Discover 2011 Annual Report Download - page 149

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19. Capital Adequacy
The Company is subject to capital adequacy guidelines of the Federal Reserve, and Discover Bank (the “Bank”), the
Company’s main banking subsidiary, is subject to various regulatory capital requirements as administered by the Federal
Deposit Insurance Corporation (the “FDIC”). Failure to meet minimum capital requirements can result in the initiation of
certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material
effect on the financial position and results of the Company and the Bank. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance sheet items, as calculated under regulatory accounting
practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to
maintain minimum amounts and ratios (as defined in the regulations) of total risk-based capital and Tier 1 capital to risk-
weighted assets, and of Tier 1 capital to average assets. As of November 30, 2011, the Company and the Bank met all capital
adequacy requirements to which they were subject.
Under regulatory capital requirements, the Company and the Bank must maintain minimum levels of capital that are
dependent upon the risk-weighted amount or average level of the financial institution’s assets, specifically (a) 8% to 10% of
total risk-based capital to risk-weighted assets (“total risk-based capital ratio”), (b) 4% to 6% of Tier 1 capital to risk-weighted
assets (“Tier 1 risk-based capital ratio”) and (c) 4% to 5% of Tier 1 capital to average assets (“Tier 1 leverage ratio”). To be
categorized as “well-capitalized,” the Company and the Bank must maintain minimum total risk-based, Tier 1 risk-based, and
Tier 1 leverage ratios as set forth in the table below. As of November 30, 2011, the Company and the Bank met the
requirements for well-capitalized status and there have been no conditions or events that management believes have changed
the Company’s or the Bank’s category.
The following table shows the actual capital amounts and ratios of the Company and the Bank as of November 30, 2011
and November 30, 2010 and comparisons of each to the regulatory minimum and “well-capitalized” requirements (dollars in
thousands):
November 30, 2011
Total capital (to risk-weighted assets)
Discover Financial Services
Discover Bank
Tier 1 capital (to risk-weighted assets)
Discover Financial Services
Discover Bank
Tier 1 capital (to average assets)
Discover Financial Services
Discover Bank
November 30, 2010
Total capital (to risk-weighted assets)
Discover Financial Services
Discover Bank
Tier 1 capital (to risk-weighted assets)
Discover Financial Services
Discover Bank
Tier 1 capital (to average assets)
Discover Financial Services
Discover Bank
Actual
Amount
$ 9,808,660
$ 8,671,391
$ 7,850,451
$ 6,724,176
$ 7,850,451
$ 6,724,176
$ 7,946,619
$ 7,817,205
$ 6,095,000
$ 5,975,824
$ 6,095,000
$ 5,975,824
Ratio
16.5%
14.8%
13.2%
11.5%
11.5%
10.0%
15.9%
15.9%
12.2%
12.2%
9.9%
9.8%
Minimum Capital
Requirements
Amount
$ 4,764,887
$ 4,693,645
$ 2,382,444
$ 2,346,822
$ 2,729,480
$ 2,690,135
$ 3,989,689
$ 3,923,344
$ 1,994,844
$ 1,961,672
$ 2,464,324
$ 2,431,610
Ratio
Capital Requirements
To Be Classified as
Well-Capitalized
Amount
$ 5,956,109
$ 5,867,056
$ 3,573,665
$ 3,520,234
$ 3,411,851
$ 3,362,668
$ 4,987,111
$ 4,904,180
$ 2,992,266
$ 2,942,508
$ 3,080,406
$ 3,039,512
Ratio
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