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CAPITAL ONE FINANCIAL CORP - Quarter Report: 2021 June (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________
FORM 10-Q
____________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File No. 001-13300
____________________________________
CAPITAL ONE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter) 
____________________________________
Delaware 54-1719854
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1680 Capital One Drive,
McLean,Virginia 22102
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (703) 720-1000
(Not Applicable)
(Former name, former address and former fiscal year, if changed since last report)
____________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock (par value $.01 per share)COF
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series GCOF PRG
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series HCOF PRH
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series ICOF PRI
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series JCOF PRJ
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series KCOF PRK
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series LCOF PRL
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series NCOF PRN
New York Stock Exchange
0.800% Senior Notes Due 2024COF24
New York Stock Exchange
1.650% Senior Notes Due 2029COF29
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer 
Non-accelerated filer 
  Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 
As of June 30, 2021, there were 446,113,769 shares of the registrant’s Common Stock outstanding.



TABLE OF CONTENTS
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INDEX OF MD&A AND SUPPLEMENTAL TABLE
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10.1
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22
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26
27
28
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30
Allowance Coverage Ratios for Specified Loan Category
31
32
33
34
35
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PART I—FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
This discussion contains forward-looking statements that are based upon management’s current expectations and are subject to significant uncertainties and changes in circumstances. Please review “MD&A—Forward-Looking Statements” for more information on the forward-looking statements in this Quarterly Report on Form 10-Q (“this Report”). All statements that address operating performance, events or developments that we expect or anticipate will occur in the future, including those relating to operating results and “Note 13—Commitments, Contingencies, Guarantees and Others” as well as the potential impacts of the COVID-19 pandemic described in “MD&A—Introduction—Coronavirus Disease 2019 (COVID-19) Pandemic” are forward-looking statements. Our actual results may differ materially from those included in these forward-looking statements due to a variety of factors including, but not limited to, those described in “Part I—Item 1A. Risk Factors” in our 2020 Annual Report on Form 10-K (“2020 Form 10-K”) and “Part II—Item 1A. Risk Factors” in this Report. Unless otherwise specified, references to notes to our consolidated financial statements refer to the notes to our consolidated financial statements as of June 30, 2021 included in this Report.
Management monitors a variety of key indicators to evaluate our business results and financial condition. The following MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and related notes in this Report and the more detailed information contained in our 2020 Form 10-K.

INTRODUCTION
Capital One Financial Corporation, a Delaware corporation established in 1994 and headquartered in McLean, Virginia, is a diversified financial services holding company with banking and non-banking subsidiaries. Capital One Financial Corporation and its subsidiaries (the “Company”) offer a broad array of financial products and services to consumers, small businesses and commercial clients through digital channels, branches, Cafés and other distribution channels.
As of June 30, 2021, our principal subsidiaries included:
Capital One Bank (USA), National Association (“COBNA”), which offers credit and debit card products, other lending products and deposit products; and
Capital One, National Association (“CONA”), which offers a broad spectrum of banking products and financial services to consumers, small businesses and commercial clients.
The Company is hereafter collectively referred to as “we,” “us” or “our.” COBNA and CONA are collectively referred to as the “Banks.” Certain business terms used in this document are defined in the “MD&A—Glossary and Acronyms” and should be read in conjunction with the consolidated financial statements included in this Report.
Our consolidated total net revenues are derived primarily from lending to consumer, small business and commercial customers net of funding costs associated with interest on deposits, long-term debt and other borrowings. We also earn non-interest income which primarily consists of interchange income, net of reward expenses, service charges and other customer-related fees. Our expenses primarily consist of the provision for credit losses, operating expenses, marketing expenses and income taxes.
Our principal operations are organized for management reporting purposes into three major business segments, which are defined primarily based on the products and services provided or the types of customer served: Credit Card, Consumer Banking and Commercial Banking. The operations of acquired businesses have been integrated into or managed as a part of our existing business segments. Certain activities that are not part of a segment, such as management of our corporate investment portfolio, asset/liability management by our centralized Corporate Treasury group and residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments, are included in the Other category.
Credit Card: Consists of our domestic consumer and small business card lending, and international card businesses in Canada and the United Kingdom (“U.K.”).
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Consumer Banking: Consists of our deposit gathering and lending activities for consumers and small businesses, and national auto lending.
Commercial Banking: Consists of our lending, deposit gathering, capital markets and treasury management services to commercial real estate and commercial and industrial customers. Our commercial and industrial customers typically include companies with annual revenues between $20 million and $2 billion.
Business Developments
We regularly explore and evaluate opportunities to acquire financial services and products as well as financial assets, including credit card and other loan portfolios, and enter into strategic partnerships as part of our growth strategy. We also explore opportunities to acquire technology companies and related assets to improve our information technology infrastructure and to deliver on our digital strategy. We may issue equity or debt to fund our acquisitions. In addition, we regularly consider the potential disposition of certain assets, branches, partnership agreements or lines of business.
Coronavirus Disease 2019 (COVID-19) Pandemic
The COVID-19 pandemic resulted in a global public-health crisis, disrupting economies and introducing significant volatility into financial markets. We transformed how we work in order to protect the well-being of our associates and our customers, and were able to continue to serve our customers, successfully manage critical functions, and keep our lines of business operating.
Since the start of the COVID-19 pandemic, a significant majority of our associates across our workforce have transitioned to working remotely, relying on our technology infrastructure and systems that have been designed for resilience and security. The majority of our associates will continue to work remotely through the summer of 2021. Our current plan is to adopt a hybrid work methodology on September 7, 2021 that allows for in-office collaboration while still enabling associates to work remotely. We continue to monitor local conditions to ensure the safety of our associates.
For more information see “Part I—Item 1. Business—Overview—Coronavirus Disease 2019 (COVID-19) Pandemic” and “Part I—Item 1A. Risk Factors” in our 2020 Form 10-K along with “Part I—Item 2. MD&A—Introduction—Coronavirus Disease 2019 (COVID-19) Pandemic” and “Part I—Item 2. MD&A—Credit Risk Profile—COVID-19 Customer Assistance Programs and Loan Modifications” in our Quarterly Report on Form 10-Q for the period ended March 31, 2021.
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SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data and performance from our results of operations for the second quarter and first six months of 2021 and 2020 and selected comparative balance sheet data as of June 30, 2021 and December 31, 2020. We also provide selected key metrics we use in evaluating our performance, including certain metrics that are computed using non-GAAP measures. We consider these metrics to be key financial measures that management uses in assessing our operating performance, capital adequacy and the level of returns generated. We believe these non-GAAP metrics provide useful insight to investors and users of our financial information as they provide an alternate measurement of our performance and assist in assessing our capital adequacy and the level of return generated.
