Discovery Bancorp Announces Results of Operations and Sale of Celtic Capital Corp.

SAN MARCOS, Calif.--(Business Wire)--
Discovery Bancorp (OTCBB:DVBC) today announced 2008 year-end and fourth quarter
results. The Company also reported that the previously announced sale of its
financing company subsidiary, Celtic Capital Corp., was completed in December.

The Company reported a net loss of $5.413 million, or $2.84 per diluted share
for all of 2008 compared to net income of $335 thousand, or $0.17 per diluted
share for all of 2007. President and Chief Executive Officer, Frank J.
Mercardante, said, "The 2008 results include several nonrecurring charges as
well as various key initiatives intended to provide for a stronger, more
streamlined operation going forward. The more significant of these nonrecurring
charges and initiatives include:

* Sale of Celtic Capital in the fourth quarter for an after-tax loss of $1.467
million, or $0.77 per diluted share, freeing up more than $5.0 million in
capital, of which $4.0 million has been invested in Discovery Bank.
* Sale of the Company`s headquarters building in the third quarter creating a
deferred gain on sale of $2.2 million which will reduce future period pre-tax
overhead expenses by approximately $220 thousand per year. The sale also reduced
the Company`s non-earning assets by $5.8 million and improved overall liquidity
for the Bank.
* The announcement of the closure of the Bank`s Los Angeles office in February
2009 which resulted in a pre-tax charge in the fourth quarter of $148 thousand
and will reduce pre-tax overhead expenses by approximately $525 thousand per
year in future periods.
* Implemented more proactive risk-management measurements and monitoring methods
of the loan portfolio resulting in the charge-off of $5.4 million in loans at
the Bank and $0.6 million at Celtic Capital during the year. The combined
provision for loan losses totaled $6.6 million of which $5.6 million was
recorded at the Bank and $1.0 million at Celtic Capital.
* Strengthened reporting lines within the Bank providing for better segregation
of duties between the origination, underwriting, pricing and approval of new and
renewed loans and the assessment of risk rating associated with each loan.
* Implemented an overhaul of the Bank`s deposit offerings including the offering
of remote capture and a more competitive, cost-effective deposit pricing
methodology.

These initiatives along with ongoing vigilance in managing our day-to-day
operations are intended to enable us to continue to successfully manage our way
through the unprecedented economic environment we are in and make it possible
for us to take advantage of the opportunities that such an environment
presents."

Financial Overview

For the three months ended December 31, 2008, the Company posted a net loss of
$3.618 million or $1.89 per diluted share, which includes a nonrecurring charge
of $1.467 million or $0.77 per diluted share for the sale of Celtic Capital and
$90 thousand or $0.05 per diluted share for costs associated with the
discontinuance of the Bank`s Los Angeles office. This compares with a net loss
of $517 thousand, or $0.27 per diluted share in the fourth quarter of 2007, and
a loss of $685 thousand, or $0.36 per diluted share in the third quarter of
2008.

Year-end consolidated assets totaled $172.7 million, compared to $182.1 million
at September 30, 2008 and $211.6 million at December 31, 2007. Consolidated
loans, net of unearned income at December 31, 2008 equaled $136.0 million,
compared to $159.0 million at September 30, 2008 and $173.4 million at December
31, 2007. The decline in assets and loans at the 2008 year-end reflects the sale
of Celtic Capital in the fourth quarter and an intentional reduction in loans
through an increase in the sale of loan participations during the fourth
quarter.

Total deposits at year-end 2008 equaled $144.7 million compared with $136.0
million at September 30, 2008 and $147.9 million at December 31, 2007.
Noninterest bearing deposits totaled $29.2 million or 20.2% of total deposits at
December 31, 2008 compared to $33.4 million or 24.5% at September 30, 2008 and
$32.3 million or 21.8% at December 31, 2007.

Total money market and NOW accounts declined by $19.6 million year-over-year
from $51.1 million to $31.5 million. In 2007 prior management increased the
rates offered on money market accounts to 5% or more resulting in a rapid run-up
in those deposits. New management reduced the rates offered on these accounts to
market levels in early 2008 resulting in the anticipated runoff.

