N@N

Discovery Bancorp Reports Sale of Financing Company and Third Quarter Results

^{Published on 2008-11-26 15:20:11 - Market Wire}
 

SAN MARCOS, Calif.--([ BUSINESS WIRE ])--Discovery Bancorp (OTCBB:DVBC), holding company for Discovery Bank and Celtic Capital Corp. reported today that it has entered into an agreement for the sale of Celtic Capital Corp., a wholly owned commercial financing company acquired by the Company in 2005. The Company did not disclose the buyer or the terms of the agreement, but indicated that it expected the sale to be completed in the fourth quarter.

President and Chief Executive Officer, Frank J. Mercardante said, "The sale will enable us to refocus both our human and financial resources to our primary business unit, Discovery Bank. We expect to be able to further strengthen the Bank's already strong capital position with the funds freed up from the sale".

The Company also reported its earnings for the third quarter. For the three months ended September 30, 2008, the Company reported a net loss of $685 thousand, or $0.36 per diluted share compared to a net loss of $1.2 million, or $0.64 per diluted share in the sequential-quarter (June 30, 2008) and a profit of $267 thousand, or $0.13 per diluted share in the prior year period. The current quarter reflects a loan loss provision of $1.291 million compared to $2.043 million on a sequential-quarter basis and $86 thousand in the prior year period. The current quarter's loan loss provision includes a $591 thousand charge recorded at the Company's commercial finance subsidiary compared to $18 thousand on a sequential-quarter basis and $42 thousand in the year ago quarter.

For the nine months ended September 30, 2008, the Company posted a net loss of $1.8 million or $0.93 per diluted share compared with a net profit of $852 thousand, or $0.43 per diluted share, for the first nine months of 2007. The 2008 year-to-date results include a loan loss provision of $3.340 million, $609 thousand of which was recorded at the Company's commercial finance subsidiary, compared to $86 thousand for the first nine months of 2007.

Consolidated assets at the end of the third quarter totaled $182.1 million, compared to $193.9 million at the sequential-quarter and $206.0 million at September 30, 2007. Consolidated net loans at September 30, 2008 equaled $159.0 million, compared to $159.1 million at the sequential-quarter and $165.9 million at September 30, 2007.

Total deposits at September 30, 2008 equaled $136.0 million, compared to $141.5 million at the sequential-quarter and $138.3 million at September 30, 2007. Noninterest bearing deposits totaled $32.9 million or 24% of total deposits at September 30, 2008. At the sequential-quarter and September 30, 2007 noninterest bearing deposits were $35.5 million, or 25% of total deposits and, $25.6 million or 19% of total deposits, respectively. Total interest-bearing deposits at September 30, 2008 totaled $103.1 million compared to $106 million and $112.8 million at the sequential-quarter and September 30, 2007, respectively.

Consolidated Operating Results for the Quarter

Consolidated net interest income, before provision for loan losses, declined by 15% in the current quarter to $2.3 million from $2.7 million in the third quarter of 2007, reflecting continued compression of the net interest margin. The decline was largely attributed to the Bank subsidiary having a higher volume of rate sensitive assets than rate sensitive liabilities, which negatively impacts interest income in a declining rate environment and a higher volume of nonaccrual loans at both the bank and the commercial finance company than in the 2007 quarter. The consolidated net interest margin for the current period was 5.16% compared to 6.11% for the third quarter of 2007.

Noninterest income increased 16% in the current period to $456 thousand from $392 thousand in the 2007 third quarter. The increase was largely due to an increase in service charges on deposit accounts. Year-to-date noninterest income increased 24% to $1.3 million from $1.1 million at September 30, 2007. The 2007 year-to-date total includes a $223 thousand one time gain on sale of other real estate owned. Excluding this nonrecurring gain, noninterest income increased by 56% or $480 thousand in the first nine months of 2008 to $1.3 million compared to an adjusted $0.9 million in the like 2007 period. The year to date increase was primarily due to gain on SBA loan sales, up $212 thousand, and service charges on deposit accounts, up $103 thousand, and other loan fees and charges of $105 thousand.

Noninterest expense increased 1% in the September 30, 2008 quarter to $2.645 million from $2.610 million in the comparable September 30, 2007 period. Year-to-date, noninterest expense totaled $8.083 million, representing a 6% increase over the 2007 year-to-date total of $7.649 million. Salaries, loan collection expenses, and other operating expenses represented the largest increases.

Branch Closure:

Discovery Bank announced that it is closing its Los Angeles branch in February 2009. Mercardante said, "The decision to close a branch is never an easy one. Based on the branch's performance since its opening almost two years ago and given the continued uncertainty in the economic outlook we had to make a tough call". All deposit and loan relationships will continue to be serviced by other branches of the bank.

Asset quality:

Total consolidated nonperforming assets, which consist of OREO and loans on non-accrual or loans past due 90 days or more, at September 30, 2008 equaled $12.2 million compared with $11.2 million in the sequential-quarter and $12.5 million December 31, 2007. Total nonperforming assets at Discovery Bank, net of government guarantees totaled $11.6 million at September 30, 2008, compared with $10.1 million on a sequential-quarter basis and $12.5 million at December 31, 2007. Loans are placed on non-accrual status if there is reasonable doubt as to the collectibility of principal and interest in accordance with the original credit terms. The Company had no OREO as of the 2008 period compared to $775 thousand in the September 2007 reporting period, which was sold prior to year end 2007.

Total consolidated loan charge offs for the 2008 third quarter equaled $2.1 million, comprised of $1.5 million at the Bank and $0.6 million at Celtic Capital. For the 2007 third quarter consolidated loan charge offs totaled $134 thousand, all of which were at the Bank. The allowance for loan and lease losses at Discovery Bank as of September 30, 2008 represented 2.6% of loans outstanding compared to 3.2% on a sequential-quarter basis and 2.1% at December 31, 2007. The coverage ratio of reserves to nonperforming loans equaled 31% at September 30, 2008 compared with 44% on a sequential-quarter basis and 25% at December 31, 2007.

The consolidated allowance for loan and lease losses as of September 30, 2008, including Celtic Capital, represented 2.5% of loans outstanding compared to 3.0% on a sequential-quarter basis and 2.0% at December 31, 2007.

Capital ratios at both the Company and Discovery Bank remain above the levels required for a "well capitalized" designation by regulatory agencies. The Tier 1 Leverage ratio for the Company and the Bank at September 30, 2008 were 11.57% and 9.44%, respectively. Mercardante confirmed that the Company is considering whether or not to participate in the government's announced Treasury Capital Purchase Program notwithstanding the fact that its capital ratios remain in the "well capitalized" category. "Given the uncertainty of the economy going forward, we have filed an application and will carefully consider the advisability of participating in the program if approved", said Mercardante.

Discovery Bancorp is a bank holding company serving the financial needs of small to medium-sized businesses, professionals and individuals through two principal subsidiaries: Discovery Bank and Celtic Capital Corp. The Bank, founded in 2001, has offices in San Marcos, Poway, and Los Angeles, California; Celtic Capital, founded in 1982, maintains offices in Santa Monica California, Phoenix Arizona and Bellevue Washington.

Shares of the Company's common stock are traded on the OTC Bulletin Board under the symbol DVBC. For more information, visit our web site at [ www.discovery-bank.com ].

Forward-Looking Statements: The statements contained in this release that are not historical facts are forward-looking statements based on management's current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by management. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve risks and uncertainties.