Malaga Financial Corporation Reports 22% Increase in Second Quarter Earnings; No Delinquent Loans or Non-Performing Assets

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.

Despite the continuing deterioration of the real estate market in Southern California, Malaga did not have any delinquent loans or non-performing assets at June 30, 2008. The Company's allowance for loan losses at June 30, 2008 was $2,556,000 or 0.37% of total loans.

Net interest income totaled $5,122,000 in the second quarter of 2008, up $808,000 or 19% from the second quarter of 2007. This increase resulted from a $29 million or 4% increase in average interest earning assets to $704 million and a 0.39% increase in the interest rate spread to 2.74%. The improvement in the interest rate spread was due to a 0.83% decline in the weighted average cost of funds, while the weighted average yield on interest earning assets declined only 0.44%. 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 21% in the second quarter of 2008, to $2,214,000 from $1,833,000 in the second quarter of 2007. The increase in operating expenses is primarily attributed 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 of Malaga Bank, remarked, "Since our opening, we have received an extremely favorable response from the residents and businesses in San Pedro, who seem to appreciate a 'locally owned and operated' bank. We are well ahead of our projections for this banking center."

Mr. Bowers continues, "We are pleased that we are able to continue reporting such favorable operating results, in spite of an extremely difficult environment for financial institutions. Our asset quality remains strong, with no delinquent loans or non-performing assets. Lower interest rates have improved debt coverage for apartment loans, which represent the main component of our loan portfolio."

"We continue to manage our cost of funds closely, despite strong competition for liquidity in the deposit market. Although our total deposits have declined, due to a decrease in certificates of deposit, approximately 40% of the decrease has been replaced with lower cost transaction and money market accounts. We are also starting to see the return of some CD customers, who are opting for safety over higher rates," Mr. Bowers adds.

Malaga's total assets were $723 million at June 30, 2008 compared to $690 million at June 30, 2007, an increase of $33 million. The loan portfolio at June 30, 2008 was $685 million versus $638 million at June 30, 2007, an increase of $47 million. Malaga originates loans principally for its own portfolio and not for sale. At June 30, 2008, the loan portfolio was comprised of the following types of loans outstanding: multi-family loans - 77%; single family residential loans - 11%; commercial real estate loans - 8%; home equity lines of credit - 2%; and commercial and other loans - 2%.

Malaga funds its assets with a mix of deposits and FHLB borrowings. Retail deposits totaled $299 million as of June 30, 2008, down from $329 million at June 30, 2007, a 9% decrease. Deposits from the state of California and FHLB borrowings totaled $353 million at June 30, 2008 versus $293 million at June 30, 2007, a 21% increase. The weighted average cost of funds for the second quarter of 2008 was 3.58% versus 4.40% for the second quarter of 2007.

Malaga's stockholders' equity was $51.3 million at June 30, 2008, or $8.95 per fully diluted common share. The Company paid a quarterly dividend for the 16th consecutive quarter.

As of June 30, 2008, Malaga Bank was in compliance with all applicable regulatory capital requirements and was deemed "well-capitalized" under applicable regulations, with a risk-based capital ratio of 13.45%.

Malaga Bank is a full-service community bank headquartered on the Palos Verdes Peninsula with branch offices located on the Peninsula, in Torrance and now in San Pedro. For over 23 years, Malaga 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.

SOURCE: Malaga Financial Corporation

Malaga Financial Corporation Randy Bowers, 310-375-9000 President and Chief Executive Officer rbowers@malagabank.com