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CAPITAL ONE FINANCIAL CORP - Quarter Report: 2021 March (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 March 31, 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
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 April 30, 2021, there were 451,489,343 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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Allowance Coverage Ratios for Specified Loan Category
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36
A
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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 March 31, 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 March 31, 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.
In the fourth quarter of 2020, we entered into an agreement to sell a partnership credit card loan portfolio of approximately $2.1 billion, which had been transferred to held for sale as of September 30, 2020, resulting in an allowance release of $327 million.
Coronavirus Disease 2019 (COVID-19) Pandemic
The COVID-19 pandemic has resulted in a global public-health crisis, disrupting economies and introducing significant volatility into financial markets and uncertainty as to when economic and operating conditions will return to normalcy. This crisis continues to impact individuals, households and businesses in a multitude of ways. Companies in the United States of America (“U.S.”) and abroad have experienced unprecedented disruptions to normal business operations, including customer-facing interactions, supply chains, office closures, changes in demand for products and services, and others. Financial institutions, including us, have been deemed an essential service and exempted from the myriad of shutdowns across the country. We have transformed how we work in order to protect the well-being of our associates and our customers, serve our customers, support our communities, and position ourselves to navigate the challenges ahead.
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 at least the summer of 2021, as we continue to prioritize their safety while planning our return to the office. We have been able to continue serving customers, successfully managing critical functions and keeping our lines of business operating. We have implemented additional paid benefits and flexible attendance policies that are intended to enable our associates to care for their families and loved ones, including increased pay for branch and Café associates working in open locations, associates that perform essential and time-sensitive banking activities that cannot be performed remotely, and other U.S.-based associates in roles instrumental to maintaining essential customer support. We continue to monitor and revise our safety precautions and policies at banking locations as government authorities continue to implement and modify measures to contain the further spread of COVID-19. In our Retail Banking business, we have reopened nearly all of our Cafés and branches across our network with increased safety precautions. We will continue to monitor local conditions to ensure the safety of our associates and customers while providing critical banking services.
Beginning in March 2020, we offered a range of policies and programs to accommodate customer hardship across our lines of business, with the largest program offerings in our Auto and Domestic Credit Card businesses. Enrollments in these programs peaked early in the pandemic and have declined to low levels thereafter. In addition, we continue to participate in the Paycheck Protection Program (“PPP”), established by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in March 2020 and implemented by the Small Business Administration. See “MD&A—Credit Risk Profile” for more information about our customer assistance programs and enrollment volumes.
We reported net income of $3.3 billion ($7.03 per diluted common share) for the first quarter of 2021, which reflects an allowance release of $1.6 billion. The allowance release was driven by strong credit performance and an improved economic outlook. Our allowance coverage ratio of 5.77% as of March 31, 2021 remains well above pre-pandemic levels. For more information, see “MD&A—Executive Summary and Business Outlook” and “MD&A—Credit Risk Profile.” We have incorporated recent market events and trends into our valuations of instruments measured at fair value. See more details in “MD&A—Critical Accounting Policies and Estimates,” “MD&A—Market Risk Profile” and “Note 8—Derivative Instruments and Hedging Activities.” See “MD&A—Liquidity Risk Profile” for information relating to our liquidity reserves as of March 31, 2021.
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After seeing impacts to the demand for our products and services to varying degrees in 2020 due to the COVID-19 pandemic, we saw significant improvements in the first quarter of 2021. In our Domestic Card business, the year-over-year percentage change in ending loan balances this quarter was approximately the same as it was last quarter. Rebounding spend levels were offset by the effects of government stimulus on Card payment rates, which continue to pressure loan balances. In our Auto business, we saw an increase in origination volumes and loan growth driven by our relationship strategy and digital capabilities along with strong industry sales. In our Retail Banking business, we continue to see high deposit volumes driven by increased consumer savings aided by the impact of recently passed government stimulus. In our Commercial Banking business, revenue was up year-over-year as margins improved. Deposit balances were up significantly, reflecting the impact of the economic environment and government stimulus on our customers, while average loan balances declined modestly.
We are actively monitoring and responding to developments across the myriad of landscapes affected by the COVID-19 pandemic, including social, financial, legal, regulatory and governmental. As guidance is issued by governments and our regulators, we continue to assess the impacts on us. As government authorities continue to implement, modify and reinstate social distancing and reopening plans and other measures to contain the further spread of COVID-19, we will continue to adjust our business operations, policies and practices, keeping the best interests of our associates, customers and business partners at the forefront.
See “Part I—Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for additional information regarding risks and the significant uncertainties relating to the COVID-19 pandemic.
SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data and performance from our results of operations for the first quarters of 2021 and 2020 and selected comparative balance sheet data as of March 31, 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 March 31,
(Dollars in millions, except per share data and as noted)20212020Change
Income statement
Net interest income$5,822 $6,025 (3)%
Non-interest income1,291 1,224 
Total net revenue7,113 7,249 (2)
Provision (benefit) for credit losses(823)5,423 **
Non-interest expense:
Marketing501 491 
Operating expense3,239 3,238 — 
Total non-interest expense3,740 3,729 — 
Income (loss) from continuing operations before income taxes4,196 (1,903)**
Income tax provision (benefit)869 (563)**
Income (loss) from continuing operations, net of tax3,327 (1,340)**
Income (loss) from discontinued operations, net of tax(2)— **
Net income (loss)3,325 (1,340)**
Dividends and undistributed earnings allocated to participating securities(28)(3)**
Preferred stock dividends(61)(55)11 
Issuance cost for redeemed preferred stock (22)**
Net income (loss) available to common stockholders$3,236 $(1,420)**
Common share statistics
Basic earnings per common share:
Net income (loss) from continuing operations$7.06 $(3.10)**
Net income (loss) per basic common share$7.06 $(3.10)**
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Three Months Ended March 31,
(Dollars in millions, except per share data and as noted)20212020Change
Diluted earnings per common share:
Net income (loss) from continuing operations$7.03 $(3.10)**
Net income (loss) per diluted common share$7.03 $(3.10)**
Weighted-average common shares outstanding (in millions):
Basic 458.6 457.6 — 
Diluted460.1 457.6 %
Common shares outstanding (period-end, in millions)456.8 455.3 — 
Dividends declared and paid per common share$0.40 $0.40 — 
Tangible book value per common share (period-end)(1)
90.96 80.68 13 
Balance sheet (average balances)
Loans held for investment$243,937 $262,889 (7)%
Interest-earning assets388,572 355,347 
Total assets421,808 390,380 
Interest-bearing deposits273,358 241,115 13 
Total deposits305,056 264,653 15 
Borrowings39,911 51,795 (23)
Common equity55,775 53,186 
Total stockholders’ equity60,623 58,568 
Selected performance metrics
Purchase volume$108,333 $99,920 %
Total net revenue margin(2)
7.32 %8.16 %(84)bps
Net interest margin5.99 6.78 (79)
Return on average assets(3)
3.16 (1.37)**
Return on average tangible assets(4)
3.27 (1.43)**
Return on average common equity(5)
23.22 (10.68)**
Return on average tangible common equity(6)
31.61 (14.85)**
Equity-to-assets ratio(7)
14.37 15.00 (63)
Non-interest expense as a percentage of average loans held for investment6.13 5.67 46 
Efficiency ratio(8)
52.58 51.44 114 
Operating efficiency ratio(9)
45.54 44.67 87 
Effective income tax rate from continuing operations20.7 29.6 (9)%
Net charge-offs$740 $1,791 (59)
Net charge-off rate1.21 %2.72 %(151)bps

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(Dollars in millions, except as noted)March 31, 2021December 31, 2020Change
Balance sheet (period-end)
Loans held for investment$243,131 $251,624 (3)%
Interest-earning assets392,485 388,917 
Total assets425,175 421,602 
Interest-bearing deposits276,325 274,300 
Total deposits310,328 305,442 
Borrowings38,450 40,539 (5)
Common equity56,341 55,356 
Total stockholders’ equity61,188 60,204 
Credit quality metrics
Allowance for credit losses$14,017 $15,564 (10)%
Allowance as a percentage of loans held for investment (“allowance coverage ratio”)5.77 %6.19 %(42)bps
30+ day performing delinquency rate1.82 2.41 (59)
30+ day delinquency rate1.98 2.61 (63)
Capital ratios
Common equity Tier 1 capital(10)
14.6 %13.7 %90 bps
Tier 1 capital(10)
16.2 15.3 90 
Total capital(10)
18.6 17.7 90 
Tier 1 leverage(10)
11.7 11.2 50 
Tangible common equity(11)
10.1 10.0 10 
Supplementary leverage(10)
11.3 10.7 60 
Other
Employees (period end, in thousands)51.7 52.0 (1)%
__________
(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.
(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 available to common stockholders less 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 available to common stockholders less 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.
**    Not meaningful
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EXECUTIVE SUMMARY AND BUSINESS OUTLOOK
Financial Highlights
We reported net income of $3.3 billion ($7.03 per diluted common share) on total net revenue of $7.1 billion for the first quarter of 2021. In comparison, we reported net loss of $1.3 billion ($3.10 per diluted common share) on total net revenue of $7.2 billion for the first quarter of 2020.
Our common equity Tier 1 capital ratio as calculated under the Basel III Standardized Approach was 14.6% and 13.7% as of March 31, 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 and we repurchased approximately $490 million of shares of our common stock during the first quarter of 2021. See “MD&A—Capital Management—Dividend Policy and Stock Purchases” for additional information.
Below are additional highlights of our performance in the first quarter of 2021. These highlights are based on a comparison between the results of the first quarters 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 March 31, 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 $4.7 billion to $3.3 billion in the first quarter of 2021 compared to the first quarter of 2020 primarily driven by:
lower provision due to an allowance release in the first quarter of 2021 due to continued strong credit performance and an improved economic outlook compared to an allowance build in the first quarter of 2020 driven by the expected economic worsening and significant uncertainty at the start of the COVID-19 pandemic;
This driver was partially offset by:
lower net interest income due to lower average outstanding balances in our domestic credit card loan portfolio, as well as higher interest-bearing deposit balances, partially offset by the lower interest rate paid on interest-bearing liabilities.
Loans Held for Investment:
Period-end loans held for investment decreased by $8.5 billion to $243.1 billion as of March 31, 2021 from December 31, 2020 primarily due to expected seasonal paydowns in our domestic credit card loan portfolio as well as higher customer payments and the impact of government stimulus.
Average loans held for investment decreased by $19.0 billion to $243.9 billion in the first quarter of 2021 compared to the first quarter of 2020 primarily driven by lower outstanding balances in Domestic Card due to higher customer payments and the impact of government stimulus, partially offset by growth in our auto loan portfolio.
Net Charge-Off and Delinquency Metrics: Our net charge-off rate decreased by 151 basis points to 1.21% in the first quarter of 2021 compared to the first quarter of 2020, driven by strong credit performance, including the impact of government stimulus in our domestic credit card and auto loan portfolios, as well as lower charge-offs in our commercial energy loan portfolio.
Our 30+ day delinquency rate decreased by 63 basis points to 1.98% as of March 31, 2021 from December 31, 2020 due to seasonally lower delinquency inventories and strong credit performance in our domestic credit card and auto loan portfolios.
Allowance for Credit Losses: Our allowance for credit losses decreased by $1.5 billion to $14.0 billion, and our allowance coverage ratio decreased by 42 basis points to 5.77% as of March 31, 2021 from December 31, 2020, driven by strong credit performance and an improved economic outlook.
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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 as used car auction prices decrease from elevated levels and the temporary favorable impact of government stimulus diminishes.
