,000Management
      fee income from bank subsidiary
    
    
    247
    
    
    
    235Management
      fee income from non-bank subsidiaries
    
    
    1,054
    
    
    
    1,290Interest
      income from non-bank subsidiaries
    
    
    4,071
    
    
    
    3,318Other
      interest income
    
    
    175
    
    
    
    575,547
    
    
    
    36,900ExpensesSelling,
      general and administrative
    
    
    2,140
    
    
    
    2,559Interest
      expense
    
    
    -
    
    
    
    -2,140
    
    
    
    2,559Income
      before taxes and equity in undistributed earnings of
      subsidiaries
    
    
    3,407
    
    
    
    34,341Income
      tax expense
    
    
    1,242
    
    
    
    1,1452,165
    
    
    
    33,196Equity
      in undistributed earnings of subsidiaries
    
    
    7,703
    
    
    
    (22,474
    )Total
      comprehensive income
    
    $
    9,868
    
    
    $
    10,722
   49
   **California
First National Bancorp and Subsidiaries**
   **Condensed
      Statements of Cash Flows**
    
    June
      30,(in
      thousands)
    
    2007
    
    
    2006CASH
      FLOWS FROM OPERATING ACTIVITIES:Total
      comprehensive income
    
    $
    9,868
    
    
    $
    10,722Adjustments
      to reconcile net earnings to cash flows:Stock-based compensation expense
    
    
    132
    
    
    
    187Provision
      for deferred income taxes
    
    
    1,242
    
    
    
    1,145Equity
      in over distributed earnings of subsidiaries
    
    
    (7,703
    )
    
    
    22,474Net
      change in other liabilities
    
    
    (139
    )
    
    
    341Net
      change in other assets
    
    
    (2,170
    )
    
    
    214Other,
      net
    
    
    94
    
    
    
    130Net
      cash provided by operating activities
    
    
    1,324
    
    
    
    35,213CASH
      FLOWS FROM INVESTING ACTIVITIES:Payments for investments in and (advances) to subsidiaries
    
    
    5,330
    
    
    
    (27,304
    )Net
      cash provided by (used for) by investing activities
    
    
    5,330
    
    
    
    (27,304
    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of common stock
    
    
    868
    
    
    
    557Payments
      to repurchase stock
    
    
    (1,581
    )
    
    
    -Dividends
      paid
    
    
    (5,147
    )
    
    
    (4,677
    )Net
      cash used for financing activities
    
    
    (5,860
    )
    
    
    (4,120
    )NET
      CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    794
    
    
    
    3,789CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    5,117
    
    
    
    1,328CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    5,911
    
    
    $
    5,117
 
 **Note
14 - Selected Quarterly Financial Data (Unaudited):**
 
 Summarized
quarterly financial data for the fiscal years ended June 30, 2007 and 2006 is as
follows:
 
 Three
      months endedSeptember
      30,
    
    
    December
      31,
    
    
    March
      31,
    
    
    June
      30,(in
      thousands except per share amounts)2007Direct
      finance income
    
    $
    5,464
    
    
    $
    6,659
    
    
    $
    6,324
    
    
    $
    6,399Net
      direct finance and interest incomeAfter
      provision for lease losses
    
    
    4,833
    
    
    
    6,219
    
    
    
    5,545
    
    
    
    5,720Gross
      profit
    
    
    7,028
    
    
    
    8,815
    
    
    
    7,890
    
    
    
    7,746Net
      earnings
    
    $
    2,025
    
    
    $
    3,066
    
    
    $
    2,401
    
    
    $
    2,396Basic
      earnings per common share
    
    $
    0.18
    
    
    $
    0.27
    
    
    $
    0.21
    
    
    $
    0.21Diluted
      earnings per common share
    
    $
    0.18
    
    
    $
    0.27
    
    
    $
    0.21
    
    
    $
    0.21Dividends
      declared per common share
    
    $
    0.11
    
    
    $
    0.11
    
    
    $
    0.12
    
    
    $
    0.12
  50
  **California
First National Bancorp and Subsidiaries**
 
 Three
      months endedSeptember
      30,
    
    
    December
      31,
    
    
    March
      31,
    
    
    June
      30,(in
      thousands except per share amounts)2006
    
    (Restated)
    
    
    (Restated)Direct
      finance income
    
    $
    4,013
    
    
    $
    4,483
    
    
    $
    5,101
    
    
    $
    5,264Net
      direct finance and interest incomeAfter
      provision for lease losses
    
    
    3,460
    
    
    
    4,201
    
    
    
    4,753
    
    
    
    4,701Gross
      profit
    
    
    7,798
    
    
    
    7,474
    
    
    
    8,347
    
    
    
    9,164Net
      earnings
    
    $
    2,417
    
    
    $
    2,275
    
    
    $
    2,754
    
    
    $
    3,276Basic
      earnings per common share
    
    $
    0.22
    
    
    $
    0.20
    
    
    $
    0.25
    
    
    $
    0.29Diluted
      earnings per common share
    
    $
    0.21
    
    
    $
    0.20
    
    
    $
    0.25
    
    
    $
    0.28Dividends
      declared per common share
    
    $
    0.10
    
    
    $
    0.10
    
    
    $
    0.11
    
    
    $
    0.11
   **ITEM
9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND   FINANCIAL DISCLOSURE**
 
 None.
 
