Malaga Financial Corporation Reports 20% Increase in Third Quarter Earnings; No Delinquent Loans or Non-Performing Assets

Business Wire, Oct 25, 2008

PALOS VERDES ESTATES, Calif. -- Malaga Financial Corporation (OTCBB: MLGF), the parent company of Malaga Bank FSB, today reported that net income for the quarter ended September 30, 2008 was $1,783,000, an increase of $303,000 or 20% from net income of $1,480,000 for the quarter ended September 30, 2007. Basic and fully diluted earnings per share increased to $0.31 from $0.25, representing a 24% increase. Net income for the nine months ended September 30 2008 was $5,146,000 ($0.90 basic and fully diluted earnings per share) as compared to $4,477,000 ($0.76 basic and fully diluted earnings per share).

Net income increased primarily due to continued growth in interest earning assets and improvement in the interest rate spread. Earnings per share increased at a higher rate than net income as a result of the Company's repurchase of 194,734 shares of Common Stock in the fourth quarter of 2007 and 24,847 shares in the third quarter 2008.

Malaga had no delinquent loans or non-performing assets at September 30, 2008. The Company attributes this to its continued commitment to prudent and time-tested loan underwriting standards and its policy not to underwrite marginally higher-yielding but riskier loans. The Company's allowance for loan losses at September 30, 2008 was $2,638,000 or 0.38% of total loans compared to $2,312,000 or 0.36% of total loans as of September 30, 2007.

Net interest income totaled $5,246,000 in the third quarter of 2008, up $898,000 or 21% from the third quarter of 2007. This increase resulted from a $28 million or 4% increase in average interest earning assets to $710 million and a 0.51% increase in the interest rate spread to 2.77%. The improvement in the interest rate spread was due to a 1.07% decline in the weighted average cost of funds, while the weighted average yield on interest earning assets declined only 0.56%. Malaga's liabilities reprice more rapidly than its interest earning assets, and thus Malaga will generally see an improvement in its interest rate spread during periods of declining market interest rates.

Operating expenses increased 18% in the third quarter of 2008, to $2,245,000 from $1,896,000 in the third quarter of 2007. The increase in operating expenses was primarily attributable to the personnel and operating costs of Malaga's new branch in San Pedro, which opened in April 2008. Randy C. Bowers, President and CEO, remarked, "The San Pedro branch continues to exceed our expectations and new deposits provide additional liquidity during the recent turbulent financial service industry environment."

Mr. Bowers continues, "Malaga has not been as negatively impacted as many other institutions since we do not make sub-prime mortgage loans and our investment portfolio does not include any preferred stock or debt securities issued by companies currently identified as troubled. We believe our customers appreciate our commitment to traditional core banking activities, and this commitment will continue to foster a healthy balance sheet and earnings."

"The recent tremendous turbulence in the global financial markets along with recent unprecedented action by the US Congress, US Treasury and the Federal Reserve Bank to stabilize these markets has resulted in more questions than answers. We are proactive in monitoring these changes and based on further information may find some provisions that will be beneficial for the Company," commented Jasna Penich, Chief Financial Officer.

Malaga's total assets were $737 million at September 30, 2008 compared to $709 million at September 30, 2007, an increase of $28 million. The loan portfolio at September 30, 2008 was $702 million versus $645 million at September 30, 2007, an increase of $57 million. Malaga originates loans principally for its own portfolio and not for sale. At September 30, 2008, the loan portfolio was comprised of the following types of loans outstanding: multi-family loans -- 74%; single family residential loans -- 13%; commercial real estate loans -- 7%; home equity lines of credit -- 3%; and commercial and other loans - 3%.

Malaga funds its assets with a mix of deposits and FHLB borrowings. Retail deposits totaled $309 million as of September 30, 2008, down from $329 million at September 30, 2007, a 6% decrease. Malaga Bank continues its efforts to increase retail deposits in order to rely less on other funding sources, but faces severe rate competition from troubled institutions. The Bank has chosen not to engage in this irrational deposit pricing which would materially reduce net interest margin, but to build its deposit base based on strong customer relationships and customers who desire the security of a well-capitalized, healthy bank. Deposits from the state of California and FHLB borrowings totaled $355 million at September 30, 2008 versus $303 million at September 30, 2007, a 17% increase. The weighted average cost of funds for the third quarter of 2008 was 3.31% versus 4.38% for the third quarter of 2007.

Malaga's stockholders' equity was $52.5 million at September 30, 2008, or $9.21 per fully diluted common share. The Company paid a quarterly dividend for the 17th consecutive quarter.