Discover 2015 Annual Report Download - page 148

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17. Earnings Per Share
The following table presents the calculation of basic and diluted earnings per share ("EPS") (in millions, except
per share amounts):
For the Years Ended December 31,
2015 2014 2013
Numerator
Net income ...................................................................................................................... $ 2,297 $ 2,323 $2,470
Preferred stock dividends .................................................................................................. (37) (37)(37)
Net income available to common stockholders ................................................................ 2,260 2,286 2,433
Income allocated to participating securities ......................................................................... (14) (16)(19)
Net income allocated to common stockholders ................................................................ $ 2,246 $ 2,270 $2,414
Denominator
Weighted-average shares of common stock outstanding ...................................................... 437 462 485
Effect of dilutive common stock equivalents ......................................................................... 112
Weighted-average shares of common stock outstanding and common stock equivalents...... 438 463 487
Basic earnings per common share ......................................................................................... $ 5.14 $ 4.91 $ 4.97
Diluted earnings per common share ....................................................................................... $ 5.13 $ 4.90 $ 4.96
Anti-dilutive securities were not material and had no impact on the computation of diluted EPS for any of the
years ended December 31, 2015, 2014 and 2013.
18. Capital Adequacy
The Company is subject to the capital adequacy guidelines of the Federal Reserve, and Discover Bank, the
Company’s main banking subsidiary, is subject to various regulatory capital requirements as administered by 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 Discover Bank. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and Discover Bank must meet specific capital guidelines that involve quantitative
measures of assets, liabilities and certain off-balance sheet items, as calculated under regulatory guidelines. Capital
amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings
and other factors.
In 2013, the Federal Reserve, the Office of the Comptroller of the Currency and the FDIC issued final capital rules
under the Basel Committee’s December 2010 framework (referred to as “Basel III”) establishing a new comprehensive
capital framework for U.S. banking organizations. The final capital rules of Basel III ("Basel III rules") substantially revise
Basel I rules regarding the risk-based capital requirements applicable to bank holding companies and depository
institutions, including the Company. The Basel III rules became effective for the Company on January 1, 2015. This
timing is based on the Company being classified as a "Standardized Approach" entity.
Among other things, the Basel III rules (i) introduce a new capital measure called Common Equity Tier 1 (“CET1”),
(ii) specify that Tier 1 capital consists of CET1 and additional Tier 1 capital instruments meeting specified requirements,
(iii) apply most deductions/adjustments to regulatory capital measures to CET1 and not to the other components of
capital, thus potentially requiring higher levels of CET1 in order to meet minimum ratios and (iv) expand the scope of
the deductions/adjustments from capital as compared to existing regulations.
The Basel III minimum capital ratios as of January 1, 2015 are as follows:
• 8.0% Total capital (i.e., Tier 1 plus Tier 2) to risk-weighted assets;
• 6.0% Tier 1 capital (i.e., CET1 plus Additional Tier 1) to risk-weighted assets;