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CONSOLIDATED RESULTS OF OPERATIONS
The section below provides a comparative discussion of our consolidated financial performance for the first quarters 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 first quarters 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 March 31,
 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$102,520 $3,713 14.49 %$122,854 $4,437 14.45 %
Consumer banking69,234 1,413 8.16 63,672 1,347 8.46 
Commercial banking(2)
74,921 516 2.76 77,105 746 3.87 
Other(3)
 212 **— 12 **
Total loans, including loans held for sale246,675 5,854 9.49 263,631 6,542 9.93 
Investment securities98,296 391 1.59 78,212 530 2.71 
Cash equivalents and other interest-earning assets43,601 16 0.15 13,504 37 1.10 
Total interest-earning assets388,572 6,261 6.45 355,347 7,109 8.00 
Cash and due from banks5,085 4,472 
Allowance for credit losses(15,548)(10,408)
Premises and equipment, net4,283 4,344 
Other assets39,416 36,625 
Total assets$421,808 $390,380 
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Interest-bearing deposits$273,358 $269 0.39 %$241,115 $731 1.21 %
Securitized debt obligations12,240 32 1.05 18,054 99 2.20 
Senior and subordinated notes26,968 129 1.91 31,342 239 3.04 
Other borrowings and liabilities2,210 9 1.62 3,779 15 1.62 
Total interest-bearing liabilities314,776 439 0.56 294,290 1,084 1.47 
Non-interest-bearing deposits31,698 23,538 
Other liabilities14,711 13,984 
Total liabilities361,185 331,812 
Stockholders’ equity60,623 58,568 
Total liabilities and stockholders’ equity$421,808 $390,380 
Net interest income/spread$5,822 5.89 $6,025 6.53 
Impact of non-interest-bearing funding0.10 0.25 
Net interest margin5.99 %6.78 %
__________
(1)Past due fees included in interest income totaled approximately $310 million and $391 million in the first quarters of 2021 and 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 $20 million for the first quarters of 2021 and 2020, respectively, with corresponding reductions to the Other category.
(3)Interest income/expense in Other 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 decreased by $203 million to $5.8 billion in the first quarter of 2021 compared to the first quarter of 2020 primarily driven by lower average outstanding balances in Domestic Card, as well as higher interest-bearing deposit balances, partially offset by the lower interest rate paid on interest-bearing liabilities.
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Net interest margin decreased by 79 basis points to 5.99% in the first quarter of 2021 compared to the first quarter of 2020 primarily driven by a shift in our asset mix and lower interest rates received on interest-earning assets, partially offset by the lower interest rate paid on interest-bearing deposits.
Table 3 displays the change in our net interest income between periods and the extent to which the variance is attributable to:
changes in the volume of our interest-earning assets and interest-bearing liabilities; or
changes in the interest rates related to these assets and liabilities.
Table 3: Rate/Volume Analysis of Net Interest Income(1)
Three Months Ended March 31,
 2021 vs. 2020
(Dollars in millions)Total VarianceVolumeRate
Interest income:
Loans:
Credit card$(724)$(734)$10 
Consumer banking66 114 (48)
Commercial banking(2)
(230)(21)(209)
Other(3)
200  200 
Total loans, including loans held for sale(688)(641)(47)
Investment securities(139)80 (219)
Cash equivalents and other interest-earning assets(21)11 (32)
Total interest income(848)(550)(298)
Interest expense:
Interest-bearing deposits(462)32 (494)
Securitized debt obligations(67)(24)(43)
Senior and subordinated notes(110)(30)(80)
Other borrowings and liabilities(6)(6) 
Total interest expense(645)(28)(617)
Net interest income$(203)$(522)$319 
__________
(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 Other 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 first quarters of 2021 and 2020.
Table 4: Non-Interest Income
 Three Months Ended March 31,
(Dollars in millions)20212020
Interchange fees, net$817 $752 
Service charges and other customer-related fees352 327 
Net securities gains4 — 
Other non-interest income:(1)
Mortgage banking revenue60 68 
Treasury and other investment loss(16)(7)
Other74 84 
Total other non-interest income118 145 
Total non-interest income$1,291 $1,224 
________
(1)Includes gains of $19 million and losses of $58 million on deferred compensation plan investments in the first quarters of 2021 and 2020, respectively.
Non-interest income increased by $67 million to $1.3 billion in the first quarter of 2021 compared to the first quarter of 2020 primarily driven by higher net interchange fees due to an increase in purchase volume.
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 $6.2 billion and resulted in a benefit of $823 million in the first quarter of 2021 compared to the first quarter of 2020. This decrease was primarily driven by an allowance release in the first quarter of 2021 due to continued strong credit performance and an improved economic outlook compared to an allowance build in the first quarter of 2020 driven by the expected economic worsening and significant uncertainty 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 first quarters of 2021 and 2020.
Table 5: Non-Interest Expense
Three Months Ended March 31,
(Dollars in millions)20212020
Salaries and associate benefits(1)
$1,847 $1,627 
Occupancy and equipment472 517 
Marketing501 491 
Professional services292 287 
Communications and data processing302 302 
Amortization of intangibles6 22 
Other non-interest expense:
Bankcard, regulatory and other fee assessments52 75 
Collections84 105 
Fraud losses35 79 
Other149 224 
Total other non-interest expense320 483 
Total non-interest expense$3,740 $3,729 
_________
(1)Includes expenses of $19 million and benefits of $58 million related to our deferred compensation plan investment in the first quarters of 2021 and 2020, respectively. These amounts have corresponding offsets in other non-interest income.
Non-interest expense remained substantially flat at $3.7 billion in the first quarter of 2021.
Income Taxes
We recorded income tax provision of $869 million (20.7% effective income tax rate) and income tax benefit of $563 million (29.6% effective income tax rate) in the first quarters of 2021 and 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.
Our effective tax rate of 20.7% in the first quarter of 2021 was computed using the annual effective rate method as compared to the 29.6% effective tax rate in the first quarter of 2020 which was computed utilizing the year-to-date method due to the significant forecast variability caused by the COVID-19 pandemic and the relationship of our increasing tax credit investments in proportion to our pre-tax earnings.
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 $3.6 billion to $425.2 billion as of March 31, 2021 from December 31, 2020 primarily driven by an increase in our cash balances from deposit growth driven by increased consumer savings aided by the impact of recently passed government stimulus, partially offset by a decline in loan balances.
Total liabilities increased by $2.6 billion to $364.0 billion as of March 31, 2021 from December 31, 2020 primarily driven by growth in deposits driven by increased consumer savings aided by the impact of recently passed government stimulus, partially offset by the early redemption of our senior unsecured debt and paydowns in our auto securitization program.
Stockholders’ equity increased by $984 million to $61.2 billion as of March 31, 2021 from December 31, 2020 primarily due to our net income of $3.3 billion, partially offset by a decline in fair value of our available for sale securities portfolio and 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 quarter 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 as well as 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 March 31, 2021 and December 31, 2020.
The fair value of our available for sale securities portfolio decreased by $1.3 billion to $99.2 billion as of March 31, 2021 from December 31, 2020, primarily driven 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 March 31, 2021 and December 31, 2020.
