Safe and Sound

Discover Bank

Greenwood, DE
5
Star Rating
Founded in 1911, Discover Bank is an FDIC-insured bank headquartered in Greenwood, DE. As of June 30, 2017, the bank held equity of $10.60 billion on $92,584,050,000 in assets.

Thanks to the efforts of 12,353 full-time employees in 2 offices in DE, the bank holds loans and leases worth $75.61 billion, including real estate loans of $282.1 million. U.S. bank customers currently have $55.20 billion in deposits with the bank.

Overall, Bankrate believes that, as of June 30, 2017, Discover Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a breakdown of how the bank did on the three major criteria Bankrate used to grade U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is an essential measurement of an institution's financial resilience. It works as a buffer against losses and as protection for accountholders when a bank is experiencing financial instability. When it comes to safety and soundness, more capital is preferred.
Discover Bank scored above the national average of 13.38 points on our test to measure capital adequacy, achieving a score of 14 out of a possible 30 points.

A bank's Tier 1 capital ratio is an essential measure of this buffer. Discover Bank's Tier 1 capital ratio was 13.30 percent, above the 6 percent level regulators consider adequate, but less than the national average of 25.16 percent. A higher capital ratio means the bank will be better able to stand up to economic downturns.

Overall, Discover Bank held equity amounting to 11.45 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

This test is intended to estimate how the bank's reserves set aside to cover loan losses, as well as overall capitalization could be affected by troubled assets, such as past-due loans.

Having a large number of these kinds of assets may eventually require a bank to use capital to cover losses, decreasing its cushion of equity. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning interest for the bank, diminishing earnings and increasing the risk of a future failure.

On Bankrate's asset quality test, Discover Bank scored 40 out of a possible 40 points, beating out the national average of 37.62 points.

The percentage of problem assets a bank holds compared to its total assets is a useful indicator of asset quality.As of June 30, 2017, 1.08 percent of Discover Bank's loans were noncurrent -- in other words, they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.04 percent.

Banks maintain a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . Comparing the that reserve's size to the total amount of problematic loans can be a helpful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Discover Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money has an effect on its long-term survivability. Earnings can be retained by the bank, increasing its capital cushion, or be used to deal with problematic loans, potentially making the bank more resilient in times of trouble. Losses, on the other hand, reduce a bank's ability to do those things.

Discover Bank exceeded the national average on Bankrate's test of earnings, achieving a score of 30 out of a possible 30.

Return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity, is one important way to measure a bank's earnings. Discover Bank's most recent annualized quarterly return on equity was 20.42 percent, above the national average of 9.28 percent.

For the twelve months ended June 30, 2017, the bank earned net income of $1.08 billion on total equity of $10.60 billion. The bank reported an annualized return on average assets, or ROA, of 2.33 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above the average for U.S. banks of 1.14 percent.

WHAT IS SAFE & SOUND?

Bankrate.com's Safe & Sound Ratings provide a star rating system to evaluate the current financial status of financial institutions. The information gathered about banks, credit unions and thrifts is updated as set forth in the Terms of Use of Safe & Sound Ratings and Reports. The Safe & Sound Ratings information is grouped by categories of banks, thrifts and credit unions.

Scoring methodology

Bankrate.com evaluates the financial condition of institutions and assigns a one- to five-star rating for each with five stars representing the highest rating. Institutions with satisfactory performance will generally receive a rating of three or more stars. The majority of institutions fall into the three- to four-star range. An institution with an "NR" rating may be too new to rate or may have limited the publicly available information in their regulatory filings. The "NR" is not an indication of financial strength or weakness. The Safe & Sound rating is believed to be reliable, but the information is not guaranteed. In addition, events since the information was collected may have altered the institution's financial condition.