Malaga Financial Corporation Reports Record Earnings for Third Quarter and Year to Date

Malaga Financial Corporation (OTCBB:MLGF), the parent company of Malaga Bank FSB, today reported that net income for the quarter ended September 30, 2010 was $2,708,000 ($0.47 basic and $0.46 fully diluted earnings per share), an increase of $207,000 or 8% from net income of $2,501,000 ($0.44 basic and $0.43 fully diluted earnings per share) for the quarter ended September 30, 2009. Net income for the nine months ended September 30, 2010 was $7,780,000 ($1.34 basic and $1.32 fully diluted earnings per share) as compared to $7,130,000 ($1.24 basic and $1.23 fully diluted earnings per share) for the nine months ended September 30, 2009, a 9% increase. Earnings for the third quarter and first nine months were the highest in Malaga Financial’s history for those periods. Return on average equity for the Company was 15.64% for the nine months ended September 30, 2010.

Net income increased primarily due to continued growth in interest earning assets and improvement in the interest rate spread.

The Company’s allowance for loan losses was $2,814,000, or 0.37% of total loans, at September 30, 2010.

Net interest income totaled $6,983,000 in the third quarter of 2010, up $345,000 or 5% from the third quarter of 2009. This increase resulted from a $28 million or 4% increase in average interest earning assets to $805 million, and an increase of 0.05% in the interest rate spread to 3.35%. The net increase in the interest rate spread was due to a decline in the weighted average cost of funds of 0.15%, which exceeded the 0.10% decline in the weighted average yield on interest earning assets.

Operating expenses increased 2% in the third quarter of 2010, to $2,561,000 from $2,501,000 in the third quarter of 2009. Malaga Bank’s efficiency ratio, defined as operating expenses to net interest margin plus other operating income, continues to improve and was 37% for the nine months ended September 30, 2010 as compared to 39% for the same period in 2009. The continued improvement is primarily due to maintaining stable levels of operating expenses while increasing net interest margin.

Randy C. Bowers, President and CEO, remarked, "We are pleased to announce record earnings for the third quarter and nine months ended September 30, 2010. With no foreclosures, asset quality remains exceptional while expenses continue to be well controlled. We thank our employees for their contributions and our customers for their business and continued loyalty.”

Malaga’s total assets reached $821 million at September 30, 2010 compared to $796 million at September 30, 2009. The loan portfolio at September 30, 2010 was $763 million, an increase of $3 million from September 30, 2009. 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 $467 million as of September 30, 2010, a $105 million or 29% increase from $362 million at September 30, 2009. The robust retail deposit growth was used to repay wholesale deposits, which decreased $32 million, and FHLB borrowings, which decreased $68 million or 25% from $271 million at September 30, 2009 to $203 million at September 30, 2010. The weighted average cost of funds for the third quarter of 2010 was 2.02% versus 2.17% for the third quarter of 2009.

As of September 30, 2010, 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 11.18% and 18.90%, respectively, at September 30, 2010, significantly exceeding the minimum "well capitalized” requirements of 5% and 10% respectively. In the third quarter, Malaga Financial paid a quarterly dividend for the 24^th consecutive quarter.

Malaga Bank, a subsidiary of MFC, is a full-service community bank headquartered on the Palos Verdes Peninsula with branch offices located on the Peninsula, in Torrance and San Pedro. For over 25 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.