Table 6: Investment Securities
March 31, 2021December 31, 2020
(Dollars in millions)Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Investment securities available for sale:
U.S. Treasury securities$9,222 $9,248 $9,302 $9,318 
RMBS:
Agency73,579 74,445 73,248 75,466 
Non-agency973 1,177 1,035 1,237 
Total RMBS74,552 75,622 74,283 76,703 
Agency CMBS11,015 11,274 11,298 11,735 
Other securities(1)
3,013 3,021 2,686 2,689 
Total investment securities available for sale$97,802 $99,165 $97,569 $100,445 
__________
(1)Includes $2.1 billion and $1.8 billion of asset-backed securities as of March 31, 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 March 31, 2021 and December 31, 2020.
Table 7: Loans Held for Investment
 March 31, 2021December 31, 2020
(Dollars in millions)LoansAllowanceNet LoansLoansAllowanceNet Loans
Credit Card$99,127 $10,072 $89,055 $106,956 $11,191 $95,765 
Consumer Banking70,202 2,498 67,704 68,888 2,715 66,173 
Commercial Banking73,802 1,447 72,355 75,780 1,658 74,122 
Total$243,131 $14,017 $229,114 $251,624 $15,564 $236,060 
Loans held for investment decreased by $8.5 billion to $243.1 billion as of March 31, 2021 from December 31, 2020 primarily driven by expected seasonal paydowns, higher customer payments and the impact of government stimulus in our domestic credit card loan portfolio.
We provide additional information on the composition of our loan portfolio and credit quality below 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 March 31, 2021 and December 31, 2020.
Table 8: Funding Sources Composition
March 31, 2021December 31, 2020
(Dollars in millions)Amount% of TotalAmount% of Total
Deposits:
Consumer Banking$254,001 73 %$249,815 72 %
Commercial Banking41,552 12 39,590 11 
Other(1)
14,775 4 16,037 
Total deposits310,328 89 305,442 88 
Securitized debt obligations12,071 3 12,414 
Other debt26,379 8 28,125 
Total funding sources$348,778 100 %$345,981 100 %
__________
(1)Includes brokered deposits of $13.8 billion and $15.0 billion as of March 31, 2021 and December 31, 2020, respectively.
Total deposits increased by $4.9 billion to $310.3 billion as of March 31, 2021 from December 31, 2020 primarily driven by increased consumer savings aided by the impact of recently passed government stimulus, as well as elevated commercial client liquidity.
Securitized debt obligations decreased by $343 million to $12.1 billion as of March 31, 2021 from December 31, 2020 primarily driven by paydowns in our auto securitization program.
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Other debt decreased by $1.7 billion to $26.4 billion as of March 31, 2021 from December 31, 2020 primarily driven by early redemption 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.”
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 first quarters 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 March 31, 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 first quarters of 2021 and 2020.
Table 9: Business Segment Results
 Three Months Ended March 31,
 
20212020
 
Total Net
Revenue (Loss)
(1)
Net Income
(Loss)(2)
Total Net
Revenue
(1)
Net Income
(Loss)(2)
(Dollars in millions)Amount% of
Total
Amount% of
Total
Amount% of
Total
Amount% of
Total
Credit Card$4,401 62 %$2,105 63 %$4,613 64 %$(991)74 %
Consumer Banking2,171 30 902 27 1,783 24 (52)
Commercial Banking(3)
760 11 416 13 729 10 (411)31 
Other(3)
(219)(3)(96)(3)124 114 (9)
Total
$7,113 100 %$3,327 100 %$7,249 100 %$(1,340)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 $2.1 billion in the first quarter of 2021, compared to net loss of $991 million in the first quarter of 2020.
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 March 31,
(Dollars in millions, except as noted)20212020Change
Selected income statement data:
Net interest income$3,372 $3,702 (9)%
Non-interest income1,029 911 13 
Total net revenue(1)
4,401 4,613 (5)
Provision (benefit) for credit losses(492)3,702 **
Non-interest expense2,135 2,208 (3)
Income (loss) from continuing operations before income taxes2,758 (1,297)**
Income tax provision (benefit)653 (306)**
Income (loss) from continuing operations, net of tax$2,105 $(991)**
Selected performance metrics:
Average loans held for investment$100,534 $122,776 (18)
Average yield on loans(2)
14.49 %14.46 %bps
Total net revenue margin(3)
17.17 15.03 214 
Net charge-offs$633 $1,436 (56)%
Net charge-off rate2.52 %4.68 %(216)bps
Purchase volume$108,333 $99,920 %
(Dollars in millions, except as noted)March 31, 2021December 31, 2020Change
Selected period-end data:
Loans held for investment$99,127 $106,956 (7)%
30+ day performing delinquency rate2.26 %2.44 %(18)bps
30+ day delinquency rate2.27 2.45 (18)
Nonperforming loan rate(4)
0.01 0.02 (1)
Allowance for credit losses$10,072 $11,191 (10)%
Allowance coverage ratio10.16 %10.46 %(30)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 $180 million and $389 million in the first quarters of 2021 and 2020, respectively, for 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 first quarter of 2021 compared to the first quarter of 2020, and changes in financial condition and credit performance between March 31, 2021 and December 31, 2020 include the following:
Net Interest Income: Net interest income decreased by $330 million to $3.4 billion in the first quarter of 2021 primarily driven by lower average loan balances from higher customer payments and the impact of government stimulus, partially offset by higher margins.
Non-Interest Income: Non-interest income increased by $118 million to $1.0 billion in the first quarter of 2021 primarily driven by higher net interchange fees from an increase in purchase volume and lower amortization expense of deferred bounty payments.
Provision for Credit Losses: Provision for credit losses decreased by $4.2 billion to a benefit of $492 million in the first quarter of 2021 driven by an allowance release in the first quarter of 2021 due to continued strong credit performance and an improved economic outlook compared to an allowance build in the first quarter of 2020 driven by the expected economic worsening and significant uncertainty at the start of the COVID-19 pandemic.
Non-Interest Expense: Non-interest expense remained substantially flat at $2.1 billion in the first quarter of 2021.
Loans Held for Investment:
Period-end loans held for investment decreased by $7.8 billion to $99.1 billion as of March 31, 2021 from December 31, 2020 due to expected seasonal paydowns as well as higher customer payments and the impact of government stimulus.
Average loans held for investment decreased by $22.2 billion to $100.5 billion in the first quarter of 2021 compared to the first quarter of 2020 driven by higher customer payments and the impact of government stimulus.
