Safe and Sound

Discover Bank

Greenwood, DE
5
Star Rating
Founded in 1911, Discover Bank is an FDIC-insured bank based in Greenwood, DE. As of December 31, 2017, the bank had equity of $10.54 billion on $98.73 billion in assets.

Thanks to the efforts of 11,834 full-time employees in 2 offices in DE, the bank currently holds loans and leases worth $81.62 billion, $368.8 million of which are for real estate. The bank currently holds $60.82 billion in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, Discover Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a breakdown of how the bank fared 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 acts as a bulwark against losses and provides protection for account holders during periods of economic trouble for the bank. Therefore, when it comes to measuring an a bank's financial fortitude, capital is important. From a safety and soundness perspective, more capital is better.

Discover Bank came in below the national average of 13.13 on our test to measure capital adequacy, racking up 12 out of a possible 30 points.

One important measure of this buffer is a bank's Tier 1 capital ratio. Discover Bank's Tier 1 capital ratio was 12.26 percent, higher than the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather financial downturns.

Overall, Discover Bank held equity amounting to 10.68 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's capitalization and allocated loan loss reserves could be affected by troubled assets, such as unpaid mortgages.

A bank with a large number of these kinds of assets may eventually have to use capital to absorb losses, shrinking its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, resulting in depressed earnings and potentially more risk of a failure in the future.

Discover Bank scored 36 out of a possible 40 points on Bankrate's asset quality test, lower than the national average of 37.49.

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 1.18 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 1.01 percent.

Banks keep a reserve to handle problem assets known as an "allowance for loan and lease losses." Comparing how large that reserve is to the total amount of problematic loans can be a widely used 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

How profitable a bank is has an effect on its safety and soundness. A bank can retain its earnings, giving a boost to its capital buffer, or put them to work addressing problematic loans, likely making the bank better able to withstand economic shocks. Conversely, losses reduce a bank's ability to do those things.

On Bankrate's earnings test, Discover Bank scored 28 out of a possible 30, beating out the national average of 15.12.

One important way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity. Discover Bank's most recent annualized quarterly return on equity was 18.71 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $1.98 billion on total equity of $10.54 billion. The bank reported an annualized return on average assets, or ROA, of 2.09 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above the average for U.S. banks of 1.00 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.