GREENWOOD – Discover Bank has received an Outstanding rating on its Community Reinvestment Act (CRA) review, a process that assesses banks’ record of helping to meet the credit needs of low- and moderate-income neighborhoods. It is the fifth time in six exam cycles since 2004 that the bank, which is primarily a marketer and originator of credit cards and the operator of the Discover Network credit card interchange, has received an Outstanding rating from the Federal Deposit Insurance Corp. (FDIC). [caption id="attachment_200496" align="alignright" width="374"] Matt Parks, Amy Walls and Jim Roszkowski at NDC | Photo c/o Discover Bank[/caption] “Bank management has been creative in designing and implementing the bank’s CRA program, which includes providing loans and investments through partnerships with various for-profit and nonprofit organizations and financial institutions,” the FDIC said in the report. “The bank has also provided responsive grants and significant technical expertise to address community development needs.” Discover has only one branch and provides financial services through a nationwide direct bank strategy, using internet, mail, and phone. Loan products include personal credit cards, personal loans, student loans, home equity loans, deposit products, and small business credit cards. The CRA review was conducted during the fourth quarter of 2019 and covered the 2017, 2018, and 2019 calendar years. Discover met or exceeded its goals in the following areas.

1. New Community Development Loans and Investments, providing $408 million in new qualified community development loans and investments ($117.8 million of that in 2019), exceeding its annual goals.
2. Ratio of Community Development Loans and Qualified Investments to Average Assets, achieving at least a 0.60% ratio in all three years and meeting its annual goals.
3. Community Development Grants, providing 190 community development grants and in-kind contributions totaling $13.6 million ($4.2 million in 2019), exceeding its annual goals.
4. Community Development Services, with the bank exceeding its annual goals each year based on a point system created to track community development services.
5. Consumer Loans in Moderate-Income Census Tracts, extending $7.4 million in consumer credit to its assessment area (2.2 million of that in 2019).
6. CRA-Related Complaints. The bank did not receive any during the evaluation period.

CRA “is a key focus within Discover, and we would not be happy with a Satisfactory,” Discover Bank President Jim Roszkowski said. “That's how we approach CRA. It’s not just a feel-good rating. A poor rating limits what banks can do.” Roszkowski described Amy Walls and Matt Parks, the bank’s respective CRA assistant director and director, as the “backbone” of Discover’s program, saying they’re responsible for understanding community needs and creating or participating in programs that will have an impact on such areas as foreclosure prevention, affordable housing, small business and economic development, financial literacy, and affordable consumer loans. “We feel that we run the best program within the FDIC network, not just because we’re trying to address community need or because we’re trying to check a box to get a rating,” Roszkowski said. “We leverage the public, private, and academic sectors and focus on being innovative in finding and developing the best programs that meet community needs.” The Outstanding comes on the heels of Roszkowski being honored in February by the New York-based National Development Council (NDC), which directs capital to support the development and preservation of affordable housing, the creation of jobs through training and small business lending and the advancement of livable communities through investment in social infrastructure. Since Discover doesn’t issue commercial loans on its own, it provides capital to organizations such as NDC. Through that relationship, Discover Bank has:

• Partnered with the state of Delaware and the Longwood Foundation in providing capital to NDC’s community development lender for below-market loans to small businesses in low-income areas.
• Financed the Delaware Innovation Space, which works with science and technology start-ups to transform them into industry-leading enterprises.
• Invested in NDC’s Community Impact Loan Fund to provide affordable debt to develop the Delaware Fintech Center on the University of Delaware’s STAR Campus. Discover just committed to a $38 million EQ2 CRA investment toward construction of the center.

“Discover has been a willing and very innovative partner that allows us to do things that are a little more non-vanilla than other relationships,” said NDC President and CEO Dan Marsh. “We’ve worked with Matt, Amy, and Jim to put together what I believe is one of the most innovative small business lending efforts in the nation.” Marsh said that NDC has “many different banking relationships but in our relationship with Discover, we have actually been able to be creative with our small-business lending products.” “Matt determined a need in the market to provide [low-cost] capital because, in light of what has happened at DuPont and with the car industry, it’s more important than ever to support small-business creation and expansion,” Marsh said. “Discover agreed to buy our SBA loans fixed at seven-year Treasury and we agreed to cap our fees, which enabled us to provide loans at several hundred basis points below prevailing market rates. And they, along with other partners, provided grants that covered some of our administrative expenses to keep the rates as low as possible.” The FDIC also praised Discover for:

• Committing $15 million to Cinnaire’s Affordable Housing Preservation Fund, which provides incentives to acquire, preserve, and rehabilitate rural affordable multi-family rental properties. This commitment helped transition 400 units of rental housing in coastal areas, a project that took most of the exam period and included getting approvals, identifying loan components; securing grants, and devoting service hours to the project.
• Financing the development and preservation of affordable rental housing through its own Affordable Housing Investment Fund, where Walls and Parks work with for-profit and nonprofit developers to identify projects in need of tax-credit equity and offset costs for project development, resident programs, and educational opportunities. Through this program, Discover has committed $77.3 million in equity, including $60.3 million in 2019.
• Developing an immigration loan program, in partnership with the Capital Good Fund, which provides loans for citizenship and family unification
• Working with the Delaware State Housing Authority to help low- and moderate-income families achieve the dream of home ownership.

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By Peter Osborne posborne@delawarebusinesstimes.com