Net Charge-Off and Delinquency Metrics: The net charge-off rate decreased by 216 basis points to 2.52% in the first quarter of 2021 compared to the first quarter of 2020 primarily driven by strong credit performance in Domestic Card due to customer payment behavior in response to the COVID-19 pandemic, including the impact of the government stimulus, partially offset by lower average balances.
The 30+ day delinquency rate decreased by 18 basis points to 2.27% as of March 31, 2021 from December 31, 2020 due to seasonally lower delinquency inventories and strong credit performance in our domestic credit card loan portfolio, partially offset by lower outstanding balances.
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Domestic Card Business
The Domestic Card business generated net income from continuing operations of $2.0 billion in the first quarter of 2021, compared to net loss of $935 million in the first quarter of 2020. In the first quarters 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 March 31,
(Dollars in millions, except as noted)20212020Change
Selected income statement data:
Net interest income$3,095 $3,381 (8)%
Non-interest income959 842 14 
Total net revenue(1)
4,054 4,223 (4)
Provision (benefit) for credit losses(491)3,464 **
Non-interest expense1,923 1,984 (3)
Income (loss) from continuing operations before income taxes2,622 (1,225)**
Income tax provision (benefit)619 (290)**
Income (loss) from continuing operations, net of tax$2,003 $(935)**
Selected performance metrics:
Average loans held for investment$92,594 $113,711 (19)
Average yield on loans(2)
14.34 %14.30 %bps
Total net revenue margin(3)
17.15 14.86 229 
Net charge-offs$587 $1,331 (56)%
Net charge-off rate2.54 %4.68 %(214)bps
Purchase volume$99,960 $92,248 %
(Dollars in millions, except as noted)March 31, 2021December 31, 2020Change
Selected period-end data:
Loans held for investment$91,099 $98,504 (8)%
30+ day performing delinquency rate2.24 %2.42 %(18)bps
Allowance for credit losses$9,572 $10,650 (10)%
Allowance coverage ratio10.51 %10.81 %(30)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 first quarter of 2021 compared to the first quarter of 2020 primarily driven by:
lower provision for credit losses due to an allowance release in the first quarter of 2021 due to continued strong credit performance and an improved economic outlook compared to an allowance build in the first quarter of 2020 driven by the expected economic worsening and significant uncertainty 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 and lower amortization expense of deferred bounty payments.
lower net interest income primarily driven by lower average outstanding balances.
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 $902 million in the first quarter of 2021, compared to net loss of $52 million in the first quarter of 2020.
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 March 31,
(Dollars in millions, except as noted)20212020Change
Selected income statement data:
Net interest income$2,030 $1,657 23 %
Non-interest income141 126 12 
Total net revenue2,171 1,783 22 
Provision (benefit) for credit losses(126)860 **
Non-interest expense1,117 991 13 
Income (loss) from continuing operations before income taxes1,180 (68)**
Income tax provision (benefit)278 (16)**
Income (loss) from continuing operations, net of tax$902 $(52)**
Selected performance metrics:
Average loans held for investment:
Auto$66,185 $61,005 
Retail banking3,049 2,666 14 
Total consumer banking$69,234 $63,671 
Average yield on loans held for investment(1)
8.16 %8.46 %(30)bps
Average deposits$249,499 $215,071 16 %
Average deposits interest rate0.36 %1.06 %(70)bps
Net charge-offs$91 $246 (63)%
Net charge-off rate0.52 %1.54 %(102)bps
Auto loan originations$8,833 $7,640 16 %
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(Dollars in millions, except as noted)March 31, 2021December 31, 2020Change
Selected period-end data:
Loans held for investment:
Auto$67,059 $65,762 %
Retail banking3,143 3,126 
Total consumer banking$70,202 $68,888 
30+ day performing delinquency rate3.03 %4.62 %(159)bps
30+ day delinquency rate3.25 5.00 (175)
Nonperforming loan rate0.33 0.47 (14)
Nonperforming asset rate(2)
0.39 0.54 (15)
Allowance for credit losses$2,498 $2,715 (8)%
Allowance coverage ratio3.56 %3.94 %(38)bps
Deposits$254,001 $249,815 %
__________
(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 first quarter of 2021 compared to the first quarter of 2020, and changes in financial condition and credit performance between March 31, 2021 and December 31, 2020 include the following:
Net Interest Income: Net interest income increased by $373 million to $2.0 billion in the first quarter 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 remained substantially flat at $141 million in the first quarter of 2021.
Provision for Credit Losses: Provision for credit losses decreased by $986 million to a benefit of $126 million in the first quarter of 2021 driven by an allowance release in the first quarter of 2021 due to strong credit performance, an improved economic outlook and auction price favorability, compared to an allowance build in the first quarter of 2020 driven by the expected economic worsening and significant uncertainty at the start of the COVID-19 pandemic.
Non-Interest Expense: Non-interest expense increased by $126 million to $1.1 billion in the first quarter 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 $1.3 billion to $70.2 billion as of March 31, 2021 from December 31, 2020, and average loans held for investment increased by $5.6 billion to $69.2 billion in the first quarter of 2021 compared to the first quarter of 2020 primarily due to growth in our auto loan portfolio.
Deposits: Period-end deposits increased by $4.2 billion to $254.0 billion as of March 31, 2021 from December 31, 2020 primarily driven by increased consumer savings aided by the impact of recently passed government stimulus.
Net Charge-Off and Delinquency Metrics: The net charge-off rate decreased by 102 basis points to 0.52% in the first quarter of 2021 compared to the first quarter of 2020 primarily driven by strong credit performance and the impact of government stimulus as well as the impact of elevated auction prices and short-term payment extensions offered to affected auto borrowers in response to the COVID-19 pandemic.
The 30+ day delinquency rate decreased by 175 basis points to 3.25% as of March 31, 2021 from December 31, 2020 driven by seasonally lower delinquency inventories and strong credit performance in our auto loan portfolio.
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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 $416 million in the first quarter of 2021, compared to net loss of $411 million in the first quarter of 2020.