Table 1: Consolidated Financial Highlights
Three Months Ended June 30,Six Months Ended June 30,
(Dollars in millions, except per share data and as noted)20212020Change20212020Change
Income statement
Net interest income$5,743 $5,460 %11,565 $11,485 %
Non-interest income1,631 1,096 49 2,922 2,320 26 
Total net revenue7,374 6,556 12 14,487 13,805 
Provision (benefit) for credit losses(1,160)4,246 **(1,983)9,669 **
Non-interest expense:
Marketing620 273 127 1,121 764 47 
Operating expense3,346 3,497 (4)6,585 6,735 (2)
Total non-interest expense3,966 3,770 7,706 7,499 
Income (loss) from continuing operations before income taxes4,568 (1,460)**8,764 (3,363)**
Income tax provision (benefit)1,031 (543)**1,900 (1,106)**
Income (loss) from continuing operations, net of tax3,537 (917)**6,864 (2,257)**
Loss from discontinued operations, net of tax(1)(1)(3)(1)**
Net income (loss)3,536 (918)**6,861 (2,258)**
Dividends and undistributed earnings allocated to participating securities(30)(1)**(58)(4)**
Preferred stock dividends(60)(90)(33)(121)(145)(17)
Issuance cost for redeemed preferred stock —  (22)**
Net income (loss) available to common stockholders$3,446 $(1,009)**$6,682 $(2,429)**
Common share statistics 
Basic earnings per common share:
Net income (loss) from continuing operations$7.65 $(2.21)**$14.70 $(5.31)**
Net income (loss) per basic common share$7.65 $(2.21)**$14.70 $(5.31)**
Diluted earnings per common share:
Net income (loss) from continuing operations$7.62 $(2.21)**$14.65 $(5.31)**
Net income (loss) per diluted common share$7.62 $(2.21)**$14.65 $(5.31)**
Weighted-average common shares outstanding (in millions):
Basic 450.6 456.7 (1)%454.6 457.1 (1)%
Diluted452.3 456.7 (1)456.2 457.1 — 
Common shares outstanding (period-end, in millions)446.1 456.3 (2)446.1 456.3 (2)
Dividends declared and paid per common share$0.40 $0.40 — $0.80 $0.80 — 
Tangible book value per common share (period-end)(1)
97.20 78.82 23 97.20 78.82 23 
Balance sheet (average balances)
Loans held for investment$246,463 $253,358 (3)%$245,207 $258,124 (5)%
Interest-earning assets390,129 378,145 389,355 366,746 
Total assets424,099 411,075 422,959 400,845 
Interest-bearing deposits273,476 261,256 273,417 251,185 
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Three Months Ended June 30,Six Months Ended June 30,
(Dollars in millions, except per share data and as noted)20212020Change20212020Change
Total deposits308,217 288,344 306,645 276,498 11 
Borrowings37,054 49,827 (26)38,475 50,810 (24)
Common equity56,885 52,413 56,333 52,799 
Total stockholders’ equity62,376 57,623 61,504 58,096 
Selected performance metrics 
Purchase volume$132,676$90,149 47 %$241,009$190,069 27 %
Total net revenue margin(2)
7.56 %6.93 %63 bps7.44 %7.53 %(9)bps
Net interest margin5.89 5.78 11 5.94 6.26 (32)
Return on average assets(3)
3.34 (0.89)%3.25 (1.13)%
Return on average tangible assets(4)
3.46 (0.93)3.36 (1.17)
Return on average common equity(5)
24.24 (7.69)32 23.73 (9.20)33 
Return on average tangible common equity(6)
32.75 (10.74)43 32.19 (12.81)45 
Equity-to-assets ratio(7)
14.71 14.02 69 bps14.54 14.49 bps
Non-interest expense as a percentage of average loans held for investment6.44 5.95 49 6.29 5.81 48 
Efficiency ratio(8)
53.78 57.50 (4)%53.19 54.32 (113)
Operating efficiency ratio(9)
45.38 53.34 (8)45.45 48.79 (334)
Effective income tax rate from continuing operations22.6 37.2 (15)21.7 32.9 (11)%
Net charge-offs$541 $1,505 (64)$1,281 $3,296 (61)
Net charge-off rate0.88 %2.38 %(150)bps1.04 %2.55 %(151)bps
(Dollars in millions, except as noted)June 30, 2021December 31, 2020Change
Balance sheet (period-end)
Loans held for investment$249,597 $251,624 (1)%
Interest-earning assets387,295 388,917 — 
Total assets423,420 421,602 — 
Interest-bearing deposits271,314 274,300 (1)
Total deposits306,308 305,442 — 
Borrowings36,343 40,539 (10)
Common equity58,136 55,356 
Total stockholders’ equity64,624 60,204 
Credit quality metrics
Allowance for credit losses$12,346 $15,564 (21)%
Allowance as a percentage of loans held for investment (“allowance coverage ratio”)4.95 %6.19 %(124)bps
30+ day performing delinquency rate1.75 2.41 (66)
30+ day delinquency rate1.89 2.61 (72)
Capital ratios
Common equity Tier 1 capital(10)
14.5 %13.7 %80 bps
Tier 1 capital(10)
16.6 15.3 130 
Total capital(10)
18.8 17.7 110 
Tier 1 leverage(10)
12.4 11.2 120 
Tangible common equity(11)
10.6 10.0 60 
Supplementary leverage(10)(12)
10.7 10.7 — 
Other
Employees (period end, in thousands)52.0 52.0 — 
__________
(1)Tangible book value per common share is a non-GAAP measure calculated based on tangible common equity divided by common shares outstanding. See “MD&A—Table A —Reconciliation of Non-GAAP Measures” for additional information on non-GAAP measures.
(2)Total net revenue margin is calculated based on annualized total net revenue for the period divided by average interest-earning assets for the period.
(3)Return on average assets is calculated based on annualized income from continuing operations, net of tax, for the period divided by average total assets for the period.
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(4)Return on average tangible assets is a non-GAAP measure calculated based on annualized income from continuing operations, net of tax, for the period divided by average tangible assets for the period. See “MD&A—Table A—Reconciliation of Non-GAAP Measures” for additional information on non-GAAP measures.
(5)Return on average common equity is calculated based on annualized net income (loss) available to common stockholders less annualized income (loss) from discontinued operations, net of tax, for the period, divided by average common equity. Our calculation of return on average common equity may not be comparable to similarly-titled measures reported by other companies.
(6)Return on average tangible common equity (“TCE”) is a non-GAAP measure calculated based on annualized net income (loss) available to common stockholders less annualized income (loss) from discontinued operations, net of tax, for the period, divided by average tangible common equity. Our calculation of return on average TCE may not be comparable to similarly-titled measures reported by other companies. See “MD&A—Table A—Reconciliation of Non-GAAP Measures” for additional information on non-GAAP measures.
(7)Equity-to-assets ratio is calculated based on average stockholders’ equity for the period divided by average total assets for the period.
(8)Efficiency ratio is calculated based on total non-interest expense for the period divided by total net revenue for the period.
(9)Operating efficiency ratio is calculated based on operating expense for the period divided by total net revenue for the period.
(10)Capital ratios are calculated based on the Basel III Standardized Approach framework, see “MD&A—Capital Management” for additional information.
(11)Tangible common equity ratio is a non-GAAP measure calculated based on TCE divided by tangible assets. See “MD&A—Table A—Reconciliation of Non-GAAP Measures” for the calculation of this measure and reconciliation to the comparative U.S. GAAP measure.
(12)The Company’s supplementary leverage ratio as of December 31, 2020 reflected the temporary exclusions of U.S Treasury securities and deposits at Federal Reserve Banks from the denominator of the supplementary leverage ratio. See “Part I—Item 1. Business—Supervision and Regulation—Capital and Liquidity Regulation” in our 2020 Form 10-K for additional details.
**    Not meaningful.
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EXECUTIVE SUMMARY AND BUSINESS OUTLOOK
Financial Highlights
We reported net income of $3.5 billion ($7.62 per diluted common share) on total revenue of $7.4 billion and net income of $6.9 billion ($14.65 per diluted common share) on total net revenue of $14.5 billion for the second quarter and first six months of 2021. In comparison, we reported net loss of $918 million ($2.21 per diluted common share) on total net revenue of $6.6 billion and net loss of $2.3 billion ($5.31 per diluted common share) on total net revenue of $13.8 billion for the second quarter and first six months of 2020.
Our common equity Tier 1 capital ratio as calculated under the Basel III Standardized Approach was 14.5% and 13.7% as of June 30, 2021 and December 31, 2020, respectively. See “MD&A—Capital Management” for additional information.
On January 25, 2021, our Board of Directors authorized the repurchase of up to $7.5 billion of shares of our common stock. We repurchased approximately $1.7 billion of shares of our common stock during the second quarter of 2021 and $2.2 billion during the first six months of 2021, consistent with the Federal Reserve’s temporary capital distribution restrictions in place during the first six months of 2021. See “MD&A—Capital Management—Dividend Policy and Stock Purchases” for additional information.
Below are additional highlights of our performance in the second quarter and first six months of 2021. These highlights are based on a comparison between the results of the second quarter and first six months of 2021 and 2020, except as otherwise noted. The changes in our financial condition and credit performance are generally based on our financial condition and credit performance as of June 30, 2021 compared to December 31, 2020. We provide a more detailed discussion of our financial performance in the sections following this “Executive Summary and Business Outlook.”
