CFNB Second Quarter Earnings Down 34% In Absence Of Investment Gains And On Lower Loan Income

California First National Bancorp (NASDAQ: CFNB) (“CalFirst Bancorp”) today announced net earnings of $2.1 million for the second quarter ended December 31, 2011, a decline of 34% from net earnings of $3.1 million for the second quarter of fiscal 2011. For the six months ended December 31, 2011, net earnings were down just 5% to $4.5 million from $4.8 million for the first six months of fiscal 2011. Diluted earnings per share in the second quarter of $0.20 were down 34% from $0.30 from the second quarter of fiscal 2011, while diluted earnings per share of $0.44 for the first six months of fiscal 2012 were down 5% from $0.46 per share for the same period of fiscal 2011.

The decline in net earnings from the second quarter and first six months of fiscal 2011 is largely due to large gains realized on the sale of investment securities during the prior year periods. Excluding investment gains from both periods, gross profit during second quarter declined by 6%, while gross profit for the first six months of fiscal 2012 is up 10% from the prior year.

Gross profit of $6.4 million for the second quarter ended December 31, 2011 declined from the second quarter of the prior year by $1.6 million, or 20%. Total direct finance, loan and interest income for the second quarter of fiscal 2012 decreased 9% to $5.9 million from $6.5 million during the second quarter of the prior year. A $662,000, or 39%, decline in commercial loan income accounted for the decrease and was due to a 14% decrease in average loan balances and a 196 basis point decline in average yield. Interest expense paid on deposits and borrowings during the second quarter of fiscal 2012 decreased by $57,000, or 7%, reflecting a 34 basis point drop in average interest rates paid offset by a 21% increase in average balances. For the second quarter of fiscal 2012, the Company did not record an allowance for credit losses, compared to a $500,000 provision during the second quarter of fiscal 2011. The lack of provision in 2012 is due to a 9% decline in the commercial loan portfolio from $93.7 million at June 30, 2011 to $85.0 million at December 31, 2011, along with some improvement in credit metrics. All of these factors led to a $60,000, or 1%, decrease in net direct finance and interest income after provision for credit losses to $5.1 million.

Total non-interest income of $1.3 million for the second quarter of fiscal 2012 was down 54% from $2.8 million for the same period of the prior year. Included in non-interest income during the second quarter of fiscal 2012 was $56,000 of gains realized on retirement of a security, while fiscal 2011 included investment gains of $1.2 million. Excluding such investment gains, other non-interest income of $1.2 million declined from $1.6 million during the second quarter of the prior year primarily due to lower income realized from the re-lease of property on leases reaching the end of term during the period.

For the six months ended December 31, 2011, gross profit of $13.5 million was 1% below $13.7 million for the same period of the prior year. Total direct finance, loan and interest income for the first six months of fiscal 2012 decreased 3% to $12.0 million due to an $872,000 decrease in commercial loan income that was offset only partly by a $423,000 increase in direct finance income. During the first six months of fiscal 2012, the average investment in commercial loans fell 3% to $87.3 million, while the average investment in leases increased 15% to $228.8 million, and the average yield on leases and loans held in the Company’s own portfolio decreased by 92 basis points to 6.58%. The average yield on cash and investments decreased 43 basis points to 2.04% for the six months ended December 31, 2011, while average balances increased 25% to $161 million. For the six months ended December 31, 2011, interest expense on deposits and borrowings decreased by $98,000 to $1.7 million, reflecting a 36 basis point decrease in average rates paid on average balances that increased by 23% to $279.1 million. For the first six months of fiscal 2012, the Company did not record a provision for credit losses, compared to a provision of $775,000 in fiscal 2011. The large provision during the first six months of fiscal 2011 was largely due to significant growth in the commercial loan portfolio to $108.3 million at December 31, 2010, which has since been reduced to $85.0 million at December 31, 2011.

Total non-interest income of $3.2 million for the first six months of fiscal 2012 was down 17% from $3.8 million during the comparable period of fiscal 2011. Fiscal 2011 non-interest income included $1.4 million of gains realized on the sale of investment securities while the first six months of fiscal 2012 included investment gains of $56,000. Excluding such investment gains, other non-interest income for the six months ended December 31, 2011 was $3.1 million, up 30% from $2.4 million for the first six months of the prior year. This increase in other income was largely due to higher income realized from the sale or re-lease of property on leases reaching the end of term during the period.

During the second quarter of fiscal 2012, CalFirst Bancorp’s non-interest expense of $3.1 million was 4% higher than the prior year, while non-interest expense of $6.2 million for the first six months of fiscal 2012 was up 4% from $6.0 million for the first six months of fiscal 2011. The increase in expenses during both periods is due primarily to higher compensation expenses being recognized during the periods, as a smaller percent of origination expenses related to the sales organization are being deferred.