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 March 31,
(Dollars in millions, except as noted)20212020Change
Selected income statement data:
Net interest income$520 $491 %
Non-interest income240 238 
Total net revenue(1)
760 729 
Provision (benefit) for credit losses(2)
(203)856 **
Non-interest expense419 412 
Income (loss) from continuing operations before income taxes544 (539)**
Income tax provision (benefit)128 (128)**
Income (loss) from continuing operations, net of tax$416 $(411)**
Selected performance metrics:
Average loans held for investment:
Commercial and multifamily real estate$29,856 $31,081 (4)
Commercial and industrial44,313 45,361 (2)
Total commercial banking$74,169 $76,442 (3)
Average yield on loans held for investment(1)(3)
2.76 %3.88 %(112)bps
Average deposits$40,107 $32,238 24 %
Average deposits interest rate0.18 %0.89 %(71)bps
Net charge-offs$16 $109 (85)%
Net charge-off rate0.09 %0.57 %(48)bps
(Dollars in millions, except as noted)March 31, 2021December 31, 2020Change
Selected period-end data:
Loans held for investment:
Commercial and multifamily real estate$30,008 $30,681 (2)%
Commercial and industrial43,794 45,099 (3)
Total commercial banking$73,802 $75,780 (3)
Nonperforming loan rate0.92 %0.86 %bps
Nonperforming asset rate(4)
0.92 0.86 
Allowance for credit losses(2)
$1,447 $1,658 (13)%
Allowance coverage ratio1.96 %2.19 %(23)bps
Deposits$41,552 $39,590 %
Loans serviced for others45,042 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.
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(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 $187 million and $195 million as of March 31, 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.
Key factors affecting the results of our Commercial Banking business for the first quarter of 2021 compared to the first quarter of 2020, and changes in financial condition and credit performance between March 31, 2021 and December 31, 2020 include the following:
Net Interest Income: Net interest income increased by $29 million to $520 million in the first quarter of 2021 as higher margins and growth in average deposits were partially offset by lower average loans.
Non-Interest Income: Non-interest income remained substantially flat at $240 million in the first quarter of 2021.
Provision for Credit Losses: Provision for credit losses decreased by $1.1 billion to a benefit of $203 million in the first quarter of 2021 driven by an allowance release in the first quarter of 2021 due to an improved economic outlook, compared to an allowance build in the first quarter of 2020 driven by the expected economic worsening and significant uncertainty at the start of the COVID-19 pandemic and deterioration in our energy loan portfolio.
Non-Interest Expense: Non-interest expense remained substantially flat at $419 million in the first quarter of 2021.
Loans Held for Investment: Period-end loans held for investment decreased by $2.0 billion to $73.8 billion as of March 31, 2021 from December 31, 2020, and average loans held for investment decreased by $2.3 billion to $74.2 billion in the first quarter of 2021 compared to the first quarter of 2020 driven by higher utilization of credit lines in 2020 due to the COVID-19 pandemic.
Deposits: Period-end deposits increased by $2.0 billion to $41.6 billion as of March 31, 2021 from December 31, 2020 primarily driven by elevated client liquidity.
Net Charge-Off and Nonperforming Metrics: The net charge-off rate decreased by 48 basis points to 0.09% in the first quarter of 2021 primarily driven by lower charge-offs in our energy loan portfolio.
The nonperforming loan rate increased by 6 basis points to 0.92% as of March 31, 2021 from December 31, 2020 driven by isolated credit downgrades in our real estate portfolio.
Other Category
Other includes unallocated amounts related to our centralized Corporate Treasury group activities, such as management of our corporate investment securities portfolio, asset/liability management and certain capital management activities. Other also includes:
unallocated corporate revenue and expenses that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance, such as certain restructuring charges;
offsets related to certain line-item reclassifications;
residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments; and
foreign exchange-rate fluctuations on foreign currency-denominated balances.
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Table 13 summarizes the financial results of our Other category for the periods indicated.
Table 13: Other Category Results
 Three Months Ended March 31,
(Dollars in millions)20212020Change
Selected income statement data:
Net interest income (loss)$(100)$175 **
Non-interest loss(119)(51)133 %
Total net revenue (loss)(1)
(219)124 **
Provision (benefit) for credit losses(2)**
Non-interest expense69 118 (42)
Income (loss) from continuing operations before income taxes(286)**
Income tax benefit(190)(113)68 
Income (loss) from continuing operations, net of tax$(96)$114 **
__________
(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.
**    Not meaningful.
Net loss from continuing operations was $96 million in the first quarters of 2021, compared to net income of $114 million in the first quarter of 2020, primarily driven by lower net interest income due to the declines in market interest rates, reduced funding needs of our business segments as compared to increased sources of funds, as well as a loss on our equity investment in Snowflake Inc. that reduced our cumulative gain on this investment to $460 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with U.S. GAAP requires management to make a number of judgments, estimates and assumptions that affect the amount of assets, liabilities, income and expenses on the consolidated financial statements. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We provide a summary of our significant accounting policies under “Note 1—Summary of Significant Accounting Policies” in our 2020 Form 10-K.
We have identified the following accounting estimates as critical because they require significant judgments and assumptions about highly complex and inherently uncertain matters and the use of reasonably different estimates and assumptions could have a material impact on our results of operations or financial condition. Our critical accounting policies and estimates are as follows:
Loan loss reserves
Asset impairment
Fair value of financial instruments
Customer rewards reserve
We evaluate our critical accounting estimates and judgments on an ongoing basis and update them as necessary, based on changing conditions.
Asset Impairment
In addition to our loan portfolio, we review other assets for impairment on a regular basis in accordance with applicable accounting guidance. This process requires significant management judgment and involves various estimates and assumptions. Below we describe our process for assessing impairment of goodwill and the key estimates and assumptions involved in this process.
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Goodwill
We perform our goodwill impairment test annually on October 1 at a reporting unit level. As of our last annual test and as of March 31, 2021, we had four reporting units which included Credit Card, Auto Finance, Other Consumer Banking and Commercial Banking. We are also required to test goodwill for impairment when a triggering event occurs that indicates it is more likely than not that the fair value of a reporting unit is below its carrying amount. We have continued to evaluate the potential impact of the COVID-19 pandemic on our goodwill impairment analysis and have considered recent market events and trends. We determined it was more likely than not that the fair value of our reporting units remained in excess of their carrying values as of March 31, 2021. We will continue to monitor developments regarding the COVID-19 pandemic and measures implemented in response to the COVID-19 pandemic, our market capitalization, overall economic conditions and any other triggering events or circumstances that may cause an impairment of goodwill in the future.