Total Company Performance
Earnings: Our net income increased by $4.5 billion to $3.5 billion in the second quarter of 2021 compared to the second quarter of 2020 and increased by $9.1 billion to $6.9 billion in the first six months of 2021 compared to the first six months of 2020 primarily driven by:
lower provision resulting from allowance releases in the first and second quarters of 2021 due to continued strong credit performance and an improved economic outlook compared to allowance builds in the first and second quarters of 2020 driven by expectations of economic worsening at the start of the COVID-19 pandemic;
higher non-interest income from interchange fees due to an increase in purchase volume in Domestic Card; and
higher net interest income due to lower interest rates paid on interest-bearing deposits and higher average outstanding balances in our auto loan portfolio, partially offset by lower average outstanding balances in our domestic card loan portfolio.
Loans Held for Investment:
Period-end loans held for investment decreased by $2.0 billion to $249.6 billion as of June 30, 2021 from December 31, 2020 primarily due to higher customer payments and the transfer of $4.1 billion in loans to held for sale, partially offset by growth in our auto loan portfolio.
Average loans held for investment decreased by $6.9 billion to $246.5 billion in the second quarter of 2021 compared to the second quarter of 2020 and decreased by $12.9 billion to $245.2 billion in the first six months of 2021 compared to the first six months of 2020 primarily driven by lower outstanding balances in Domestic Card due to higher customer payments, partially offset by higher purchase volume and growth in our auto loan portfolio.
Net Charge-Off and Delinquency Metrics: Our net charge-off rate decreased by 150 basis points to 0.88% in the second quarter of 2021 compared to the second quarter of 2020 and decreased by 151 basis points to 1.04% in the first six months of 2021 compared to the first six months of 2020, primarily driven by strong credit performance in our domestic card and auto loan portfolios.
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Our 30+ day delinquency rate decreased by 72 basis points to 1.89% as of June 30, 2021 from December 31, 2020 due to seasonally lower delinquency inventories and strong credit performance in our auto and domestic card loan portfolios.
Allowance for Credit Losses: Our allowance for credit losses decreased by $3.2 billion to $12.3 billion, and our allowance coverage ratio decreased by 124 basis points to 4.95% as of June 30, 2021 from December 31, 2020, driven by strong credit performance and an improved economic outlook.
Business Outlook
We discuss in this Report our expectations as of the time this Report was filed regarding our total company performance and the performance of our business segments based on market conditions, the regulatory environment and our business strategies. The statements contained in this Report are based on our current expectations regarding our outlook for our financial results and business strategies. Our expectations take into account, and should be read in conjunction with, our expectations regarding economic trends and analysis of our business as discussed in “Part I—Item 1. Business” and “Part II—Item 7. MD&A” in our 2020 Form 10-K. Certain statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those in our forward-looking statements. Except as otherwise disclosed, forward-looking statements do not reflect:
any change in current dividend or repurchase strategies;
the effect of any acquisitions, divestitures or similar transactions that have not been previously disclosed; or
any changes in laws, regulations or regulatory interpretations, in each case after the date as of which such statements are made.
The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations, and financial condition will depend on future developments that are still uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic.
See “MD&A—Forward-Looking Statements” in this Report for more information on the forward-looking statements and “Part I—Item 1A. Risk Factors” in our 2020 Form 10-K for factors that could materially influence our results.
Business Segment Expectations
We expect that the auto net charge-off rate will increase from the unusually low level observed in the second quarter of 2021.
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CONSOLIDATED RESULTS OF OPERATIONS
The section below provides a comparative discussion of our consolidated financial performance for the second quarter and first six months of 2021 and 2020. We provide a discussion of our business segment results in the following section, “MD&A—Business Segment Financial Performance.” This section should be read together with our “MD&A—Executive Summary and Business Outlook,” where we discuss trends and other factors that we expect will affect our future results of operations.
Net Interest Income
Net interest income represents the difference between interest income, including certain fees, earned on our interest-earning assets and the interest expense incurred on our interest-bearing liabilities. Our interest-earning assets include loans, investment securities and other interest-earning assets, while our interest-bearing liabilities include interest-bearing deposits, securitized debt obligations, senior and subordinated notes, other borrowings and other interest-bearing liabilities. Generally, we include in interest income any past due fees on loans that we deem collectible. Our net interest margin, based on our consolidated results, represents the difference between the yield on our interest-earning assets and the cost of our interest-bearing liabilities, including the notional impact of non-interest-bearing funding. We expect net interest income and our net interest margin to fluctuate based on changes in interest rates and changes in the amount and composition of our interest-earning assets and interest-bearing liabilities.

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Table 2 below presents the average outstanding balance, interest income earned, interest expense incurred and average yield for the second quarter and first six months of 2021 and 2020 for each major category of our interest-earning assets and interest-bearing liabilities. Nonperforming loans are included in the average loan balances below.
Table 2: Average Balances, Net Interest Income and Net Interest Margin
 Three Months Ended June 30,
 20212020
(Dollars in millions)Average
Balance
Interest Income/
Expense
Average Yield/
Rate
Average
Balance
Interest Income/
Expense
Average Yield/
Rate
Assets:
Interest-earning assets:
Loans:(1)
Credit card$101,642 $3,568 14.04 %$108,748 $3,731 13.72 %
Consumer banking72,705 1,451 7.99 64,851 1,364 8.41 
Commercial banking(2)
74,933 510 2.72 80,803 608 3.01 
Other(3)
 224 **— 117 **
Total loans, including loans held for sale249,280 5,753 9.23 254,402 5,820 9.15 
Investment securities100,071 370 1.48 81,095 482 2.38 
Cash equivalents and other interest-earning assets40,778 16 0.16 42,648 16 0.15 
Total interest-earning assets390,129 6,139 6.29 378,145 6,318 6.68 
Cash and due from banks5,417 5,355 
Allowance for credit losses(14,007)(14,107)
Premises and equipment, net4,275 4,332 
Other assets38,285 37,350 
Total assets$424,099 $411,075 
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Interest-bearing deposits$273,476 $237 0.35 %$261,256 $611 0.94 %
Securitized debt obligations10,890 28 1.03 16,432 56 1.37 
Senior and subordinated notes25,487 122 1.92 31,294 180 2.30 
Other borrowings and liabilities2,198 9 1.67 3,554 11 1.21 
Total interest-bearing liabilities312,051 396 0.50 312,536 858 1.10 
Non-interest-bearing deposits34,741 27,088 
Other liabilities14,931 13,828 
Total liabilities361,723 353,452 
Stockholders’ equity62,376 57,623 
Total liabilities and stockholders’ equity$424,099 $411,075 
Net interest income/spread$5,743 5.79 $5,460 5.58 
Impact of non-interest-bearing funding0.10 0.20 
Net interest margin5.89 %5.78 %
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 Six Months Ended June 30,
 20212020
(Dollars in millions)Average
Balance
Interest Income/
Expense
Average Yield/
Rate
Average
Balance
Interest Income/
Expense
Average Yield/
Rate
Assets:
Interest-earning assets:
Loans:(1)
Credit card$102,078 $7,281 14.26 %$115,801 $8,168 14.11 %
Consumer banking70,979 2,864 8.07 64,262 2,711 8.44 
Commercial banking(2)
74,927 1,026 2.74 78,954 1,354 3.43 
Other(3)
 436 **— 129 **
Total loans, including loans held for sale247,984 11,607 9.36 259,017 12,362 9.55 
Investment securities99,189 761 1.53 79,654 1,012 2.54 
Cash equivalents and other interest-earning assets42,182 32 0.15 28,075 53 0.38 
Total interest-earning assets389,355 12,400 6.37 366,746 13,427 7.32 
Cash and due from banks5,251 5,024 
Allowance for credit losses(14,773)(12,258)
Premises and equipment, net4,279 4,338 
Other assets38,847 36,995 
Total assets$422,959 $400,845 
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Interest-bearing deposits$273,417 $506 0.37 %$251,185 $1,342 1.07 %
Securitized debt obligations11,561 60 1.04 17,243 155 1.80 
Senior and subordinated notes26,223 251 1.92 31,318 419 2.67 
Other borrowings and liabilities2,205 18 1.65 3,667 26 1.42 
Total interest-bearing liabilities313,406 835 0.53 303,413 1,942 1.28 
Non-interest-bearing deposits33,228 25,313 
Other liabilities14,821 14,023 
Total liabilities361,455 342,749 
Stockholders’ equity61,504 58,096 
Total liabilities and stockholders’ equity$422,959 $400,845 
Net interest income/spread$11,565 5.84 $11,485 6.04 
Impact of non-interest-bearing funding0.10 0.22 
Net interest margin5.94 %6.26 %
__________
(1)Past due fees included in interest income totaled approximately $302 million and $612 million in the second quarter and first six months of 2021, respectively, and $265 million and $656 million in the second quarter and first six months of 2020, respectively.
