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In the third quarter, Capital One earned $3.1 billion or $6.78 per diluted common share.
Included in our results for the quarter was a $45 million legal reserve build.
Net of this adjusting item, earnings per share in the quarter were $6.86.
On a GAAP basis, pre-provision earnings were $3.6 billion, an increase of 7 percent relative to a quarter ago.
Period and loans held for investment grew $11.8 billion or 5 percent as we had strong loan growth across all of our businesses.
Recall that we moved $4.1 billion of loans to held-for-sale late in the second quarter, so average loans in the third quarter grew more modestly at 3 percent.
Revenue increased 6 percent in the linked quarter, largely driven by the loan growth I just described, coupled with margin expansion in our card business.
Operating expenses grew 3 percent in the quarter with total non-interest expense increasing 6 percent.
In addition to strong pre-provision earnings, the P and L was aided by a provision benefit in the quarter as record-low charge-offs were more than offset by an allowance release.
Turning to Slide 4, I will cover the changes in our allowance in greater detail.
We released $770 million of allowance in the third quarter as the effects of continued actual strong credit performance and a reduction in qualitative factors drove a decline in allowance balance, which was partially offset by loan growth in the quarter.
Turning to Slide 5, you can see our allowance coverage ratios continue to decline across all of our segments, driven by the factors I just described.
Turning to Page 6, I'll now discuss liquidity.
You can see our preliminary average liquidity coverage ratio during the third quarter was 143 percent.
The LCR remains stable and continues to be well above the 100 percent regulatory requirement.
Our liquidity reserves from cash, securities, and Federal Home Loan Bank capacity ended the quarter at approximately $124 billion, down $13 billion from the prior quarter as we continue to run off excess liquidity built during the pandemic.
The nine percent decline in total liquidity was driven by a modest reduction in the size of our investment portfolio and $8 billion in lower-ending cash balances, which were used to fund loan growth and share repurchases.
The decline in cash balances had an impact on our NIM, which I will discuss in more detail on Page 7.
You can see that our third-quarter net interest margin was 6.35 percent, 46 basis points higher than Q2 and 67 basis points higher than the year-ago quarter.
The linked-quarter increase in NIM was largely driven by four factors.
First, the decline in average cash balances I just described.
Second, margin expansion in our domestic card business.
Third, loan growth in our domestic card business.
And lastly, the benefit of one additional day in the quarter.
Turning to Slide 8, I will end by covering our capital position.
Our common equity Tier 1 capital ratio was 13.8 percent at the end of the third quarter, down 70 basis points from the prior quarter.
Net income in the quarter was more than offset by an increase in risk-weighted assets and share repurchases.
We repurchased $2.7 billion of common stock in the third quarter and have approximately $2.6 billion remaining of our current board authorization of $7.5 billion.
At the beginning of the third quarter, we began operating under the Federal Reserve's stress capital buffer framework, resulting in a minimum CET1 capital requirement of seven percent as of October 1st.
However, based on our internal modeling, we continue to estimate that our CET1 capital need is around 11 percent.
On October 18th, we announced our intention to redeem our outstanding preferred stock Series G and Series H in early December.
As a result of the full quarter of recent issuances and a partial quarter of the planned redemptions, we expect fourth-quarter preferred dividends to remain elevated at around $74 million.
Looking ahead to Q1, we expect the run rate for preferred dividends to decline to approximately $57 million per quarter, barring additional activity.
I'll begin on Slide 10 with our credit card business.
Strong year-over-year purchase volume growth and strong revenue margin drove an increase in revenue compared to the third quarter of 2020 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.
As you can see on Slide 11, third-quarter domestic card revenue grew 14 percent year over year.
Purchase volume for the third quarter was up 28 percent year over year and up 27 percent compared to the third quarter of 2019.
And the rebound in loan growth continued with ending loan balances, up $3.7 billion or about four percent year over year.
Ending loans also grew four percent from the sequential quarter, ahead of typical seasonal growth of around one percent.
Ending loan growth was the result of strong growth in purchase volume, as well as the traction we're getting with new account originations and line increases, partially offset by continued high payment rates.
Payment rates leveled off in the third quarter but remain near historic highs.
The flip side of high payment rates is strong credit and credit results remain strikingly strong.
The domestic card charge-off rate for the quarter was 1.36 percent, a 228-basis-point improvement year over year.
The 30-plus delinquency rate at quarter-end was 1.93 percent, a 28-basis-point improvement over the prior year.
The pace of year-over-year improvement is slowing particularly for the delinquency rate.
Domestic card revenue margin was up 218 basis points year over year to 18.4 percent.
Two factors drove most of the increase.
Revenue margin benefited from spend velocity, which is purchase volume growth and net interchange outpacing loan growth.
And favorable current credit performance enabled us to recognize a higher proportion of finance charges and fees in third-quarter revenue as well.
This credit-driven revenue impact generally tracks domestic card credit trends.
Total company marketing expense was $751 million in the quarter, including marketing in card, auto, and retail banking.
Our choices in card marketing are the biggest driver of total company marketing trends.