There have been no additional changes to our critical accounting policies and estimates described in our December 31, 2020 Form 10-K under “MD&A—Critical Accounting Policies and Estimates.”
ACCOUNTING CHANGES AND DEVELOPMENTS
Accounting Standards Issued but Not Adopted as of March 31, 2021
There were no relevant new accounting standards issued but not adopted as of March 31, 2021. See “Note 1—Summary of Significant Accounting Policies” for information on the accounting standards we adopted in 2021.
CAPITAL MANAGEMENT
The level and composition of our capital are determined by multiple factors, including our consolidated regulatory capital requirements and internal risk-based capital assessments such as internal stress testing and economic capital. The level and composition of our capital may also be influenced by rating agency guidelines, subsidiary capital requirements, business environment, conditions in the financial markets and assessments of potential future losses due to adverse changes in our business and market environments.
Capital Standards and Prompt Corrective Action
The Company and the Banks are subject to the Basel III Capital Rules established by the Board of Governors of the Federal Reserve System (“Federal Reserve”) and the Office of the Comptroller of the Currency (“OCC”) respectively (the “Basel III Capital Rules”). The Basel III Capital Rules implement certain capital and liquidity requirements published by the Basel Committee on Banking Supervision (“Basel Committee”), along with certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) and other capital provisions. Moreover, the Banks, as insured depository institutions, are subject to prompt corrective action (“PCA”) capital regulations.
Basel III and United States Capital Rules
Under the Basel III Capital Rules, we must maintain a minimum common equity Tier 1 (“CET1”) capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, and a total capital ratio of 8.0%, in each case in relation to risk-weighted assets. In addition, we must maintain a minimum leverage ratio of 4.0% and a minimum supplementary leverage ratio of 3.0%. We are also subject to the capital conservation buffer and countercyclical capital buffer requirements, as described below.
In October 2019, the Federal Reserve, OCC and Federal Deposit Insurance Corporation (the “FDIC,” and collectively, the Federal Banking Agencies”) amended the Basel III Capital Rules to provide for tailored application of certain capital requirements across different categories of banking institutions (the “Tailoring Rules”). These categories are determined primarily by an institution’s asset size, with adjustments to a more stringent category possible if the institution exceeds certain risk-based thresholds. As a bank holding company (“BHC”) with total consolidated assets of at least $250 billion that does not exceed any of the applicable risk-based thresholds, we are a Category III institution under the Tailoring Rules. Therefore, effective January 1, 2020, we are no longer subject to the Basel III “Advanced Approaches” framework and certain associated capital requirements, and we have elected to exclude certain elements of accumulated other comprehensive income (“AOCI”) from our regulatory capital as permitted by the Tailoring Rules. We remain subject to the countercyclical capital buffer requirement (which is currently set at 0%) and supplementary leverage ratio requirement, which were previously required only for Basel III Advanced Approaches institutions.
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Global systemically important banks (“G-SIBs”) that are based in the U.S. are subject to an additional CET1 capital requirement known as the G-SIB Surcharge. We are not a G-SIB based on the most recent available data and thus we are not subject to a G-SIB Surcharge.
Stress Capital Buffer Rule
The Basel III Capital Rules require banking institutions to maintain a capital conservation buffer, composed of CET1 capital, above the regulatory minimum ratios. The capital conservation buffer for BHCs was previously fixed at 2.5%. In March 2020, the Federal Reserve issued a final rule to implement the stress capital buffer requirement (the “Stress Capital Buffer Rule”). The stress capital buffer requirement is institution-specific and replaces the fixed 2.5% capital conservation buffer for BHCs.
Pursuant to the Stress Capital Buffer Rule, the Federal Reserve will use the results of its supervisory stress test to determine the size of a BHC’s stress capital buffer requirement. In particular, a BHC’s stress capital buffer requirement will equal, subject to a floor of 2.5%, the sum of (i) the difference between the BHC’s starting CET1 capital ratio and its lowest projected CET1 capital ratio under the severely adverse scenario of the Federal Reserve’s supervisory stress test plus (ii) the ratio of the BHC’s projected four quarters of common stock dividends (for the fourth to seventh quarters of the planning horizon) to the projected risk-weighted assets for the quarter in which the BHC’s projected CET1 capital ratio reaches its minimum under the supervisory stress test.
Under the Stress Capital Buffer Rule framework, the Company’s new “standardized approach capital conservation buffer” includes its stress capital buffer requirement (which will be recalibrated every year based on the Company’s supervisory stress test results), any G-SIB surcharge (which is not applicable to us) and the countercyclical capital buffer requirement (which is currently set at 0%). Any determination to increase the countercyclical capital buffer generally would be effective twelve months after the announcement of such an increase, unless the Federal Banking Agencies set an earlier effective date.
The Company’s stress capital buffer requirement is 5.6% for the period from October 1, 2020 through September 30, 2021, at which point a revised stress capital buffer requirement will be applicable to the Company based on the Company’s 2021 stress testing results. Therefore, the Company’s minimum capital requirements plus the standardized approach capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios under the stress capital buffer framework are 10.1%, 11.6% and 13.6%, respectively, for the period from October 1, 2020 through September 30, 2021.
The Stress Capital Buffer Rule does not apply to the Banks. The capital conservation buffer for the Banks continues to be fixed at 2.5%. Accordingly, each Bank’s minimum capital requirements plus its capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios remain at 7.0%, 8.5% and 10.5% respectively.
If we fail to maintain our capital ratios above the minimum capital requirements plus the applicable buffer requirements, we will face increasingly strict automatic limitations on capital distributions and discretionary bonus payments to certain executive officers.
As of March 31, 2021 and December 31, 2020, respectively, each of the Company and the Banks exceeded the minimum capital requirements and the buffer requirements applicable to them, and each of the Banks was “well capitalized” under PCA requirements.
Market Risk Rule
The “Market Risk Rule” supplements the Basel III Capital Rules by requiring institutions subject to the rule to adjust their risk-based capital ratios to reflect the market risk in their trading portfolios. The Market Risk Rule generally applies to institutions with aggregate trading assets and liabilities equal to 10% or more of total assets or $1 billion or more. As of March 31, 2021, the Company and CONA are subject to the Market Risk Rule. See “MD&A—Market Risk Profile” below for additional information.