Commenting on the results, Patrick E. Paddon, President and Chief Executive Officer, indicated, “Results for the first six months benefited from a 15% increase in the average investment in leases, but was offset by lower yields earned on all investments that were not equally balanced by lower interest expense. Lease bookings during the second quarter of fiscal 2012 of $51.2 million were down 26% from $69.2 million booked during the 2011 second quarter, and included $7.8 million of lease purchases, compared to $27.3 million of lease purchases during the second quarter of fiscal 2011. There were no new commercial loans added in the quarter, compared to $30.7 booked during the second quarter of fiscal 2011, resulting in a 49% decrease in to total loan and leases booked in the quarter ending December 31, 2011. For the six months ended December 31, 2011, total lease bookings of $90.9 million were 7% below $97.6 million booked in the first half of fiscal 2011, but included only $12.7 million of lease purchases compared to $32.4 million of lease purchases in the same period in fiscal 2011. Bookings of direct leases for the six months were up 20% to $78.2 million. In the absence of commercial loan growth and with lower lease purchases, total lease and loan bookings for the first six months were $96.1 million, a decline of 42% from the first six months of the prior year. The net investment in leases and loans of $326.8 million at December 31, 2011 is up 3% from June 30, 2011, but is 2% lower than the level at December 31, 2010.

“During the second quarter of fiscal 2012, direct lease originations were only 11% below the second quarter of fiscal 2011, but total direct lease originations and loan and lease purchase commitments were down 38% due to the continued restriction on loan development. For the first six months of fiscal 2012, direct lease originations were down 4%, while total originations were down 41%. The estimated backlog of approved lease and loan commitments of $91 million at December 31, 2011 is 4% below the level at the end of the second quarter of fiscal 2011. We continue to focus efforts on direct and third party lease activities, and believe we are seeing progress.

“During the second quarter CalFirst Bank paid off $10 million in borrowings from the Federal Home Loan Bank Board, reducing the Company’s total assets to $492.8 million at December 31, 2011, supported by a capital base of $191.5 million.”

California First National Bancorp is a bank holding company with leasing and bank operations based in Orange County, California. California First National Bank is an FDIC-insured national bank that gathers deposits using telephone, the Internet, and direct mail from a centralized location, and provides lease financing and commercial loans to businesses and organizations nationwide.

This press release contains forward-looking statements, which involve management assumptions, risks and uncertainties. Consequently, if such management assumptions prove to be incorrect or such risks or uncertainties materialize, the Company’s actual results could differ materially from the results forecast in the forward-looking statements. All forward-looking statements are qualified in their entirety by this cautionary statement, and the Company undertakes no obligation to revise or update this press release to reflect events or circumstances arising after the date hereof. For further discussion regarding management assumptions, risks and uncertainties, readers should refer to the Company’s 2011 Annual Report on Form 10-K and the 2012 quarterly reports on Form 10-Q.

CALIFORNIA FIRST NATIONAL BANCORP

 

Consolidated Statements of Earnings

(000's except per share data)
       
Three Months Ended Six Months Ended
December 31, December 31,
2011     2010 2011     2010
 
Direct finance and loan income $ 5,118 $ 5,785 $ 10,403 $ 10,852
Investment and interest income   807   757   1,645   1,595
Total direct finance, loan and interest income 5,925 6,542 12,048 12,447
 
Interest expense on deposits and borrowings   808   865   1,690   1,787
 
Net direct finance, loan and interest income 5,117 5,677 10,358 10,660
Provision for credit losses   -   500   -   775
Net direct finance, loan and interest income,
after provision for credit losses 5,117 5,177 10,358 9,885
 

Non-interest income
Operating and sales-type lease income 349 837 1,775 1,245
Gain on sale of leases and leased property 795 602 1,115 748
Gains (losses) recorded on investment securities 56 1,194 56 1,402
Other fee income - net   113   194   219   399
Total non-interest income 1,313 2,827 3,165 3,794
 
Gross Profit 6,430 8,004 13,523 13,679
 

Non-interest expenses
Compensation and employee benefits 2,271 2,114 4,500 4,203
Occupancy 239 238 478 474
Professional services 124 118 272 241
Other general and administrative   471   506   936   1,043
Total non-interest expenses 3,105 2,976 6,186 5,961
 
Earnings before income taxes 3,325 5,028 7,337 7,718
 
Income taxes   1,263   1,923   2,788   2,952
 
Net earnings $ 2,062 $ 3,105 $ 4,549 $ 4,766
 
Basic earnings per share $ 0.20 $ 0.30 $ 0.44 $ 0.46
Diluted earnings per share $ 0.20 $ 0.30 $ 0.44 $ 0.46
 
Weighted average common shares outstanding 10,420 10,276 10,419 10,263
Diluted number of common shares outstanding 10,431 10,366 10,429 10,353
 

CALIFORNIA FIRST NATIONAL BANCORP

 

Consolidated Balance Sheets

(000’s)
       
ASSETS December 31, 2011 June 30, 2011
 

Cash and short term investments

$

66,446

$

97,302

Investment securities

63,743

66,321

Net receivables

2,085

2,198

Property for transactions in process

25,616

29,199

Net investment in leases

241,843

223,449

Commercial loans

85,003

93,725

Income tax receivable

384

1,378

Other assets

1,882

2,395

Discounted lease rentals assigned to lenders
 

5,778
 

8,448

 

$

492,780

$

524,415

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable

$

2,784

$

1,338

Income taxes payable, including deferred taxes

23,212

24,441

Deposits

264,502

274,775

Borrowings

-

10,000

Other liabilities

4,997

5,791

Non-recourse debt
 

5,778
 

8,448

Total liabilities

301,273

324,793

Stockholders' Equity
 

191,507
 

199,622

 

$

492,780

$

524,415

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