Executive Summary

EPS of $0.22 rose 17.1% year over year; net earnings of $2.295M increased 17.2% despite a sharp contraction in assets and loan balances . Net interest margin expanded to 3.11%, +58 bps YoY and >50 bps QoQ, reflecting lower funding costs and mix shifts .
Net interest income after provision increased 9.6% to $5.485M, aided by a $500K reserve release as loan balances fell and credit quality remained strong (non-performing assets below 0.01%) .
The commercial loan portfolio declined 28% during the quarter to $219.5M as the bank remained under regulatory restrictions on syndicated loan originations; deposits fell 19.4% to $377.9M as management matched runoff to loan payoffs .
Company announced voluntary NASDAQ delisting and SEC deregistration with intent to quote on OTCQX, citing cost savings and lack of capital markets need; Board intends to continue its policy of paying an annual dividend, timing TBD for FY2018 .

What Went Well and What Went Wrong

What Went Well

Net interest margin improved materially (+58 bps YoY; >50 bps QoQ) on lower funding costs and improved asset yields: “Net interest margin improved by 58 basis points from the first quarter of fiscal 2017 and over 50 basis points from the fourth quarter...” .
Credit quality remained pristine: “Non-performing assets were below .01% of total assets at September 30, 2017.” .
Cost discipline: Non-interest expenses fell 4.2% YoY; “more than $250,000 in reductions in compensation and other direct expenses” supported earnings .

What Went Wrong

Asset and loan contraction: Total assets fell 12% QoQ to $629.5M and the commercial loan portfolio shrank 28% to $219.5M due to regulatory restrictions, pressuring interest income .
Originations and bookings weakened: Lease bookings fell 20% YoY to $24.5M; no commercial loans were booked versus $51.5M in the prior year quarter, reducing future earning asset growth .
Deposit base declined 19.4% QoQ to $377.9M as management balanced payoffs with runoff, which reduces funding scale despite lower interest expense .

Financial Results

Earnings and Margins vs Prior Periods

Metric	Q1 2017 (Sep 30, 2016)	Q4 2017 (Jun 30, 2017)	Q1 2018 (Sep 30, 2017)
Diluted EPS ($)	$0.19	$0.24	$0.22
Net Earnings ($USD Millions)	$1.958	$2.464	$2.295
Total Interest Income ($USD Millions)	$7.244	$6.300	$6.231
Total Non-Interest Income ($USD Millions)	$0.915	$1.343	$0.950
Net Interest Income After Provision ($USD Millions)	$5.006	$5.453	$5.485
Provision for Credit Losses ($USD Millions)	$0.300	$(0.650)	$(0.500)
Net Interest Margin (%)	2.53%	2.59%	3.11%

Components and Yields (Q1 2018 vs Q1 2017)

Category	Avg Balance Q1 2018 ($USD Thousands)	Yield/Rate Q1 2018	Avg Balance Q1 2017 ($USD Thousands)	Yield/Rate Q1 2017
Interest-earning deposits	73,045	1.25%	113,406	0.53%
Investment securities	101,529	2.21%	97,113	2.10%
Commercial loans	281,432	3.92%	405,694	3.73%
Net investment in leases	184,385	5.82%	223,493	5.00%
Total interest-earning assets	640,391	3.89%	839,706	3.45%
Deposits (interest-bearing)	417,162	1.08%	631,323	1.20%
Borrowings	40,000	1.17%	40,000	0.43%
Net interest spread	—	2.80%	—	2.30%
Net interest margin	—	3.11%	—	2.53%

KPIs and Balance Sheet

KPI	Jun 30, 2017	Sep 30, 2017
Total Assets ($USD Millions)	$715.585	$629.516
Deposits ($USD Millions)	$468.634	$377.936
Net Investment in Leases ($USD Millions)	$190.798	$185.084
Commercial Loans ($USD Millions)	$306.009	$219.460
Investment Securities ($USD Millions)	$99.790	$105.868
Non-performing assets (% of total assets)	<0.01% (as of Jun 30, 2017)	<0.01% (as of Sep 30, 2017)
Tier 1 capital (Bank) (%)	33.1% (as of Jun 30, 2017)	25.4% (as of Sep 30, 2017)
Tier 1 common equity ratio (Company) (%)	33.1% (as of Jun 30, 2017)	37.1% (as of Sep 30, 2017)