(2)Some of our commercial loans generate tax-exempt income. Accordingly, we present our Commercial Banking interest income and yields on a taxable-equivalent basis, calculated using the federal statutory rate of 21% and state taxes where applicable, with offsetting reductions to the Other category. Taxable-equivalent adjustments included in the interest income and yield computations for our commercial loans totaled approximately $19 million and $38 million in the second quarter and first six months of 2021, respectively, and $21 million and $41 million in the second quarter and first six months of 2020, respectively, with corresponding reductions to the Other category.
(3)Interest income/expense in the Other category represents the impact of hedge accounting on our loan portfolios and the offsetting reduction of the taxable-equivalent adjustments of our commercial loans as described above.
**    Not meaningful.
Net interest income increased by $283 million to $5.7 billion in the second quarter of 2021 compared to the second quarter of 2020, and increased by $80 million to $11.6 billion in the first six months of 2021 compared to the first six months of 2020 primarily driven by lower interest rates paid on interest-bearing deposits and higher average outstanding balances in our auto loan portfolio, partially offset by lower average outstanding balances in our domestic card loan portfolio.
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Net interest margin increased by 11 basis points to 5.89% in the second quarter of 2021 compared to the second quarter of 2020 driven by lower interest rate paid on interest-bearing deposits, partially offset by higher balances and lower yield on investment securities.
Net interest margin decreased by 32 basis points to 5.94% in the first six months of 2021 compared to the first six months of 2020 primarily driven by a shift in our asset mix with cash and investment securities representing a greater portion of total average interest-earnings assets, partially offset by lower rates paid on interest-bearing liabilities.
Table 3 displays the change in our net interest income between periods and the extent to which the variance is attributable to:
changes in the volume of our interest-earning assets and interest-bearing liabilities; or
changes in the interest rates related to these assets and liabilities.
Table 3: Rate/Volume Analysis of Net Interest Income(1)
Three Months Ended June 30,Six Months Ended June 30,
 2021 vs. 20202021 vs. 2020
(Dollars in millions)Total VarianceVolumeRateTotal VarianceVolumeRate
Interest income:
Loans:
Credit card$(163)$(244)$81 $(887)$(968)$81 
Consumer banking87 157 (70)153 271 (118)
Commercial banking(2)
(98)(42)(56)(328)(66)(262)
Other(3)
107  107 307  307 
Total loans, including loans held for sale(67)(129)62 (755)(763)8 
Investment securities(112)70 (182)(251)150 (401)
Cash equivalents and other interest-earning assets (1)1 (21)11 (32)
Total interest income(179)(60)(119)(1,027)(602)(425)
Interest expense:
Interest-bearing deposits(374)11 (385)(836)41 (877)
Securitized debt obligations(28)(16)(12)(95)(40)(55)
Senior and subordinated notes(58)(31)(27)(168)(60)(108)
Other borrowings and liabilities(2)(4)2 (8)(10)2 
Total interest expense(462)(40)(422)(1,107)(69)(1,038)
Net interest income$283 $(20)$303 $80 $(533)$613 
__________
(1)We calculate the change in interest income and interest expense separately for each item. The portion of interest income or interest expense attributable to both volume and rate is allocated proportionately when the calculation results in a positive value. When the portion of interest income or interest expense attributable to both volume and rate results in a negative value, the total amount is allocated to volume or rate, depending on which amount is positive.
(2)Some of our commercial loans generate tax-exempt income. Accordingly, we present our Commercial Banking interest income and yields on a taxable-equivalent basis, calculated using the federal statutory rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.
(3)Interest income/expense in the Other category represents the impact of hedge accounting on our loan portfolios and the offsetting reduction of the taxable-equivalent adjustments of our commercial loans as described above.
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Non-Interest Income
Table 4 displays the components of non-interest income for the second quarter and first six months of 2021 and 2020.
Table 4: Non-Interest Income
 Three Months Ended June 30,Six Months Ended June 30,
(Dollars in millions)2021202020212020
Interchange fees, net$1,016 $672 $1,833 $1,424 
Service charges and other customer-related fees384 258 736 585 
Net securities gains — 4 — 
Other non-interest income:(1)
Mortgage banking revenue40 38 100 106 
Treasury and other investment income94 63 78 56 
Other97 65 171 149 
Total other non-interest income231 166 349 311 
Total non-interest income$1,631 $1,096 $2,922 $2,320 
________
(1)Includes gains of $26 million and $45 million on deferred compensation plan investments for the second quarter and first six months of 2021, respectively, and gains of $44 million and losses of $15 million on deferred compensation plan investments for the second quarter and first six months of 2020, respectively. These amounts have corresponding offsets in other non-interest expense.
Non-interest income increased by $535 million to $1.6 billion in the the second quarter of 2021 compared to the second quarter of 2020 and increased by $602 million to $2.9 billion in the first six months of 2021 compared to the first six months of 2020 primarily driven by higher net interchange fees due to an increase in purchase volume in Domestic Card.
Provision for Credit Losses
Our provision for credit losses in each period is driven by net charge-offs, changes to the allowance for credit losses and changes to the reserve for unfunded lending commitments. Our provision for credit losses decreased by $5.4 billion to a benefit of $1.2 billion in the second quarter of 2021 and decreased by $11.7 billion to a benefit of $2.0 billion in the first six months of 2021. These decreases were primarily driven by allowance releases in the first and second quarters of 2021 due to continued strong credit performance and an improved economic outlook compared to allowance builds in the first and second quarters of 2020 driven by expectations of economic worsening at the start of the COVID-19 pandemic.
We provide additional information on the provision for credit losses and changes in the allowance for credit losses within “MD&A—Credit Risk Profile” and “Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments.” For information on the allowance methodology for each of our loan categories, see “Note 1—Summary of Significant Accounting Policies” in our 2020 Form 10-K.
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Non-Interest Expense
Table 5 displays the components of non-interest expense for the second quarter and first six months of 2021 and 2020.
Table 5: Non-Interest Expense
Three Months Ended June 30,Six Months Ended June 30,
(Dollars in millions)2021202020212020
Salaries and associate benefits(1)
$1,781 $1,704 $3,628 $3,331 
Occupancy and equipment523 523 995 1,040 
Marketing620 273 1,121 764 
Professional services341 304 633 591 
Communications and data processing315 308 617 610 
Amortization of intangibles5 16 11 38 
Other non-interest expense:
Bankcard, regulatory and other fee assessments38 66 90 141 
Collections95 76 179 181 
Fraud losses40 71 75 150 
Other(2)
208 429 357 653 
Total other non-interest expense381 642 701 1,125 
Total non-interest expense$3,966 $3,770 $7,706 $7,499 
_________
(1)Includes expense of $26 million and $45 million related to our deferred compensation plan investments for the second quarter and first six months of 2021, respectively, and expense of $44 million and benefit of $15 million related to our deferred compensation plan investments for the second quarter and first six months of 2020, respectively. These amounts have corresponding offsets in other non-interest income.
(2)Includes legal reserve builds of $55 million for the second quarter and first six months of 2021 and $265 million and $310 million for the second quarter and first six months of 2020, respectively.
Non-interest expense increased by $196 million to $4.0 billion in the second quarter of 2021 compared to the second quarter of 2020 and increased by $207 million to $7.7 billion in the first six months of 2021 compared to the first six months of 2020, primarily driven by increased marketing spend.
Income Taxes
We recorded an income tax provision of $1.0 billion (22.6% effective income tax rate) and $1.9 billion (21.7% effective income tax rate) in the second quarter and first six months of 2021, respectively, compared to an income tax benefit of $543 million (37.2% effective income tax rate) and $1.1 billion (32.9% effective income tax rate) in the second quarter and first six months of 2020, respectively. Our effective tax rate on income from continuing operations varies between periods due, in part, to the impact of changes in pre-tax income and changes in tax credits, tax-exempt income and non-deductible expenses relative to our pre-tax earnings.
