Safe and Sound

Discover Bank

Greenwood, DE
5
Star Rating
Discover Bank is an FDIC-insured bank started in 1911 and currently headquartered in Greenwood, DE.98,729,134 The bank holds equity of $10.54 billion on $98.73 billion in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $60.82 billion on deposit at 2 offices in DE run by 11,834 full-time employees. With that footprint, the bank has amassed loans and leases worth $81.62 billion, including real estate loans of $368.8 million.

Overall, Bankrate believes that, as of December 31, 2017, Discover Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a look at how the bank fared on the three key criteria Bankrate used to evaluate U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and provides protection for account holders when a bank is struggling financially. Therefore, a bank's level of capital is an essential measurement of an institution's financial resilience. From a safety and soundness perspective, the higher the capital, the better.

Discover Bank finished below the national average of 13.19 on our test to measure capital adequacy, receiving a score of 12 out of a possible 30 points.

One essential 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 25.67 percent. A higher capital ratio means the bank will be better able to stand up to economic difficulties.

Overall, Discover Bank held equity amounting to 10.68 percent of its assets, which was lower than the national average of 12.04 percent.

Asset Quality Score

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

A bank with lots of these types of assets may eventually have to use capital to cover losses, shrinking its equity cushion. Many of those assets are also likely to be in non-accrual status and no longer earning money, decreasing earnings and elevating the chances 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 37.70.

A widely used 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, meaning they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.14 percent.

Banks keep a reserve to deal with troubled assets known as an "allowance for loan and lease losses." How large that reserve is can be a widely used indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problematic loans. 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 affects its safety and soundness. A bank can retain its earnings, boosting its capital cushion, or use them to deal with problematic loans, potentially making the bank more resilient in tough times. Losses, on the other hand, take away from a bank's ability to do those things.

On Bankrate's earnings test, Discover Bank scored 28 out of a possible 30, exceeding the national average of 16.06.

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

For the twelve months ended December 31, 2017, the bank reported net income of $1.98 billion on total equity of $10.54 billion. The bank experienced 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.