Consolidated Operating Results

Consolidated net interest income, before provision for loan losses, declined by
16% for the twelve months ended December 31, 2008 to $9.218 million from $10.965
million for 2007, reflecting continued compression of interest rates and the net
interest margin. For the three months ended December 31, 2008 consolidated net
interest income, before provision for loan losses, equaled $1.928 million
representing a decline of 17.3% from the $2.332 million in the quarter ended
September 30, 2008. The decline was largely attributed to the Bank having a
higher volume of rate sensitive assets than rate sensitive liabilities, which
negatively impacts interest income in a declining rate environment and, on a
consolidated basis, a higher average volume of nonaccrual loans than in the 2007
quarter. The consolidated net interest margin for the year was 5.09% compared to
6.08% for all of 2007. For the fourth quarter of 2008 the consolidated net
interest margin was 4.30% compared to 5.16% for the third quarter of 2008.

Noninterest income increased 21.6% for the year from $1.165 million in 2007 to
$1.416 million in 2008. The increase was largely due to an increase in fee
income on the sale of SBA loans and service charges on deposit accounts offset
by a reduction in the gain on the sale of assets. The 2007 noninterest income
total includes a $223 thousand nonrecurring gain on the sale of other real
estate owned. Excluding the one-time gain, noninterest income increased by 50.3%
or $474 thousand to $1.416 million for all of 2008 compared to an adjusted
$0.942 million for all of 2007.

For the 2008 fourth quarter noninterest income declined to $212 thousand from
$324 thousand in the third quarter, largely due to a reduction in fee income on
Celtic Capital loans due to the sale of the subsidiary in December.

Noninterest expense was mostly unchanged year-to-year increasing only 2% or $163
thousand dollars. IT expenses increased by $187 thousand or 43% in 2008 due to
remote capture rollout, implementation of item imaging and increased internet
banking activity. Salaries and benefits increased 1% and all other noninterest
expense decreased by 1%.

Asset quality

At December 31, 2008 total consolidated nonperforming assets, which consist of
real estate taken in foreclosure ("OREO"), loans on non-accrual and loans past
due 90 days or more, equaled $11.7 million compared with $12.2 million at
September 30, 2008 and $12.5 million December 31, 2007. The consolidated totals
include $0.8 million of loans originated by Celtic Capital but not included in
the sale of the company. These loans, which are reserved at 94% at year-end, are
expected to be self liquidating.

Total nonperforming assets at Discovery Bank, net of government guarantees
totaled $11.2 at December 31, 2008, compared with $11.6 million at September 30,
2008 and $12.5 million at December 31, 2007. Loans are placed on non-accrual
status if there is reasonable doubt as to the collectability of principal and
interest in accordance with the original credit terms. The totals include OREO
of $1.814 million as of December 31, 2008 compared to no OREO as of December 31,
2007.

Total consolidated net loan charge offs for 2008 equaled $5.9 million, comprised
of $5.3 million at the Bank and $0.6 million at Celtic Capital. The allowance
for loan and lease losses at Discovery Bank as of December 31, 2008 represented
2.5% of loans outstanding compared 2.6% on a sequential-quarter basis and 2.1%
at December 31, 2007. The coverage ratio of Bank reserves to nonperforming loans
equaled 36.3% at December 31, 2008 compared with 30.6% at September 30, 2008 and
25.3% at December 31, 2007.

The consolidated allowance for loan and lease losses as of the 2008 year-end,
including Celtic Capital, represented 3.1% of loans outstanding compared to 2.5%
on a sequential-quarter basis and 2.0% at December 31, 2007.

The Company`s December 31, 2008 Total Capital to Risk-Weighted Asset Ratio, Tier
1 Capital to Risk-Weighted Asset Ratio and Tier 1 Leverage Capital Ratio were
14.3%, 13.0% and 10.9%, respectively, and remain above the levels required for a
"Well Capitalized" designation by regulatory definition. The Total Capital to
Risk-Weighted Asset Ratio, Tier 1 Capital to Risk-Weighted Asset Ratio and Tier
1 Leverage Capital Ratio for the Bank at December 31, 2008 were 12.8%, 11.5% and
10.6%, respectively.

Regulatory Matters

The Bank entered into an agreement with the FDIC in December agreeing to
maintain a minimum Tier 1 Leverage Capital Ratio of 10.0% until it has achieved
twelve months of profitability and no less than 8.0% thereafter. Other key
aspects of the agreement provide for the Bank to: continue to retain qualified
management; maintain an adequately funded allowance for loan and lease losses;
develop written plans to reduce adversely classified assets, reduce loan
concentration risks, and increase traditional liquid assets; and, develop and
implement a three year strategic plan. Mercardante said, "We have already made
great strides in addressing the provisions of the agreement and do not
anticipate any difficulty in complying fully. We will take all steps necessary
to have the agreement terminated as quickly as possible."

