California First Leasing Corp (OTC: CFNB) is a commercial finance company that originates and holds equipment leases and commercial loans through its banking subsidiary, CalFirst Bank. Revenue comes from interest income on a held-in-portfolio lease and loan book, supplemented by non-interest income from gains on lease sales and income from properties released at end of lease term. The company retains approximately 90% of lease transactions and all loans in its own portfolio, funding that book primarily through internet-gathered deposits, predominantly fixed-rate certificates of deposit. As of June 30, 2017, the consolidated lease and loan portfolio included over 489 lease schedules and 61 commercial loans, with commercial term loans representing 97.6% of the $311 million net loan balance. The ten largest customers accounted for 22% of the portfolio as of June 30, 2017, and no single customer exceeded 4% of net investment. CalFirst Bank gathers deposits nationally through the internet, offering checking, money market, savings, and CDs with maturities of three months to three years. Patrick Paddon serves as President and CEO, and S. Leslie Jewett as CFO, per the FY2017 10-K filed September 27, 2017.

Revenue model

Interest income on a held-in-portfolio book of equipment leases and commercial loans, funded by internet-gathered deposits. Secondary non-interest income from gains on lease sales, securities gains, and income from property released at lease end. Non-interest income totaled $4.9 million in fiscal year ended June 30, 2016, down 43.9% from $8.7 million in fiscal 2015.

Products and services

Equipment lease origination and portfolio holding; commercial term loans (97.6% of net loan balance as of June 30, 2017); revolving lines of credit (1.0% of net loan balance); commercial real estate loans (1.4% of net loan balance); lease receivable purchases from third-party intermediaries on a non-recourse basis; internet-offered bank deposits including CDs, money market, savings, and interest-bearing checking accounts.

Customers and end markets

Commercial borrowers and lessees across diverse industries. Portfolio is geographically and customer-diversified by strategy. No single customer exceeded 4% of net lease and loan investment as of June 30, 2017, 2016, or 2015. Top ten customers represented 22% of the portfolio as of June 30, 2017. Commercial term loan counterparties funded: $123.5 million to 38 different credits in fiscal 2017.

Value-chain role

Direct lender and lessor: originates equipment leases and commercial loans, retains approximately 90% of lease transactions and all loans on balance sheet, and periodically purchases lease receivables from third-party bank and lessor originators on a non-recourse basis. CalFirst Bank holds deposits to fund the portfolio.

Geographic exposure

National deposit-gathering through the internet. Credit strategy emphasizes geographic diversification across the lease and loan portfolio. No specific regional revenue breakdown disclosed in the filing.

Source: SEC 10-K, filed 2017-09-27

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