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Commercial loan originations/portfolio	FY 2018	Not provided	“Bank’s loan portfolio will continue to decline in fiscal 2018 without being timely replaced by alternative earning assets”	Lowered
Business mix strategy	FY 2018	Not provided	“Refocus efforts on traditional lease business; costs associated with the inconsistent regulatory burden… will not support a return”	Strategic shift
Listing status	Nov 2017	NASDAQ-listed	Voluntary NASDAQ delisting; intent to quote on OTCQX; Form 25 around Nov 3; last NASDAQ trading on/around Nov 10; Form 15 around Nov 13	Transition to OTCQX
Dividend policy	FY 2018	Annual dividend historically	Board “intends to continue its policy of paying an annual dividend… timing… to be determined”	Maintained (timing TBD)

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2017 and Q4 2017)	Current Period (Q1 2018)	Trend
Regulatory/legal (OCC restrictions on syndicated loans)	Q3: Cease originations; reduce leveraged loan concentration; portfolio down 17% QoQ; appeal filed; expected further sales/payoffs . Q4: Restrictions persisted; portfolio down 18% QoQ; adverse effect on business; appeal unresolved .	Restrictions ongoing; no commercial loans originated since Jan 2017; portfolio down 28% QoQ; management does not expect to return to prior strategy .	Persistent headwind; strategic pivot away from syndicated loans.
Funding and deposit management	Q3: Aggressive rate cuts; deposits down 8% QoQ; higher liquidity in fed funds . Q4: Deposits down 26% QoQ; lower deposit costs .	Deposits down 19.4% QoQ; interest expense down 36% YoY .	Runoff in deposits aligns with asset contraction; funding costs improving.
Asset mix and yields	Q3: Lease yields +90 bps; loan yields +12 bps; NIM ~2.56% . Q4: NIM 2.59%; broad decline in interest income .	NIM 3.11%; asset yields improved; total interest income down on smaller balances .	Mix shift and pricing lift NIM despite smaller book.
Non-interest income variability	Q2: Strong gains from sale of leases/leased property ($3.405M), driving EPS surge . Q3: Non-interest income tripled YoY to $1.776M .	Non-interest income modestly higher YoY ($0.950M, +3.9%), with $153.6K gains on sale of loans .	Normalizing after prior-quarter spikes.
Strategy/Listing	Q4: Board evaluating options; appeal unresolved .	Voluntary NASDAQ delisting; SEC deregistration; OTCQX application .	Cost-focused, less public reporting; still intends financial disclosures.

Note: No earnings call transcript was available in filings for Q1 2018; themes derived from press releases and 8-Ks .

Management Commentary

“Management has taken steps to refocus efforts on its traditional lease business and to reduce its funding and other expenses.”
“While management believes some prohibitions on loan activities may be lifted during the next quarter, it currently does not believe the costs associated with the inconsistent regulatory burden imposed on the commercial loan business will support an initiative to return to the strategy…”
“Net interest margin improved by 58 basis points from the first quarter of fiscal 2017 and over 50 basis points from the fourth quarter ended June 30, 2017.”
“The credit quality of the lease and loan portfolio continues to be strong. Non-performing assets were below .01% of total assets at September 30, 2017.”
On listing: “Board… approved… voluntarily delist… deregister… expects last trading day… on or about November 10, 2017… intends to file a Form 15… [and] post quarterly and annual financial information on the OTCQX website and the Company’s website.”

Q&A Highlights

No Q1 2018 earnings call transcript was found in company filings; no Q&A content available within the documents reviewed .

Estimates Context

Wall Street consensus (S&P Global) for Q1 2018 EPS and Revenue was unavailable due to data access limitations at the time of retrieval; therefore, no beat/miss determination versus consensus can be made at this time. Values retrieved from S&P Global.*

Key Takeaways for Investors

The quarter demonstrated resilience: EPS +17% YoY and NIM expansion to 3.11% despite a 12% QoQ asset decline and 28% loan contraction, driven by lower funding costs and reserve release .
Credit remains a differentiator with non-performing assets <0.01%; reserve release reflects portfolio contraction, not deteriorating credit .
Strategic pivot away from syndicated commercial lending will likely constrain earning asset growth near term; lease focus and securities may partially offset but scale will be lower .
Funding cost tailwind persists as deposits run off; expect further NIM support, but shrinking balances cap net interest income growth .
Listing transition to OTCQX reduces reporting costs and could dampen liquidity; Board intends to maintain annual dividend policy, offering potential income support .
Backlog stability ($57M approved lease commitments) and rising transactions in process (+46% QoQ) offer some forward activity visibility within leasing .
With consensus estimates unavailable, positioning should focus on structural narrative (regulatory headwinds, mix shift, liquidity) and event risk around delisting timing and any regulatory relief .

CALIFORNIA FIRST LEASING CORP (CFNB)·Q1 2018 Earnings Summary