Discover 2015 Annual Report Download - page 36

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see "Management's Discussion and Analysis of Financial Condition and Results of Operations — Regulatory
Environment and Developments" and “Risk Factors."
Capital, Dividends and Share Repurchases
We, Discover Bank and Bank of New Castle are subject to capital adequacy guidelines adopted by federal
banking regulators, which include maintaining minimum capital and leverage ratios for capital adequacy and higher
ratios to be deemed "well-capitalized." We and our subsidiary banks are each required to maintain Tier 1 and total
capital equal to at least 6% and 8% of our total risk-weighted assets, respectively. We and our subsidiary banks are
also required to maintain a minimum "leverage ratio" (Tier 1 capital to adjusted total assets) of 4% and a common
equity Tier 1 capital ratio (common equity Tier 1 capital to total risk-weighted assets) of 4.5%. Further, under the
Federal Reserve's annual capital plan requirements, Discover Financial Services is required to demonstrate that under
stress scenarios we will maintain each of the minimum capital ratios on a pro-forma basis throughout the nine month
planning horizon.
In addition to the supervisory minimum levels of capital described above, Federal Reserve and FDIC rules
applicable to Discover Financial Services and its subsidiary banks, respectively, require maintenance of the following
minimum capital ratios to be considered "well-capitalized": (i) a common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1
risk-based capital ratio of 8%; (iii) a total risk-based capital ratio of 10%; and (iv) a Tier 1 leverage ratio of 5%. At
December 31, 2015, Discover Financial Services met all requirements to be deemed "well-capitalized". For related
information regarding our bank subsidiaries see "—FDIA" below.
There are various federal and state law limitations on the extent to which our banking subsidiaries can provide
funds to us through dividends, loans or otherwise. These limitations include minimum regulatory capital requirements,
federal and state banking law requirements concerning the payment of dividends out of net profits or surplus, affiliate
transaction limits and general federal and state regulatory oversight to prevent unsafe or unsound practices. In general,
federal and applicable state banking laws prohibit, without first obtaining regulatory approval, insured depository
institutions, such as our banking subsidiaries, from making dividend distributions if such distributions are not paid out of
available earnings or would cause the institution to fail to meet applicable capital adequacy standards. For more
information, see "— FDIA" below.
Additionally, we are required to submit an annual capital plan to the Federal Reserve that includes an assessment
of our expected uses and sources of capital over the nine quarter planning horizon. In January 2015, we submitted our
annual capital plan to the Federal Reserve under the Federal Reserve’s Comprehensive Capital Analysis and Review, or
CCAR, program, which included planned dividends and share repurchases over the nine quarter planning horizon. In
March 2015, we received non-objection from the Federal Reserve with respect to our proposed capital actions through
June 30, 2016. In April 2016, we will be submitting our annual capital plan to the Federal Reserve under the Federal
Reserve’s CCAR program, which includes planned dividends and share repurchases over the nine quarter planning
horizon. Our ability to make capital distributions, including our ability to pay dividends or repurchase shares of our
common stock, is subject to the Federal Reserve's review and non-objection of the actions that we proposed in our
annual capital plan. In addition, Discover Financial Services is required to publish company-run stress tests results twice
each year in accordance with Federal Reserve rules and Discover Bank is required to publish company-run stress test
results under FDIC rules.
For more information, including additional conditions and limits on our ability to pay dividends and repurchase
our stock, see "Risk Factors — Credit, Market and Liquidity Risk — We may be limited in our ability to pay dividends
on and repurchase our stock" and "— We are a holding company and depend on payments from our subsidiaries,"
"Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital
Resources — Capital" and Note 18: Capital Adequacy to our consolidated financial statements.
FDIA
The FDIA imposes various requirements on insured depository institutions. For example, the FDIA requires,
among other things, the federal banking agencies to take "prompt corrective action" in respect of depository institutions
that do not meet minimum capital requirements. The FDIA sets forth the following five capital tiers: "well-capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." A
depository institution's capital tier will depend upon how its capital levels compare with various relevant capital
measures and certain other factors that are established by regulation. At December 31, 2015, Discover Bank and Bank
of New Castle met all applicable requirements to be deemed "well-capitalized."