 
 **ITEM
9A.  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
Commission's 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.
There were no significant changes made during the most recent fiscal quarter 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.
 
 51
  **California
First National Bancorp and Subsidiaries**
 
 **PART
III**
 
 **ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**
 
 The
information required by this item is incorporated herein by reference to the
Company's definitive proxy statement to be filed not later than October 28,
2007 with the Securities and Exchange Commission pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended.
  We have a
Code of Business Conduct and Ethics within the meaning of Item 406 of
Regulation S-K adopted by the SEC under the Exchange Act that applies to our
principal executive officer, principal accounting officer and principal financial
officer. Our Code of Business Conduct and Ethics is available on the Company's
website (www.calfirstbancorp.com), and we intend to satisfy the disclosure
requirement under Item 5.05 of Form 8-K regarding any amendment to, or
waiver from, a provision of our code of ethics by posting such information on
our website. The information contained on the Company's website is not part of this or any other report we file with or furnish to the SEC and is
incorporated by reference herein.
 
 **ITEM
11.  EXECUTIVE COMPENSATION**
 
 The
information required by this item is incorporated herein by reference to the
Company's definitive proxy statement to be filed not
later than October 28, 2007 with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as
amended.
 
 **ITEM
12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT** **AND
RELATED STOCKHOLDER MATTERS**
 
 The
information required by this item is incorporated herein by reference to the
Company's definitive proxy statement to be filed not later than October 28, 2007 with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.
 
 **ITEM
13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**
 
 The
information required by this item is incorporated herein by reference to the
Company's definitive proxy statement to be filed not later than October
28, 2007 with the Securities and Exchange Commission pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended.
 
 **ITEM
14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES**
 
 The
information required by this item is incorporated herein by reference to the
Company's definitive proxy statement to be filed not later than
October 28, 2007 with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended.
   52
  **California
First National Bancorp and Subsidiaries**
 
 **PART
IV**
 
 **ITEM
15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**
  (a)
    Financial Statements and SchedulesAll financial statements are set forth underItem 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 No.
          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 Registrant’s 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)10.3
          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)10.4
          Office Lease dated January 30, 2003, between California First National Bancorp and World Trade Center Building, Inc. (incorporated by reference to Exhibit 10.8 to the Registrant’s March 31, 2003 Form 10-Q)10.5
          Business Loan Agreement dated as of January 20, 2006 between California First Leasing Corporation and Amplicon, Inc. and Bank of America (incorporated by reference to Exhibit 10.6 to the Registrant’s December 31, 2005 Form 10-Q).10.6
          Amendment 1 to the Business Loan Agreement between California First Leasing Corporation and Amplicon, Inc. and Bank of America dated as of March 29, 2007 (incorporated by reference to Exhibit 10.7 to Registrant's Statement on Form 8-K dated April 2, 2007)31.1
          Rule 13a-14(a)/15d-14(a) Certifications of Principal Executive Officer
          5531.2
          Rule 13a-14(a)/15d-14(a) Certifications of Principal Financial Officer
          5632
          Section 1350 Certifications by Principal Executive Officer and Principal Financial Officer
          57
  53
  **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
 
 
 By:
    /s/ S. Leslie Jewett
    
    Date:
    September 14, 2007S.
      Leslie Jewett
   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.
 
 Signature
    
    Title
    
    Date/s/ Patrick E. Paddon
    
    President,
      Chief Executive
    
    September 14, 2007Patrick
      E. Paddon
    
    Officer and Director/s/ Glen T. Tsuma
    
    Vice
      President, Chief Operating
    
    September 14, 2007Glen
      T. Tsuma
    
    Officer and Director/s/ S. Leslie Jewett
    
    Chief
      Financial Officer
    
    September 14, 2007S.
      Leslie Jewett/s/ Michael H. Lowry
    
    Director
    
    September 14, 2007Michael
      H. Lowry/s/ Harris Ravine
    
    Director
    
    September 15, 2007Harris
      Ravine/s/ Danilo Cacciamatta
    
    Director
    
    September 14, 2007Danilo
      Cacciamatta
 
 
 54