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In the second quarter, Capital One earned $3.5 billion or $7.62 per diluted common share.
Included in the results for the quarter was a $55 million legal reserve build.
Net of this adjusting item, earnings per share in the quarter was $7.71.
On a GAAP basis, pre-provision earnings increased slightly in the sequential quarter to $3.4 billion.
We recorded a provision benefit of $1.2 billion in the quarter as $541 million of charge-offs was offset by a $1.7 billion allowance release.
Revenue grew 4% in the linked quarter, largely driven by the impact of strong Domestic Card purchase volume on noninterest income and the absence of the mark on our Snowflake investment a quarter ago.
Period-end loans held for investment grew $6.5 billion or 3%, inclusive of the effect of moving $4.1 billion of loans to held-for-sale during the quarter.
The loans moved to held-for-sale consisted of $2.6 billion of an International Card partnership portfolio and $1.5 billion in commercial loans.
Turning to Slide 4.
I will cover the changes in our allowance in the quarter.
We released $1.7 billion of allowance, primarily driven by observed strong credit performance and an improved economic outlook.
Turning to Slide 5.
We provide the allowance coverage ratios by segment.
You can see allowance coverage declined in the quarter across all segments, largely reflecting the dynamics I just described.
However, coverage ratios remain well above pre-pandemic levels due to continued economic uncertainty as our allowance is built to absorb a wide range of outcomes.
Our Domestic Card coverage is now 8.9%, down from 10.5% last quarter.
Our branded card coverage is 10.1%.
Recall that the difference between branded and domestic coverage is largely driven by the loss sharing agreements in some of our partnership portfolios.
Coverage in our consumer business declined about 60 basis points to 3%.
In addition to continued strong credit performance and improved economic outlook, historically high auto values aided the reduction in coverage.
Coverage in our Commercial Banking business declined about 25 basis points to 1.7%, with the single largest driver being the improvement in our energy portfolio.
Turning to Page 6.
I'll now discuss liquidity.
You can see our preliminary average liquidity coverage ratio during the first -- during the quarter was 141%.
The LCR continues to be well above the 100% regulatory requirement.
Our liquidity reserves from cash, securities and Federal Home Loan Bank capacity ended the quarter at approximately $137 billion.
The $14 billion decline in total liquidity was driven by lower ending cash balances.
Our cash position declined in the quarter as it was redeployed to net loan growth, wholesale funding maturities, a modest increase in our securities portfolio and share repurchases.
Moving to Page 7.
I'll now discuss net interest margin.
You can see that our second quarter net interest margin was 5.89%, 10 basis points lower than the prior quarter.
The linked-quarter decline in NIM was largely driven by lower yield in our card portfolio, where the typical seasonal decrease in revolve rate was exacerbated by higher transactor volume and associated higher payments.
These impacts were partially offset by the favorable impact from one more day in the quarter.
Lastly, turning to Slide 8.
I will cover our capital position.
Our common equity Tier 1 capital ratio was 14.5% at the end of the second quarter, down 10 basis points from the first quarter.
Loan growth and capital actions were largely offset by earnings growth.
During the quarter, the Federal Reserve released the results of their stress test.
Our stress capital buffer requirement, which will be effective on October 1 of this year, is 2.5%, resulting in a total capital requirement by the Fed of 7%.
While we saw a decline in this year's SCB, it's important to note that the Fed's stress testing results can move around meaningfully from year to year and are only one of many factors that we use in our capital planning process.
Based on our internal modeling, we continue to estimate that our CET1 capital need is around 11%.
Turning to share repurchases.
We repurchased $1.7 billion of common stock in the second quarter, the full amount allowed under the Fed's capital preservation measures.
We have approximately $5.3 billion remaining of our current board authorization of $7.5 billion.
Now let me move on to dividends.
In the third quarter of 2020, we reduced our dividend to $0.10 due to the Fed's capital preservation measures.
We chose to continue this reduced level of dividend in the fourth quarter of 2020 out of an abundance of caution.
The difference between our historical $0.40 dividend and the reduced level for those two quarters was $0.60 per common share.
Therefore, we expect to make up for the reduced level of dividends from the second half of 2020 by paying a $0.60 special dividend in the third quarter of 2021.
In addition to the special dividend, we expect to increase our quarterly common stock dividend from $0.40 per share to $0.60 per share in the third quarter.
Both the $0.60 special dividend and the increase of our quarterly common stock dividend to $0.60 will be subject to board approval.
I'll begin on Slide 10 with our Credit Card business.
Strong year-over-year purchase volume growth drove an increase in revenue compared to the second quarter of 2020, more than offsetting a modest year-over-year decline in loan balances.
And provision for credit losses improved significantly.
Credit Card segment results are largely a function of our Domestic Card results and trends, which are shown on Slide 11.
Second-quarter results reflect building momentum in our Domestic Card business.
As we emerge from the pandemic, consumers are spending more and continuing to make elevated payments.
Accelerating purchase volume growth partially offset the impact of historically high payment rates, resulting in strong revenue growth and a more modest year-over-year decline in loan balances.
High payment rates are continuing to contribute to strikingly strong credit results.
Domestic Card purchase volume for the second quarter was up 48% from the second quarter of 2020.
Purchase volume was up 25% from the second quarter of 2019, which is an acceleration from the first quarter when we saw growth of 17% versus 2019.
T&E spending continues to catch up to overall spending and accelerated through the second quarter.
In June, T&E purchase volume was up 3% compared to June of 2019.
At the end of the quarter, Domestic Card loan balances were down $4.1 billion or about 4% year over year.
