Malaga Financial Corporation (OTCBB:MLGF), the parent company of Malaga Bank FSB, today reported that net income for the quarter ended March 31, 2011 was $2,712,000 ($0.46 per share basic and fully diluted), an increase of $272,000 or 11% from net income of $2,440,000 ($0.42 per share basic and fully diluted) for the quarter ended March 31, 2010. Net income increased primarily due to an increase in net interest income. Net income in the first quarter was the highest first quarter net income in the Company’s 26-year history.

The Company did not have any delinquent loans or real estate owned at March 31, 2011. The Company’s allowance for loan losses was $2,866,000 or 0.37% of total loans, at March 31, 2011.

Net interest income totaled $7,167,000 in the first quarter of 2011, up $525,000 or 8% from the first quarter of 2010. This increase resulted from a $10.4 million or 21% increase in net interest-earning assets over interest-bearing liabilities and increase in net interest spread from 3.15% to 3.38%. The increase in the interest rate spread was due to a 0.09% decline in the weighted average yield on interest earning assets, while the weighted average yield on interest-bearing liabilities declined 0.32%.

Operating expenses increased 2% in the first quarter of 2011, to $2,651,000, from $2,603,000 in the first quarter of 2010. Increased costs resulted primarily from a $44,000 increase in compensation expense.

Randy C. Bowers, President and CEO, remarked, “We are pleased with our ongoing trend of increased quarterly earnings year over year. Our loan portfolio is performing exceptionally well and we continue to maintain tight control over expenses.”

Malaga’s total assets declined slightly to $817 million at March 31, 2011 compared to $829 million at March 31, 2010. The loan portfolio at March 31, 2011 was $776 million, an increase of $8 million or 1% from March 31, 2010. Malaga originates loans principally for its own portfolio and not for sale.

Malaga funds its assets with a mix of retail deposits, wholesale deposits and FHLB borrowings. Retail deposits totaled $478 million as of March 31, 2011, a $27 million or 6% increase from $451 million at March 31, 2010. The continued retail deposit growth was used to repay FHLB borrowings, which decreased $50 million or 22% from $228 million at March 31, 2010 to $178 million at March 31, 2011. The weighted average cost of funds for the first three months of 2011 was 1.86% versus 2.18% for the first three months of 2010. The decrease was due primarily to lower interest rates paid on retail deposits and an increase in core deposits.

As of March 31, 2011, Malaga Bank was in compliance with all applicable regulatory capital requirements and was deemed “well-capitalized” under applicable regulations. Core capital and risk-based capital ratios were 11.75% and 19.29%, respectively, at March 31, 2011 significantly exceeding the minimum “well capitalized” requirements of 5% and 10% respectively. In the first quarter, Malaga Financial paid a quarterly dividend for the 26th consecutive quarter.

Mr. Bowers concluded, “Our financial strength has enabled us to significantly increase our customer base as depositors demonstrate their preference to do business with a local bank that actively supports the community.”

Malaga Bank, a subsidiary of Malaga Financial Corporation, is a full-service community bank headquartered on the Palos Verdes Peninsula with five offices located in the South Bay area of Los Angeles. In its 27 th year, Malaga Bank has been delivering competitive banking services to residents and businesses of the South Bay, including real estate loan products custom-tailored to consumers and investors. As the largest community bank in the South Bay, Malaga is proud of its continuing tradition of relationship-based banking and legendary customer service. The Bank’s web site is located at www.malagabank.com.

Copyright Business Wire 2010

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