Corporate Profile

Discovery Bancorp is a bank holding company serving the financial needs of small
to medium-sized businesses, professionals and individuals in San Diego County
through its subsidiary, Discovery Bank. Discovery Bank was founded in 2001 and
has offices in San Marcos, Poway and Los Angeles, California. 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.

DISCOVERY BANCORP AND SUBSIDIARIES
(dollars in thousands, except per share data)
Three Months Ended
December 31, September 30,
Consolidated Statements of Income 2008 2007 % Change 2008
(Unaudited) (Unaudited) (Unaudited)

Interest income $ 2,890 $ 4,692 -38.4 % $ 3,390
Interest expense 962 1,850 -48.0 % 1,058
Net interest income 1,928 2,842 -32.2 % 2,332
Provision for loan losses 3,238 1,329 143.6 % 1,291
Net interest income (loss) after provision (1,310 ) 1,513 -186.6 % 1,041

Non-interest income 212 257 -17.5 % 324
Non-interest expense 2,403 2,713 -11.4 % 2,513
(Loss) before income taxes (3,501 ) (943 ) -271.3 % (1,148 )
Loss on Sale of Celtic (2,400 ) - -
Loss on Branch Closure (148 ) - -
Income tax provision (benefit) (2,431 ) (426 ) -470.7 % (463 )
Net (Loss) $ (3,618 ) $ (517 ) -599.8 % $ (685 )

Basic EPS ($1.89 ) ($0.27 ) ($0.36 )
Diluted EPS ($1.89 ) ($0.27 ) ($0.36 )
Average shares outstanding 1,911,604 1,885,651 1,911,604
Average diluted shares outstanding 1,911,604 1,923,430 1,911,604
Actual Common shares outstanding at end of period 1,911,604 1,868,792 1,911,604

Performance Ratios
Return on average equity (annualized) -62.1 % -8.0 % - -11.4 %
Return on average assets (annualized) -7.8 % -1.0 % - -1.4 %
Net Interest Margin 4.3 % 6.0 % -28.2 % 5.2 %
Loan Yield 7.1 % 10.4 % -31.6 % 8.1 %
Investment Yield 5.2 % 6.6 % -20.9 % 5.8 %
Cost of Interest-bearing Deposits 2.8 % 3.9 % -26.6 % 3.0 %
Cost of Borrowings 4.2 % 6.9 % -38.3 % 4.8 %
Efficiency ratio 112.3 % 87.5 % - 94.9 %

Twelve Months Ended
December 31,
Consolidated Statements of Income 2008 2007 % Change
(Unaudited) (Audited)

Interest income $ 13,642 $ 18,181 -25.0 %
Interest expense 4,424 7,216 -38.7 %
Net interest income 9,218 10,965 -15.9 %
Provision for loan losses 6,578 1,415 364.9 %
Net interest income (loss) after provision 2,640 9,550 -72.4 %

Non-interest income 1,416 1,165 21.6 %
Non-interest expense 10,353 10,190 1.6 %
Income (loss) before income taxes (6,297 ) 525 -1299.4 %
Loss on Sale of Celtic (2,400 ) -
Loss on Branch Closure (148 ) -
Income tax provision (benefit) (3,432 ) 190 -1906.3 %
Net Income (Loss) $ (5,413 ) $ 335 -1715.8 %

Basic EPS ($2.84 ) $0.17
Diluted EPS ($2.84 ) $0.17
Average shares outstanding 1,903,416 1,924,948
Average diluted shares outstanding 1,903,416 1,939,493
Actual Common shares at end of period 1,911,604 1,868,792

Performance Ratios
Return on average equity (annualized) -23.2 % 1.3 %
Return on average assets (annualized) -2.8 % 0.2 %
Net Interest Margin 5.1 % 6.1 % -16.3 %
Loan Yield 8.1 % 10.7 % -24.0 %
Investment Yield 4.5 % 4.5 % 0.4 %
Cost of Interest-bearing Deposits 2.6 % 4.5 % -41.4 %
Cost of Borrowings 6.7 % 7.2 % -7.5 %
Efficiency ratio 97.4 % 84.0 %