The decrease in our effective income tax rate in the second quarter and first six months of 2021 compared to the second quarter and first six months of 2020 was primarily due to significantly higher positive pre-tax earnings in 2021 compared to pre-tax losses in 2020 driven by expectations of economic worsening that existed at the start of the COVID-19 pandemic in 2020.
We provide additional information on items affecting our income taxes and effective tax rate in “Note 15—Income Taxes” in our 2020 Form 10-K.
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CONSOLIDATED BALANCE SHEETS ANALYSIS
Total assets increased by $1.8 billion to $423.4 billion as of June 30, 2021 from December 31, 2020 primarily driven by an increase in loan balances, net of higher customer payments, which was partially offset by a decrease in our cash balances due to paydowns of our securitized debt obligations and redemptions of our senior unsecured debt.
Total liabilities decreased by $2.6 billion to $358.8 billion as of June 30, 2021 from December 31, 2020 primarily driven by redemptions of our senior unsecured debt and paydowns of our securitization debt obligations, partially offset by growth in deposits driven by increased consumer savings.
Stockholders’ equity increased by $4.4 billion to $64.6 billion as of June 30, 2021 from December 31, 2020 primarily due to our net income of $6.9 billion, partially offset by the repurchase of shares of our common stock.
The following is a discussion of material changes in the major components of our assets and liabilities during the first six months of 2021. Period-end balance sheet amounts may vary from average balance sheet amounts due to liquidity and balance sheet management activities that are intended to support the adequacy of capital while managing our liquidity requirements, our customers and our market risk exposure in accordance with our risk appetite.
Investment Securities
Our investment securities portfolio consists of the following: U.S. government-sponsored enterprise or agency (“Agency”) and non-agency residential mortgage-backed securities (“RMBS”), Agency commercial mortgage-backed securities (“CMBS”), U.S. Treasury securities and other securities. Agency securities include Government National Mortgage Association (“Ginnie Mae”) guaranteed securities, Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) issued securities. The carrying value of our investments in Agency and U.S. Treasury securities represented 96% of our total investment securities portfolio as of both June 30, 2021 and December 31, 2020.
The fair value of our available for sale securities portfolio increased by $1.3 billion to $101.8 billion as of June 30, 2021 from December 31, 2020, primarily driven by net purchases, partially offset by the increase in interest rates. See “Note 2—Investment Securities” for more information.
Table 6 presents the amortized cost and fair value for the major security types in our available for sale securities portfolio as of June 30, 2021 and December 31, 2020.
Table 6: Investment Securities
June 30, 2021December 31, 2020
(Dollars in millions)Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Investment securities available for sale:
U.S. Treasury securities$9,211 $9,231 $9,302 $9,318 
RMBS:
Agency76,318 77,206 73,248 75,466 
Non-agency908 1,116 1,035 1,237 
Total RMBS77,226 78,322 74,283 76,703 
Agency CMBS10,781 11,087 11,298 11,735 
Other securities(1)
3,118 3,126 2,686 2,689 
Total investment securities available for sale$100,336 $101,766 $97,569 $100,445 
__________
(1)Includes $2.3 billion and $1.8 billion of asset-backed securities as of June 30, 2021 and December 31, 2020, respectively. The remaining amount is primarily comprised of supranational bonds and foreign government bonds.
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Loans Held for Investment
Total loans held for investment consists of both unsecuritized loans and loans held in our consolidated trusts. Table 7 summarizes, by portfolio segment, the carrying value of our loans held for investment, the allowance for credit losses and net loan balance as of June 30, 2021 and December 31, 2020.
Table 7: Loans Held for Investment
 June 30, 2021December 31, 2020
(Dollars in millions)LoansAllowanceNet LoansLoansAllowanceNet Loans
Credit Card$101,017 $8,873 $92,144 $106,956 $11,191 $95,765 
Consumer Banking74,759 2,203 72,556 68,888 2,715 66,173 
Commercial Banking73,821 1,270 72,551 75,780 1,658 74,122 
Total$249,597 $12,346 $237,251 $251,624 $15,564 $236,060 
Loans held for investment decreased by $2.0 billion to $249.6 billion as of June 30, 2021 from December 31, 2020 primarily due to higher customer payments in Domestic Card and the transfer of $4.1 billion in loans to held for sale, partially offset by growth in our auto loan portfolio and higher purchase volume in Domestic Card.
We provide additional information on the composition of our loan portfolio and credit quality in “MD&A—Credit Risk Profile,” “MD&A—Consolidated Results of Operations” and “Note 3—Loans.”
Funding Sources
Our primary source of funding comes from deposits, as they are a stable and relatively low cost source of funding. In addition to deposits, we raise funding through the issuance of senior and subordinated notes, securitized debt obligations, federal funds purchased, securities loaned or sold under agreements to repurchase, and Federal Home Loan Banks (“FHLB”) advances secured by certain portions of our loan and securities portfolios.
Table 8 provides the composition of our primary sources of funding as of June 30, 2021 and December 31, 2020.
Table 8: Funding Sources Composition
June 30, 2021December 31, 2020
(Dollars in millions)Amount% of TotalAmount% of Total
Deposits:
Consumer Banking$251,155 73 %$249,815 72 %
Commercial Banking42,973 12 39,590 11 
Other(1)
12,180 4 16,037 
Total deposits306,308 89 305,442 88 
Securitized debt obligations10,561 3 12,414 
Other debt25,782 8 28,125 
Total funding sources$342,651 100 %$345,981 100 %
__________
(1)Includes brokered deposits of $11.1 billion and $15.0 billion as of June 30, 2021 and December 31, 2020, respectively.
Total deposits increased by $866 million to $306.3 billion as of June 30, 2021 from December 31, 2020 primarily driven by increased consumer savings, as well as commercial clients holding elevated levels of liquidity.
Securitized debt obligations decreased by $1.9 billion to $10.6 billion as of June 30, 2021 from December 31, 2020 primarily driven by maturities and paydowns in our securitizations.
Other debt decreased by $2.3 billion to $25.8 billion as of June 30, 2021 from December 31, 2020 primarily driven by redemptions of our senior unsecured debt.
We provide additional information on our funding sources in “MD&A—Liquidity Risk Profile” and “Note 7—Deposits and Borrowings.”
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OFF-BALANCE SHEET ARRANGEMENTS
In the ordinary course of business, we engage in certain activities that are not reflected on our consolidated balance sheets, generally referred to as off-balance sheet arrangements. These activities typically involve transactions with unconsolidated variable interest entities (“VIEs”) as well as other arrangements, such as letters of credit, loan commitments and guarantees, to meet the financing needs of our customers and support their ongoing operations. We provide additional information regarding these types of activities in “Note 5—Variable Interest Entities and Securitizations” and “Note 13—Commitments, Contingencies, Guarantees and Others.”
BUSINESS SEGMENT FINANCIAL PERFORMANCE
Our principal operations are organized for management reporting purposes into three major business segments, which are defined primarily based on the products and services provided or the types of customer served: Credit Card, Consumer Banking and Commercial Banking. The operations of acquired businesses have been integrated into or managed as a part of our existing business segments. Certain activities that are not part of a segment, such as management of our corporate investment portfolio, asset/liability management by our centralized Corporate Treasury group and calculation of our residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments, are included in the Other category.
The results of our individual businesses, which we report on a continuing operations basis, reflect the manner in which management evaluates performance and makes decisions about funding our operations and allocating resources. We may periodically change our business segments or reclassify business segment results based on modifications to our management reporting methodologies and changes in organizational alignment. Our business segment results are intended to reflect each segment as if it were a stand-alone business. We use an internal management and reporting process to derive our business segment results. Our internal management and reporting process employs various allocation methodologies, including funds transfer pricing, to assign certain balance sheet assets, deposits and other liabilities and their related revenue and expenses directly or indirectly attributable to each business segment. Total interest income and non-interest income are directly attributable to the segment in which they are reported. The net interest income of each segment reflects the results of our funds transfer pricing process, which is primarily based on a matched funding concept that takes into consideration market interest rates. Our funds transfer pricing process provides a funds credit for sources of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a charge for the use of funds by each segment. The allocation process is unique to each business segment and acquired business. We regularly assess the assumptions, methodologies and reporting classifications used for segment reporting, which may result in the implementation of refinements or changes in future periods. We provide additional information on the allocation methodologies used to derive our business segment results in “Note 17—Business Segments and Revenue from Contracts with Customers” in our 2020 Form 10-K.