Excluding the impact of a partnership portfolio moved to held-for-sale last year, second quarter ending loans declined about 2% year over year.
Compared to the sequential quarter, ending loans were up about 5%, ahead of typical seasonal growth of 2%.
Credit performance remained strikingly strong.
The Domestic Card charge-off rate for the quarter was 2.28%, a 225-basis-point improvement year over year.
The 30-plus delinquency rate at quarter end was 1.68%, 106 basis points better than the prior year.
Provision for credit losses improved by about $3.5 billion year over year.
We swung from a large allowance build in the second quarter last year to a large allowance release this year.
Let me turn to Domestic Card revenue margin.
Purchase volume growth outpacing loan growth and strong credit were the key drivers of Domestic Card revenue margin, which was up 226 basis points year over year to 17.7%.
Revenue margin increased over 50 basis points quarter over quarter, higher than our typical seasonal pattern.
Total company marketing expense was $620 million in the quarter, up $347 million compared to the second quarter of 2020.
Our choices in card marketing are the biggest driver of total company marketing trends.
As we emerge from the pandemic, we're seeing strong originations and purchase volumes.
Our growth opportunities are enhanced by our technology transformation.
We are leaning further into marketing to drive future growth and continue to build our franchise.
At the same time, we're keeping a watchful eye on the competitive environment, which is intensifying.
Pulling up, our Domestic Card business continues to deliver significant value and build momentum.
Slide 12 summarizes second quarter results for our Consumer Banking business.
Auto growth and exceptional auto credit are the main themes in second quarter Consumer Banking results.
Driven by auto, second quarter ending loans increased 12% year over year in the Consumer Banking business.
Average loans also grew 12%.
Auto originations were up 56% year over year and up 47% from the linked quarter.
Pent-up demand and high auto prices drove a second quarter surge in growth across the auto marketplace.
In the context of increased industry growth, our digital capabilities and deep dealer relationship strategy continued to drive strong growth in our auto business.
Second quarter ending deposits in the consumer bank were up $4.4 billion or 2% year over year.
Average deposits were up 9% year over year.
Consumer Banking revenue increased 27% from the prior-year quarter, driven by growth in auto loans and retail deposits.
Second-quarter provision for credit losses improved by $1.2 billion year over year, driven by an allowance release and lower charge-offs in our auto business.
Credit results in our auto business are strikingly strong.
Year over year, the second quarter charge-off rate improved 120 basis points to negative 0.12%, and the delinquency rate was essentially flat at 3.26%.
In the quarter, elevated used car prices drove an increase in auction proceeds, amplifying the normal seasonal benefit we see from tax refunds around this time of the year.
As used vehicle prices normalize, they will become a headwind to the auto charge-off rate.
we expect the auto charge-off rate to increase from the unusually low second quarter level.
Moving to Slide 13.
I'll discuss our Commercial Banking business.
Second quarter ending loan balances were down 5% year over year.
Average loans were down 7%.
Commercial line utilization continues to be down year over year, and we moved $1.5 billion of commercial real estate loans to held-for-sale.
Quarterly average deposits increased 22% from the second quarter of 2020 and 5% from the linked quarter as middle market and government customers continue to hold elevated levels of liquidity.
Second-quarter revenue was up 3% from the prior-year quarter and down 6% from the linked quarter.
The linked quarter decline is more than entirely driven by a one-time cost associated with moving the commercial real estate loans to held for sale.
This decline was offset by an equivalent one-time gain in the other category and is therefore neutral to the company.
Excluding this effect, Commercial Banking revenue would have increased about 13% year over year and 4% from the linked quarter.
Provision for credit losses improved significantly compared to the second quarter of 2020, driven by a swing from an allowance build to an allowance release and a swing from net charge-offs to net recoveries.
In the second quarter, the Commercial Banking annualized charge-off rate was negative 11 basis points.
The criticized performing loan rate was 7.6%, and the criticized nonperforming loan rate was 1%.
Our Commercial Banking business is delivering solid performance as we continue to build our commercial capabilities.
I'll close tonight with some thoughts on our results and our strategic positioning.
Several key themes are evident in our second quarter results.
Credit remains strikingly strong.
Purchase volume and loans are rebounding.
We're continuing to invest to propel our future results, and we're returning capital to our shareholders.
We are seeing increasing near-term opportunities to build our Domestic Card business as we emerge from the pandemic.
We are leaning further into marketing to seize these opportunities.
We are also increasing our marketing for auto, national banking and our brand.
We are now in the ninth year of a journey to build a modern technology company from the bottom of the tech stack up.
Our progress is accelerating, and the stakes are rising.
Competitor tech investments are increasing as technology is increasingly seen as an existential issue.
The investment flowing into fintechs is nothing short of breathtaking.
And the war for tech talent continues to escalate, including levels of compensation.
We continue to invest in technology and the opportunities that emerge as our transformation gains traction.
Our modern technology is powering our current performance and setting us up to capitalize on the accelerating digital revolution in banking.
We'll now start the Q&A session.
[Operator instructions] If you have follow-up questions after the Q&A session, the Investor Relations team will be available after the call.
Holly, please start the Q&A.

user
compname reports second quarter 2021 net income of $3.5 billion, or $7.62 per share.
q2 adjusted earnings per share $7.71 excluding items.
qtrly provision (benefit) for credit losses decreased $337 million to $(1.2) billion versus q1 2021.
qtrly net interest margin of 5.89%, a decrease of 10 basis points versus q1 2021.
qtrly earnings per share $7.62.
common equity tier 1 capital ratio under basel iii standardized approach of 14.5% at june 30, 2021.

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