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PALOS VERDES ESTATES, Calif.--([ BUSINESS WIRE ])--Malaga Financial Corporation (OTCBB:MLGF), the parent company of Malaga Bank FSB, today reported that net income for the quarter ended March 31, 2012 was $3,054,000 ($0.52 per share basic and fully diluted), an increase of $342,000 or 13% from net income of $2,712,000 ($0.46 per share basic and fully diluted) for the quarter ended March 31, 2011. Net income increased primarily due to an increase in net interest income. Net income in the first quarter was the highest quarterly net income in the Companyas 27-year history and resulted in a pre-tax return on average equity of 25.35%.

"We are off to a strong start in 2012 and look forward to continuing to support our community, reward our shareholders and to provide a safe and friendly place to bank locally."

The Company did not have any delinquent loans or real estate owned at March 31, 2012. The Companyas allowance for loan losses was $2,920,000, or 0.37% of total loans, at March 31, 2012.

Net interest income totaled $7,655,000 in the first quarter of 2012, up $488,000 or 7% from the first quarter of 2011. This increase resulted from a $9.1 million or 15% increase in net interest-earning assets over interest-bearing liabilities and increase in the interest spread from 3.38% to 3.61%. The increase in the interest spread was due to a 0.28% decline in the weighted average yield on interest earning assets, while the weighted average rate on interest-bearing liabilities declined 0.51%.

Operating expenses decreased 3% in the first quarter of 2012, to $2,563,000 from $2,651,000 in the first quarter of 2011. Decreased costs resulted primarily from a $65,000 decrease in deposit insurance premiums.

Randy C. Bowers, President and CEO, remarked, aWe are pleased to report record quarterly earnings in spite of continued weakness in the economy. Our loan portfolio is performing exceptionally well and we continue to maintain tight control over expenses.a

Malagaas total assets increased slightly to $833 million at March 31, 2012 compared to $817 million at March 31, 2011. The loan portfolio at March 31, 2012 was $799 million, an increase of $23 million or 3% from March 31, 2011. 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 $494 million as of March 31, 2012, a $16 million or 3% increase from $478 million at March 31, 2011. The continued retail deposit growth was used to repay FHLB borrowings, which decreased $12 million or 7% from $178 million at March 31, 2011 to $166 million at March 31, 2012. The weighted average cost of funds for the first three months of 2012 was 1.35% versus 1.86% for the first three months of 2011. The decrease was due primarily to lower weighted average interest rates paid on retail deposits (which decreased 0.16%) and on Federal Home Loan Bank borrowings (which decreased 1.43%).

As of March 31, 2012, Malaga Bank was in compliance with all applicable regulatory capital requirements and was deemed awell-capitalizeda under applicable regulations. Core capital and risk-based capital ratios were 12.58% and 20.69%, respectively, at March 31, 2012 significantly exceeding the minimum awell capitalizeda requirements of 5% and 10% respectively. In the first quarter, Malaga Financial paid a quarterly dividend for the 30th consecutive quarter.

Mr. Bowers concluded, aWe are off to a strong start in 2012 and look forward to continuing to support our community, reward our shareholders and to provide a safe and friendly place to bank locally.a

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. For over 27 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 Bankas web site is located at [ www.malagabank.com ].