We refer to the business segment results derived from our internal management accounting and reporting process as our “managed” presentation, which differs in some cases from our reported results prepared based on U.S. GAAP. There is no comprehensive authoritative body of guidance for management accounting equivalent to U.S. GAAP; therefore, the managed presentation of our business segment results may not be comparable to similar information provided by other financial services companies. In addition, our individual business segment results should not be used as a substitute for comparable results determined in accordance with U.S. GAAP.
We summarize our business segment results for the second quarter and first six months of 2021 and 2020 and provide a comparative discussion of these results, as well as changes in our financial condition and credit performance metrics as of June 30, 2021 compared to December 31, 2020. We provide a reconciliation of our total business segment results to our reported consolidated results in “Note 12—Business Segments and Revenue from Contracts with Customers.”
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Business Segment Financial Performance
Table 9 summarizes our business segment results, which we report based on revenue (loss) and income (loss) from continuing operations, for the second quarter and first six months of 2021 and 2020.
Table 9: Business Segment Results
 Three Months Ended June 30,
 
20212020
 
Total Net
Revenue (Loss)
(1)
Net Income
(Loss)(2)
Total Net
Revenue (Loss)
(1)
Net Loss(2)
(Dollars in millions)Amount% of
Total
Amount% of
Total
Amount% of
Total
Amount% of
Total
Credit Card$4,470 61 %$2,170 61 %$4,214 64 %$(533)58 %
Consumer Banking2,245 30 1,091 31 1,762 27 (114)12 
Commercial Banking(3)
717 10 396 11 698 11 (118)13 
Other(3)
(58)(1)(120)(3)(118)(2)(152)17 
Total
$7,374 100 %$3,537 100 %$6,556 100 %$(917)100 %
Six Months Ended June 30,
 
20212020
 
Total Net
Revenue (Loss)
(1)
Net Income
(Loss)(2)
Total Net
Revenue
(1)
Net Loss(2)
(Dollars in millions)Amount% of
Total
Amount% of
Total
Amount% of
Total
Amount% of
Total
Credit Card$8,871 61 %$4,275 62 %$8,827 64 %$(1,524)68 %
Consumer Banking4,416 31 1,993 29 3,545 26 (166)
Commercial Banking(3)
1,477 10 812 12 1,427 10 (529)23 
Other(3)
(277)(2)(216)(3)— (38)
Total$14,487 100 %$6,864 100 %$13,805 100 %$(2,257)100 %
__________
(1)Total net revenue (loss) consists of net interest income and non-interest income.
(2)Net income (loss) for our business segments and the Other category is based on income (loss) from continuing operations, net of tax.
(3)Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.
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Credit Card Business
The primary sources of revenue for our Credit Card business are net interest income, net interchange income and fees collected from customers. Expenses primarily consist of the provision for credit losses, operating costs and marketing expenses.
Our Credit Card business generated net income from continuing operations of $2.2 billion and $4.3 billion in the second quarter and first six months of 2021, respectively, compared to net loss of $533 million and $1.5 billion in the second quarter and first six months of 2020, respectively.
Table 10 summarizes the financial results of our Credit Card business and displays selected key metrics for the periods indicated.
Table 10: Credit Card Business Results
 Three Months Ended June 30,Six Months Ended June 30,
(Dollars in millions, except as noted)20212020Change20212020Change
Selected income statement data:
Net interest income$3,217 $3,369 (5)%$6,589 $7,071 (7)%
Non-interest income1,253 845 48 2,282 1,756 30 
Total net revenue(1)
4,470 4,214 8,871 8,827 — 
Provision (benefit) for credit losses(635)2,944 **(1,127)6,646 **
Non-interest expense2,263 1,969 15 4,398 4,177 
Income (loss) from continuing operations before income taxes2,842 (699)**5,600 (1,996)**
Income tax provision (benefit)672 (166)**1,325 (472)**
Income (loss) from continuing operations, net of tax$2,170 $(533)**$4,275 $(1,524)**
Selected performance metrics:
Average loans held for investment$99,674 $108,748 (8)$100,102 $115,762 (14)
Average yield on loans(2)
14.04 %13.72 %32 bps14.26 %14.11 %15 bps
Total net revenue margin(3)
17.59 15.50 209 17.38 15.25 213 
Net charge-offs$571 $1,211 (53)%$1,204 $2,647 (55)%
Net charge-off rate2.29 %4.46 %(217)bps2.41 %4.57 %(216)bps
Purchase volume$132,676 $90,149 47 %$241,009 $190,069 27 %
(Dollars in millions, except as noted)June 30, 2021December 31, 2020Change
Selected period-end data:
Loans held for investment$101,017 $106,956 (6)%
30+ day performing delinquency rate1.75 %2.44 %(69)bps
30+ day delinquency rate1.75 2.45 (70)
Nonperforming loan rate(4)
0.01 0.02 (1)
Allowance for credit losses$8,873 $11,191 (21)%
Allowance coverage ratio8.78 %10.46 %(168)bps
__________
(1)We recognize finance charges and fee income on open-ended loans in accordance with the contractual provisions of the credit arrangements and charge off uncollectible amounts. Total net revenue was reduced by $175 million and $355 million in the second quarter and first six months of 2021, respectively, compared to $318 million and $707 million in the second quarter and first six months of 2020, respectively, for credit card finance charges and fees charged off as uncollectible.
(2)Average yield is calculated based on annualized interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.
(3)Total net revenue margin is calculated based on annualized total net revenue for the period divided by average loans during the period.
(4)Within our credit card loan portfolio, only certain loans in our international card businesses are classified as nonperforming. See “MD&A—Nonperforming Loans and Other Nonperforming Assets” for additional information.
**    Not meaningful.
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Key factors affecting the results of our Credit Card business for the second quarter and first six months of 2021 compared to the second quarter and first six months of 2020, and changes in financial condition and credit performance between June 30, 2021 and December 31, 2020 include the following:
Net Interest Income: Net interest income decreased by $152 million to $3.2 billion in the second quarter of 2021 and decreased by $482 million to $6.6 billion in the first six months of 2021 primarily driven by lower average loan balances.
Non-Interest Income: Non-interest income increased by $408 million to $1.3 billion in the second quarter of 2021 and increased by $526 million to $2.3 billion in the first six months of 2021 primarily driven by higher net interchange fees due to an increase in purchase volume.
Provision for Credit Losses: Provision for credit losses decreased by $3.6 billion to a benefit of $635 million in the second quarter of 2021 and decreased by $7.8 billion to a benefit of $1.1 billion in the first six months of 2021 resulting from allowance releases in the first and second quarters of 2021 due to continued strong credit performance and an improved economic outlook compared to allowance builds in the first and second quarters of 2020 driven by expectations of economic worsening at the start of the COVID-19 pandemic.
Non-Interest Expense: Non-interest expense increased by $294 million to $2.3 billion in the second quarter of 2021 and increased by $221 million to $4.4 billion in the first six months of 2021 primarily driven by increased marketing spend.
Loans Held for Investment:
Period-end loans held for investment decreased by $5.9 billion to $101.0 billion as of June 30, 2021 from December 31, 2020 primarily due to higher customer payments and the transfer of a $2.6 billion international partnership portfolio to held for sale as of June 30, 2021, partially offset by higher purchase volume in Domestic Card.
Average loans held for investment decreased by $9.1 billion to $99.7 billion in the second quarter of 2021 compared to the second quarter of 2020 and decreased by $15.7 billion to $100.1 billion in the first six months of 2021 compared to the first six months of 2020 primarily due to higher customer payments, partially offset by higher purchase volume in Domestic Card.
Net Charge-Off and Delinquency Metrics: The net charge-off rate decreased by 217 basis points to 2.29% in the second quarter of 2021 compared to the second quarter of 2020 and decreased by 216 basis points to 2.41% in the first six months of 2021 compared to the first six months of 2020 primarily driven by strong credit performance in Domestic Card due to higher customer payments, partially offset by lower average loans held for investment.