December 31, September 30,
Consolidated Balance Sheets 2008 2007 % Change 2008
(Unaudited) (Audited) (Unaudited)
Assets
Cash and due from banks $ 4,573 $ 12,245 -62.7 % $ 5,722
Federal funds sold 23,835 6,245 281.7 % 8,955
Investment securities
Available for Sale 1,813 4,587 -60.5 % 3,457
Unrealized Gain (Loss) 25 14 78.6 % 5
Interest bearing deposits at banks 2,398 6,824 -64.9 % 3,974
Loans, net of unearned income 135,955 173,414 -21.6 % 159,005
Less allowance for loan losses 4,171 3,496 19.3 % 3,923
Net loans 131,784 169,918 -22.4 % 155,082
Other assets 8,318 11,719 -29.0 % 4,929
Total $ 172,746 $ 211,552 -18.3 % $ 182,124
Liabilities and Shareholders' Equity
Deposits
Non-interest bearing deposits $ 29,167 $ 32,254 -9.6 % $ 33,379
Money Market & NOW 31,510 51,107 -38.4 % 38,799
Savings 1,913 1,376 39.0 % 1,802
Time Deposits (interest bearing) 82,079 63,118 30.0 % 62,060
Total Deposits 144,669 147,855 -2.2 % 136,040
Accrued interest and other liabilities 3,001 1,374 118.4 % 2,275
Other borrowings 5,000 37,505 -86.7 % 20,264
Total Liabilities 152,670 186,734 -18.2 % 158,579
Shareholders' Equity
Common stock 23,678 23,013 2.9 % 23,541
Retained earnings (deficit) (3,617 ) 1,797 -301.3 % 1
Accumulated other comprehensive income (loss) 15 8 87.5 % 3
Total Shareholders' Equity 20,076 24,818 -19.1 % 23,545
Total Liabilities and Shareholders' Equity $ 172,746 $ 211,552 -18.3 % $ 182,124

Book value per share at end of period $10.50 $13.28 -20.9 % $12.32
Tangible Book value per share, net of Goodwill, at end of period $10.50 $12.35 -15.0 % $11.41

Capital Ratios - Consolidated
Total Risk-Based capital ratio 14.3 % 13.5 % 13.3 %
Tier 1 Risk-Based capital ratio 13.0 % 12.2 % 12.1 %
Tier 1 Leverage Ratio 10.9 % 11.7 % 11.6 %

Capital Ratios - Bank Only
Total Risk-Based capital ratio 12.8 % 11.2 % 11.1 %
Tier 1 Risk-Based capital ratio 11.5 % 10.0 % 9.9 %
Tier 1 Leverage Ratio 10.6 % 9.5 % 9.4 %

Consolidated Asset Quality:
Non Accrual Loans 9,862 10,817 12,198
90+ day delinquencies, still accruing interest 10 1,731 0
OREO 1,814 0 0
Non-performing assets ("NPA") 11,686 12,548 12,198
NPA net of government guarantee 11,686 12,548 12,104
Net Loan Charge-offs 5,924 944 2,913
Net charge-offs to average loans (annualized) 3.7 % 0.6 % 2.4 %
Allowance for loan and lease losses (ALLL) 4,171 3,496 3,923
ALLL to total loans 3.1 % 2.0 % 2.5 %
ALLL to non-performing loans 42.3 % 27.9 % 32.2 %

Bank Only Asset Quality:
Non Accrual Loans 9,420 10,817 11,657
90+ day delinquencies, still accruing interest 10 1,731 0
OREO 1,814 0 0
Non-performing assets ("NPA") 11,244 12,548 11,657
NPA net of government guarantee 11,244 12,548 11,563
Net Loan Charge-offs 5,342 944 2,331
Net charge-offs to average loans (annualized) 3.8 % 0.7 % 2.2 %
Allowance for loan and lease losses (ALLL) 3,424 3,170 3,570
ALLL to total loans 2.5 % 2.1 % 2.6 %
ALLL to non-performing loans 36.3 % 25.3 % 30.6 %

Celtic Only Asset Quality:
Non Accrual Loans - - 541
90+ day delinquencies, still accruing interest - - -
OREO - - -
Non-performing assets ("NPA") - - 541
NPA net of government guarantee - - 541
Net Loan Charge-offs 582 - 582
Net charge-offs to average loans (annualized) 3.0 % - 3.7 %
Allowance for loan and lease losses (ALLL) - 326 353
ALLL to total loans - 1.5 % 1.8 %
ALLL to non-performing loans - - 65.3 %

Bancorp Only Asset Quality:
Non Accrual Loans 442 - -
90+ day delinquencies, still accruing interest - - -
OREO - - -
Non-performing assets ("NPA") 442 - -
NPA net of government guarantee 442 - -
Net Loan Charge-offs - - -
Net charge-offs to average loans (annualized) - - -
Allowance for loan and lease losses (ALLL) 747 - -
ALLL to total loans 94.4 % - -
ALLL to non-performing loans 169.0 % - -

Discovery Bancorp
Frank J. Mercardante
President and CEO
760-759-7600

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