We continue to see attractive opportunities to grow our domestic card business.
Our loan -- our -- well, our growth opportunities are enhanced by our technology transformation.
Turning opportunities into actual growth requires investment.
And once again, we're leaning further into marketing to drive growth and to build our franchise.
At the same time, we're keeping a watchful eye on the competitive environment, which is intensifying.
Looking ahead, we expect a sequential increase in total company marketing in the fourth quarter that's consistent with typical historical patterns.
Pulling up, our domestic card business continues to deliver significant value as we invest to build our franchise.
Slide 12 summarizes third-quarter results for our consumer banking business.
Consistent auto growth and strong auto credit are the main themes in the third-quarter consumer banking results.
Our digital capabilities and deep dealer relationship strategy continue to drive strong growth in our auto business.
Driven by auto, third-quarter ending loans increased 12 percent year over year in the consumer banking business.
Average loans also grew 12 percent.
Auto originations were up 29 percent year over year.
On a linked quarter basis, auto originations were down 11 percent from the exceptionally high level in the second quarter.
As we discussed last quarter, pent-up demand and high auto prices have driven a second-quarter surge in originations across the auto marketplace.
Third-quarter ending deposits in the consumer bank were up $2.7 billion or one percent year over year.
Average deposits were also up one percent year over year.
Consumer banking revenue increased 14 percent from the prior-year quarter, driven by growth in auto loans.
Third-quarter provision for credit losses improved by $48 million year over year, driven by an allowance release in our auto business.
Credit results in our auto business remain strong.
Year over year, the third-quarter charge-off rate improved five basis points to 0.18 percent and the delinquency rate improved 11 basis points to 3.65 percent.
Looking at sequential-quarter trends, the charge-off rate increased from the unprecedented negative charge-off rate in the second quarter and the 30-plus delinquency rate was up 39 basis points from the second quarter, consistent with historical seasonal patterns.
Moving to Slide 13, I'll discuss our commercial banking business.
Third-quarter ending loan balances were up four percent year over year, driven by growth in selected industry specialties.
Average loans were down two percent.
Ending deposits grew 18 percent from the third quarter of 2020 as middle market and government customers continued to hold elevated levels of liquidity.
Quarterly average deposits also increased 18 percent year over year.
Third-quarter revenue was up 17 percent from the prior-year quarter and 23 percent from the linked quarter.
Recall that revenue in the second quarter was unusually low due to the impact of moving $1.5 billion in commercial real estate loans to held-for-sale.
Commercial credit performance remains strong.
In the third quarter, the commercial banking annualized charge-off rate was five basis points.
The criticized performing loan rate was 6.9 percent and the criticized non-performing loan rate was 0.8 percent.
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.
In the third quarter, we drove strong growth in domestic card revenue, purchase volume, and new accounts.
And loan growth is picking up.
Credit remains strikingly strong across our businesses and we continue to return capital to our shareholders.
In the marketplace, the pandemic has clearly accelerated digital adoption.
The game is changing from new and permanent shifts in virtual and hybrid work to more digital products and exceptional customer experiences to new fintech innovation and business models.
The common thread throughout all of this is technology and the stakes are rising faster than ever before.
Competitors are embracing the realization that technology capabilities may be an existential issue.
The investment flowing into fintechs is breathtaking and it's growing.
We can see investors voting with their feet in stunning fintech valuations and the war for tech talent continues to escalate, which will drive up tech labor costs even before any headcount increases.
All these developments underscore the size of the opportunity for players who lead the way in transforming how banking works, and Capital One is very well-positioned to do just that.
We are in the ninth year of our technology transformation from the bottom of the tech stack up.
We were an original fintech and we have built modern technology capabilities at scale.
But what is also clear in the marketplace is that the time frames for investment and innovation are compressing.
The imperative to invest is now.
We have been on a long journey to drive down operating efficiency ratio, powered by revenue growth and digital productivity gains.
Our journey will need to incorporate the investment imperative of the rapidly changing marketplace and it is likely to pressure operating efficiency ratio along the way.
Pulling way up, we're living through an extraordinary time of accelerating digital change.
Our modern technology stack is powering our performance and our opportunity.
It's setting us up to capitalize on the accelerating digital revolution in banking and it's the engine that drives enduring value creation over the long term.
We'll now start the Q and A session.
As a courtesy to other investors and analysts who may want to ask a question, please limit yourself to one question plus a single follow-up question.
And if you have any follow-up questions after the Q and A session, the Investor Relations team will be available after the call.

user
compname reports third quarter adj earnings per share $6.86.
compname reports third quarter 2021 net income of $3.1 billion, or $6.78 per share.
q3 revenue rose 6 percent to $7.8 billion.
q3 adjusted earnings per share $6.86 excluding items.
common equity tier 1 capital ratio under basel iii standardized approach of 13.8 percent at september 30, 2021.
qtrly total net revenue increased 6 percent to $7.8 billion versus q2 2021.
qtrly net interest margin of 6.35 percent, an increase of 46 basis points versus q2 2021.

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