The 30+ day delinquency rate decreased by 70 basis points to 1.75% as of June 30, 2021 from December 31, 2020 due to seasonally lower delinquency inventories and strong credit performance in our domestic credit card loan portfolio.
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Domestic Card Business
The Domestic Card business generated net income from continuing operations of $2.0 billion and $4.0 billion in the second quarter and first six months of 2021, respectively, compared to net loss of $605 million and $1.5 billion in the second quarter and first six months of 2020, respectively. In the second quarter and first six months of 2021 and 2020, the Domestic Card business accounted for greater than 90% of total net revenue of our Credit Card business.
Table 10.1 summarizes the financial results for Domestic Card business and displays selected key metrics for the periods indicated.
Table 10.1: Domestic Card Business Results
Three Months Ended June 30,Six Months Ended June 30,
(Dollars in millions, except as noted)20212020Change20212020Change
Selected income statement data:
Net interest income$2,944 $3,094 (5)%$6,039 $6,475 (7)%
Non-interest income1,183 795 49 2,142 1,637 31 
Total net revenue(1)
4,127 3,889 8,181 8,112 
Provision (benefit) for credit losses(561)2,906 **(1,052)6,370 **
Non-interest expense2,034 1,776 15 3,957 3,760 
Income (loss) from continuing operations before income taxes2,654 (793)**5,276 (2,018)**
Income tax provision (benefit)626 (188)**1,245 (478)**
Income (loss) from continuing operations, net of tax$2,028 $(605)**$4,031 $(1,540)**
Selected performance metrics:
Average loans held for investment$91,535 $100,996 (9)$92,062 $107,354 (14)
Average yield on loans(2)
13.91 %13.52 %39 bps14.13 %13.93 %20 bps
Total net revenue margin(3)
17.66 15.40 226 17.40 15.11 229 
Net charge-offs$522 $1,143 (54)%$1,109 $2,474 (55)%
Net charge-off rate2.28 %4.53 %(225)bps2.41 %4.61 %(220)bps
Purchase volume$122,456 $82,860 48 %$222,416 $175,108 27 %
(Dollars in millions, except as noted)June 30, 2021December 31, 2020Change
Selected period-end data:
Loans held for investment$95,309 $98,504 (3)%
30+ day performing delinquency rate1.68 %2.42 %(74)bps
Allowance for credit losses$8,489 $10,650 (20)%
Allowance coverage ratio8.91 %10.81 %(190)bps
__________
(1)We recognize finance charges and fee income on open-ended loans in accordance with the contractual provisions of the credit arrangements and charge off uncollectible amounts. Finance charges and fees charged off as uncollectible are reflected as a reduction in total net revenue.
(2)Average yield is calculated based on annualized interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.
(3)Total net revenue margin is calculated based on annualized total net revenue for the period divided by average loans during the period.
**    Not meaningful.
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Because our Domestic Card business accounts for the substantial majority of our Credit Card business, the key factors driving the results are similar to the key factors affecting our total Credit Card business. Net income for our Domestic Card business increased in the second quarter of 2021 and in the first six months of 2021 compared to the second quarter of 2020 and the first six months of 2020 primarily driven by:
lower provision for credit losses resulting from allowance releases in the first and second quarters of 2021 due to continued strong credit performance and an improved economic outlook compared to allowance builds in the first and second quarters of 2020 driven by expectations of economic worsening at the start of the COVID-19 pandemic; and
higher non-interest income primarily due to higher net interchange fees from an increase in purchase volume.
These drivers were partially offset by:
higher non-interest expense primarily driven by increased marketing spend; and
lower net interest income primarily due to lower average outstanding balances.
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Consumer Banking Business
The primary sources of revenue for our Consumer Banking business are net interest income from loans and deposits as well as service charges and customer-related fees. Expenses primarily consist of the provision for credit losses, operating costs and marketing expenses.
Our Consumer Banking business generated net income from continuing operations of $1.1 billion and $2.0 billion in the second quarter and first six months of 2021, respectively, compared to net loss of $114 million and $166 million in the second quarter and first six months of 2020, respectively.
Table 11 summarizes the financial results of our Consumer Banking business and displays selected key metrics for the periods indicated.
Table 11: Consumer Banking Business Results
 Three Months Ended June 30,Six Months Ended June 30,
(Dollars in millions, except as noted)20212020Change20212020Change
Selected income statement data:
Net interest income$2,101 $1,665 26 %$4,131 $3,322 24 %
Non-interest income144 97 48 285 223 28 
Total net revenue2,245 1,762 27 4,416 3,545 25 
Provision (benefit) for credit losses(306)876 **(432)1,736 **
Non-interest expense1,123 1,036 2,240 2,027 11 
Income (loss) from continuing operations before income taxes1,428 (150)**2,608 (218)**
Income tax provision (benefit)337 (36)**615 (52)**
Income (loss) from continuing operations, net of tax$1,091 $(114)**$1,993 $(166)**
Selected performance metrics:
Average loans held for investment:
Auto$69,543 $61,798 13 $67,873 $61,401 11 
Retail banking3,162 3,053 3,106 2,860 
Total consumer banking$72,705 $64,851 12 $70,979 $64,261 10 
Average yield on loans held for investment(1)
7.99 %8.41 %(42)bps8.07 %8.44 %(37)bps
Average deposits$252,488 $232,293 %$251,002 $223,682 12 %
Average deposits interest rate0.31 %0.89 %(58)bps0.33 %0.97 %(64)bps
Net charge-offs (recoveries)$(11)$192 **$80 $438 (82)%
Net charge-off (recovery) rate(0.06)%1.19 %(125)bps0.23 %1.36 %(113)bps
Auto loan originations$12,959 $8,292 56 %$21,792 $15,931 37 %
(Dollars in millions, except as noted)June 30, 2021December 31, 2020Change
Selected period-end data:
Loans held for investment:
Auto$71,713 $65,762 %
Retail banking3,046 3,126 (3)
Total consumer banking$74,759 $68,888 
30+ day performing delinquency rate3.16 %4.62 %(146)bps
30+ day delinquency rate3.40 5.00 (160)
Nonperforming loan rate0.35 0.47 (12)
Nonperforming asset rate(2)
0.40 0.54 (14)
Allowance for credit losses$2,203 $2,715 (19)%
Allowance coverage ratio2.95 %3.94 %(99)bps
Deposits$251,155 $249,815 %
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__________
(1)Average yield is calculated based on annualized interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.
(2)Nonperforming assets primarily consist of nonperforming loans and repossessed assets. The total nonperforming asset rate is calculated based on total nonperforming assets divided by the combined period-end total loans held for investment and repossessed assets.
**    Not meaningful.
Key factors affecting the results of our Consumer Banking business for the second quarter and first six months of 2021 compared to the second quarter and first six months of 2020, and changes in financial condition and credit performance between June 30, 2021 and December 31, 2020 include the following:
Net Interest Income: Net interest income increased by $436 million to $2.1 billion in the second quarter of 2021 and increased by $809 million to $4.1 billion in the first six months of 2021 primarily driven by higher margins and deposits in our Retail Banking business as well as growth in our auto loan portfolio.
Non-Interest Income: Non-interest income increased by $47 million to $144 million in the second quarter of 2021 and increased by $62 million to $285 million in the first six months of 2021 primarily driven by higher interchange fees from an increase in debit card purchase volume and growth in our auto loan portfolio.
Provision for Credit Losses: Provision for credit losses decreased by $1.2 billion to a benefit of $306 million in the second quarter of 2021 and decreased by $2.2 billion to a benefit of $432 million in the first six months of 2021 resulting from allowance releases due to continued strong credit performance, an improved economic outlook and auction price favorability, compared to allowance builds in the first and second quarters of 2020 driven by expectations of economic worsening at the start of the COVID-19 pandemic.
Non-Interest Expense: Non-interest expense increased by $87 million to $1.1 billion in the second quarter of 2021 and increased by $213 million to $2.2 billion in the first six months of 2021 primarily driven by growth in our auto loan portfolio as well as continued investment in infrastructure and technology.
