Discover 2010 Annual Report Download - page 143

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, 2010, 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,
2010 and 2009 and comparisons of each to the regulatory minimum and “well-capitalized” requirements (dollars in
thousands):
Actual
Minimum Capital
Requirements
Capital Requirements To Be
Classified as Well-Capitalized
Amount Ratio Amount Ratio Amount Ratio
November 30, 2010(1):
Total risk-based capital (to risk-weighted assets)
Discover Financial Services ........................................................... $7,946,619 15.9% $3,989,689 ≥8.0% $4,987,111 ≥10.0%
Discover Bank ............................................................................. $7,817,205 15.9% $3,923,344 ≥8.0% $4,904,180 ≥10.0%
Tier I capital (to risk-weighted assets)
Discover Financial Services ........................................................... $6,095,000 12.2% $1,994,844 ≥4.0% $2,992,266 ≥6.0%
Discover Bank ............................................................................. $5,975,824 12.2% $1,961,672 ≥4.0% $2,942,508 ≥6.0%
Tier I capital (to average assets)
Discover Financial Services ........................................................... $6,095,000 9.9% $2,464,324 ≥4.0% $3,080,406 ≥5.0%
Discover Bank ............................................................................. $5,975,824 9.8% $2,431,610 ≥4.0% $3,039,512 ≥5.0%
November 30, 2009:
Total risk-based capital (to risk-weighted assets)
Discover Financial Services ........................................................... $9,516,965 17.9% $4,262,230 ≥8.0% $5,327,788 ≥10.0%
Discover Bank ............................................................................. $8,210,450 15.8% $4,168,103 ≥8.0% $5,210,129 ≥10.0%
Tier I capital (to risk-weighted assets)
Discover Financial Services ........................................................... $8,139,309 15.3% $2,131,115 ≥4.0% $3,196,673 ≥6.0%
Discover Bank ............................................................................. $6,572,320 12.6% $2,084,052 ≥4.0% $3,126,077 ≥6.0%
Tier I capital (to average assets)
Discover Financial Services ........................................................... $8,139,309 18.1% $1,798,937 ≥4.0% $2,248,672 ≥5.0%
Discover Bank ............................................................................. $6,572,320 15.9% $1,657,397 ≥4.0% $2,071,746 ≥5.0%
(1) Upon adoption of Statements No. 166 and 167 on December 1, 2009, the Company recorded a $1.4 billion reduction to retained earnings, which reduced total capital and Tier 1 capital by the
same amount, and a $21.1 billion increase to total assets, which impacted average assets. See Note 2: Change in Accounting Principle for more information. Risk-weighted assets were not
significantly impacted by the adoption of Statements No. 166 and 167 as the Company began including securitized assets in its risk-weighted asset calculation beginning in the third quarter 2009
due to actions it took to adjust the credit enhancement structure of the securitization trusts.
The amount of dividends that a bank may pay in any year is subject to certain regulatory restrictions. Under the current
banking regulations, a bank may not pay dividends if such a payment would leave the bank inadequately capitalized. In
the years ended November 30, 2010, 2009 and 2008, Discover Bank paid dividends of $125 million, $0 and $95
million, respectively, to the Company.
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