Malaga Financial Corporation (OTCBB:MLGF), the parent company of Malaga Bank FSB, today reported that net income for the quarter ended March 31, 2013 was $2,704,000 ($0.46 per share basic and fully diluted), a decrease of $350,000 or 11% from net income of $3,054,000 ($0.52 per share basic and fully diluted) for the quarter ended March 31, 2012. Net income decreased primarily due to a decrease in net interest income. Net income in the first quarter resulted in a pre-tax return on average equity of 20.47%.

The Company did not have any delinquent loans or real estate owned at March 31, 2013. The Company’s allowance for loan losses was $2,764,000, or 0.35% of total loans, at March 31, 2013.

Net interest income totaled $7,171,000 in the first quarter of 2013, a decrease of $484,000 or 6% from the first quarter of 2012. This decrease resulted from a decrease in the interest spread from 3.66% to 3.44%. The decrease in the interest spread was due to a 0.49% decline in the weighted average yield on interest earning assets, while the weighted average rate on interest-bearing liabilities declined only 0.27%.

Operating expenses increased 5% in the first quarter of 2013, to $2,686,000 from $2,563,000 in the first quarter of 2012. Increased costs resulted primarily from our branch expansion in August 2012 related to compensation and office related costs.

Randy C. Bowers, President and CEO, remarked, “We are pleased to report strong quarterly earnings in spite of the challenges presented by historically low interest rates and a weak economy. Our loan portfolio is performing exceptionally well and we continue to maintain tight control over expenses.”

Malaga’s total assets increased slightly to $843 million at March 31, 2013 compared to $833 million at March 31, 2012. The loan portfolio at March 31, 2013 was $780 million, a decrease of $19 million or 2% from March 31, 2012. 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 $562 million as of March 31, 2013, a $68 million or 14% increase from $494 million at March 31, 2012. The continued retail deposit growth was used to repay FHLB borrowings, which decreased $67 million or 40% from $166 million at March 31, 2012 to $99 million at March 31, 2013. The weighted average cost of funds for the first three months of 2013 was 1.08% versus 1.35% for the first three months of 2012. The decrease was due primarily to lower interest rate environment and the change to lower cost deposits from higher cost FHLB borrowings.

As of March 31, 2013, 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 13.38% and 22.92%, respectively, at March 31, 2013 significantly exceeding the minimum “well-capitalized” requirements of 5% and 10% respectively. In the first quarter, Malaga Financial paid a quarterly dividend for the 35th consecutive quarter.

Mr. Bowers concluded, “Although the operating environment for banks remains difficult, our focus on quality loans and cost control has resulted in strong quarterly pre-tax return on average equity of 20.47%. We anticipate some growth in our loan portfolio during the remainder of this year which should help offset increasing expenses and enhance profitability. We look forward to continuing to support our community, reward our shareholders and to provide a safe and friendly place to bank locally.”

Malaga Bank, a subsidiary of Malaga Financial Corporation, is a full-service community bank headquartered on the Palos Verdes Peninsula with six offices located in the South Bay area of Los Angeles. For over 28 years, 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.

Malaga Financial (PK) (USOTC:MLGF)
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