Loans Held for Investment: Period-end loans held for investment increased by $5.9 billion to $74.8 billion as of June 30, 2021 from December 31, 2020, and average loans held for investment increased by $7.9 billion to $72.7 billion in the second quarter of 2021 compared to the second quarter of 2020 and increased by $6.7 billion to $71.0 billion in the first six months of 2021 compared to the first six months of 2020 primarily driven by growth in our auto loan portfolio due to higher originations.
Deposits: Period-end deposits increased by $1.3 billion to $251.2 billion as of June 30, 2021 from December 31, 2020 primarily driven by increased consumer savings.
Net Charge-Off and Delinquency Metrics: The net charge-off rate decreased by 125 basis points to a net recovery of 0.06% in the second quarter of 2021 compared to the second quarter of 2020 and decreased by 113 basis points to 0.23% in the first six months of 2021 compared to the first six months of 2020 primarily driven by strong credit performance and the impact of elevated auction prices on recoveries.
The 30+ day delinquency rate decreased by 160 basis points to 3.40% as of June 30, 2021 from December 31, 2020 driven by seasonally lower delinquency inventories and strong credit performance in our auto loan portfolio.
Commercial Banking Business
The primary sources of revenue for our Commercial Banking business are net interest income from loans and deposits and non-interest income earned from products and services provided to our clients such as capital markets and treasury management. Because our Commercial Banking business has loans and investments that generate tax-exempt income, tax credits or other tax benefits, we present the revenues on a taxable-equivalent basis. Expenses primarily consist of the provision for credit losses and operating costs.
Our Commercial Banking business generated net income from continuing operations of $396 million and $812 million in the second quarter of 2021, respectively, compared to net loss of $118 million and $529 million in the second quarter and first six months of 2020, respectively.
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Table 12 summarizes the financial results of our Commercial Banking business and displays selected key metrics for the periods indicated.
Table 12: Commercial Banking Business Results
 Three Months Ended June 30,Six Months Ended June 30,
(Dollars in millions, except as noted)20212020Change20212020Change
Selected income statement data:
Net interest income$460 $518 (11)%$980 $1,009 (3)%
Non-interest income257 180 43 497 418 19 
Total net revenue(1)
717 698 1,477 1,427 
Provision (benefit) for credit losses(2)
(219)427 **(422)1,283 **
Non-interest expense417 425 (2)836 837 — 
Income (loss) from continuing operations before income taxes519 (154)**1,063 (693)**
Income tax provision (benefit)123 (36)**251 (164)**
Income (loss) from continuing operations, net of tax$396 $(118)**$812 $(529)**
Selected performance metrics:
Average loans held for investment:
Commercial and multifamily real estate$30,124 $31,723 (5)$29,991 $31,402 (4)
Commercial and industrial43,960 48,036 (8)44,135 46,699 (5)
Total commercial banking$74,084 $79,759 (7)$74,126 $78,101 (5)
Average yield on loans held for investment(1)(3)
2.72 %3.00 %(28)bps2.74 %3.43 %(69)bps
Average deposits$42,311 $34,635 22 %$41,215 $33,437 23 %
Average deposits interest rate0.14 %0.30 %(16)bps0.16 %0.58 %(42)bps
Net charge-offs (recoveries)$(19)$102 **$(3)$211 **
Net charge-off (recovery) rate (0.11)%0.51 %(62)bps(0.01)%0.54 %(55)bps
(Dollars in millions, except as noted)June 30, 2021December 31, 2020Change
Selected period-end data:
Loans held for investment:
Commercial and multifamily real estate$29,616 $30,681 (3)%
Commercial and industrial44,205 45,099 (2)
Total commercial banking$73,821 $75,780 (3)
Nonperforming loan rate1.03 %0.86 %17 bps
Nonperforming asset rate(4)
1.03 0.86 17 
Allowance for credit losses(2)
$1,270 $1,658 (23)%
Allowance coverage ratio1.72 %2.19 %(47)bps
Deposits$42,973 $39,590 %
Loans serviced for others45,898 44,162 
__________
(1)Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.
(2)The provision for losses on unfunded lending commitments is included in the provision for credit losses in our consolidated statements of income and the related reserve is included in other liabilities on our consolidated balance sheets. Our reserve for unfunded lending commitments totaled $164 million and $195 million as of June 30, 2021 and December 31, 2020, respectively.
(3)Average yield is calculated based on annualized interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.
(4)Nonperforming assets consist of nonperforming loans and other foreclosed assets. The total nonperforming asset rate is calculated based on total nonperforming assets divided by the combined period-end total loans held for investment and other foreclosed assets.
**    Not meaningful.
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Key factors affecting the results of our Commercial Banking business for the second quarter and first six months of 2021 compared to the second quarter and first six months of 2020, and changes in financial condition and credit performance between June 30, 2021 and December 31, 2020 include the following:
Net Interest Income: Net interest income decreased by $58 million to $460 million in the second quarter of 2021 and decreased by $29 million to $980 million in the first six months of 2021 primarily driven by a one-time charge for unwinding the internal funding related to moving $1.5 billion in loans to held for sale, as well as lower average loan balances and higher average deposits.
Non-Interest Income: Non-interest income increased by $77 million to $257 million in the second quarter of 2021 and increased by $79 million to $497 million in the first six months of 2021 driven by higher activity in our capital markets business.
Provision for Credit Losses: Provision for credit losses decreased by $646 million to a benefit of $219 million in the second quarter of 2021 and decreased by $1.7 billion to a benefit of $422 million in the first six months of 2021 resulting from allowance releases due to an improved economic outlook and improvement in our energy portfolio, compared to allowance builds in the first and second quarter of 2020 driven by expectations of economic worsening at the start of the COVID-19 pandemic as well as credit deterioration in our energy loan portfolio.
Non-Interest Expense: Non-interest expense has remained substantially flat at $417 million in the second quarter of 2021 and $836 million in the first six months of 2021.
Loans Held for Investment:
Period-end loans held for investment decreased by $2.0 billion to $73.8 billion as of June 30, 2021 from December 31, 2020 primarily driven by higher utilization of credit lines in 2020 due to the COVID-19 pandemic and the transfer of $1.5 billion in loans to held for sale as of June 30, 2021.
Average loans held for investment decreased by $5.7 billion to $74.1 billion in the second quarter of 2021 compared to the second quarter of 2020 and decreased by $4.0 billion to $74.1 billion in the first six months of 2021 compared to the first six months of 2020 driven by higher utilization of credit lines in 2020 due to the COVID-19 pandemic.
Deposits: Period-end deposits increased by $3.4 billion to $43.0 billion as of June 30, 2021 from December 31, 2020 primarily driven by elevated client liquidity.
Net Charge-Off and Nonperforming Metrics: The net charge-off rate decreased by 62 basis points to a net recovery of 0.11% in the second quarter of 2021 and decreased by 55 basis points to a net recovery of 0.01% in the first six months of 2021 primarily driven by lower net charge-offs in our energy loan portfolio.
The nonperforming loan rate increased by 17 basis points to 1.03% as of June 30, 2021 from December 31, 2020 driven by isolated credit downgrades in our real estate portfolio.
Other Category
Other includes unallocated amounts related to our centralized Corporate Treasury group activities, such as management of our corporate investment securities portfolio, asset/liability management and certain capital management activities. Other also includes:
unallocated corporate revenue and expenses that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance, such as certain restructuring charges;
offsets related to certain line-item reclassifications;
residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments; and
foreign exchange-rate fluctuations on foreign currency-denominated balances.
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Table 13 summarizes the financial results of our Other category for the periods indicated.
Table 13: Other Category Results
 Three Months Ended June 30,Six Months Ended June 30,
(Dollars in millions)20212020Change20212020Change
Selected income statement data:
Net interest income (loss)$(35)$(92)(62)%$(135)$83 **
Non-interest loss(23)(26)(12)(142)(77)84 %
Total net revenue (loss)(1)
(58)(118)(51)(277)**
Provision (benefit) for credit losses (1)**(2)**
Non-interest expense(2)
163 340 (52)232 458 (49)
Loss from continuing operations before income taxes(221)(457)(52)(507)(456)11 
Income tax benefit(101)(305)(67)(291)(418)(30)
Loss from continuing operations, net of tax$(120)$