CECL Transition Rule
As part of their response to the COVID-19 pandemic, the Federal Banking Agencies adopted a final rule (the “2020 CECL Transition Rule”) that provides banking institutions an optional five-year transition period to phase in the impact of the CECL standard on their regulatory capital (the “2020 CECL Transition Election”).
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Pursuant to the 2020 CECL Transition Rule, a banking institution may elect to delay the estimated impact of adopting CECL on its regulatory capital through December 31, 2021 and then phase in the estimated cumulative impact from January 1, 2022 through December 31, 2024. For the “day 2” ongoing impact of CECL during the initial two years, the Federal Banking Agencies use a uniform “scaling factor” of 25% as an approximation of the increase in the allowance under the CECL standard compared to the prior incurred loss methodology. Accordingly, from January 1, 2020 through December 31, 2021, electing banking institutions are permitted to add back to their regulatory capital an amount equal to the sum of the after-tax “day 1” CECL adoption impact and 25% of the increase in the allowance since the adoption of the CECL standard. Beginning January 1, 2022 through December 31, 2024, the after-tax “day 1” CECL adoption impact and the cumulative “day 2” ongoing impact will be phased in to regulatory capital at 25% per year. The following table summarizes the capital impact delay and phase in period on our regulatory capital from years 2020 to 2025.
Capital Impact Delayed
Phase In Period
202020212022202320242025
“Day 1” CECL adoption impactCapital impact delayed to 202225% Phased In50% Phased In75% Phased InFully Phased In
Cumulative “day 2” ongoing impact 25% scaling factor as an approximation of the increase in allowance under CECL
We adopted the CECL standard (for accounting purposes) as of January 1, 2020, and made the 2020 CECL Transition Election (for regulatory capital purposes) in the first quarter of 2020. Therefore, the applicable amounts presented in this Report reflect such election.
Temporary Exclusions for Supplementary Leverage Ratio
In April 2020, as part of the response to the COVID-19 pandemic, the Federal Reserve issued an interim final rule that temporarily excludes U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the supplementary leverage ratio for BHCs. These temporary exclusions remained in effect through March 31, 2021 and expired as scheduled thereafter. The Company’s supplementary leverage ratio as of March 31, 2021 reflected these temporary exclusions. Without these temporary exclusions, we would have remained substantially in excess of the 3% regulatory minimum as of March 31, 2021.
In May 2020, the Federal Banking Agencies issued an interim final rule that provides an option for depository institutions to make similar exclusions to the calculation of the supplementary leverage ratio. If a depository institution elects to make such exclusions, it must request prior approval from its primary federal banking regulator before making capital distributions, such as paying dividends to its parent company, for as long as the exclusions are in effect. These temporary exclusions remained in effect for electing institutions through March 31, 2021 and expired as scheduled thereafter. Neither CONA nor COBNA elected to make such exclusions.
For the description of the regulatory capital rules we are subject to, see “MD&A—Supervision and Regulation” in this Report as well as “Part I—Item 1. Business—Supervision and Regulation” in our 2020 Form 10-K.
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Table 14 provides a comparison of our regulatory capital ratios under the Basel III Standardized Approach, the regulatory minimum capital adequacy ratios and the PCA well-capitalized level for each ratio, where applicable, as of March 31, 2021 and December 31, 2020.
Table 14: Capital Ratios Under Basel III(1)(2)
 March 31, 2021December 31, 2020
RatioMinimum
Capital
Adequacy
Well-
Capitalized
RatioMinimum
Capital
Adequacy
Well-
Capitalized
Capital One Financial Corp:
Common equity Tier 1 capital(3)
14.6 %4.5 %N/A13.7 %4.5 %N/A
Tier 1 capital(4)
16.2 6.0 6.0 %15.3 6.0 6.0 %
Total capital(5)
18.6 8.0 10.0 17.7 8.0 10.0 
Tier 1 leverage(6)
11.7 4.0 N/A11.2 4.0 N/A
Supplementary leverage(7)(8)
11.3 3.0 N/A10.7 3.0 N/A
COBNA:
Common equity Tier 1 capital(3)
23.9 4.5 6.5 21.5 4.5 6.5 
Tier 1 capital(4)
23.9 6.0 8.0 21.5 6.0 8.0 
Total capital(5)
25.6 8.0 10.0 23.4 8.0 10.0 
Tier 1 leverage(6)
19.8 4.0 5.0 18.3 4.0 5.0 
Supplementary leverage(7)
15.9 3.0 N/A14.7 3.0 N/A
CONA:
Common equity Tier 1 capital(3)
13.1 4.5 6.5 12.4 4.5 6.5 
Tier 1 capital(4)
13.1 6.0 8.0 12.4 6.0 8.0 
Total capital(5)
14.3 8.0 10.0 13.7 8.0 10.0 
Tier 1 leverage(6)
8.0 4.0 5.0 7.6 4.0 5.0 
Supplementary leverage(7)
7.2 3.0 N/A6.9 3.0 N/A
__________
(1)Capital requirements that are not applicable are denoted by “N/A.”
(2)Ratios as of March 31, 2021 are preliminary. As we continue to validate our data, the calculations are subject to change until we file our March 31, 2021 Form FR Y-9C—Consolidated Financial Statements for Holding Companies and Call Reports.
(3)Common equity Tier 1 capital ratio is a regulatory capital measure calculated based on common equity Tier 1 capital divided by risk-weighted assets.
(4)Tier 1 capital ratio is a regulatory capital measure calculated based on Tier 1 capital divided by risk-weighted assets.
(5)Total capital ratio is a regulatory capital measure calculated based on total capital divided by risk-weighted assets.
(6)Tier 1 leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by adjusted average assets.
(7)Supplementary leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by total leverage exposure.
(8)Supplementary leverage ratio for the Company as of March 31, 2021 and December 31, 2020 excludes U.S. Treasury securities and deposits with the Federal Reserve Banks pursuant to an interim final rule issued by the Federal Reserve, see “MD&A—Supervision and Regulation” for more information.
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Table 15 presents regulatory capital under the Basel III Standardized Approach and regulatory capital metrics as of March 31, 2021 and December 31, 2020.
Table 15: Regulatory Risk-Based Capital Components and Regulatory Capital Metrics
(Dollars in millions)March 31, 2021December 31, 2020
Regulatory Capital Under Basel III Standardized Approach
Common equity excluding AOCI$57,607 $55,299 
Adjustments:
AOCI, net of tax(1)
(13)(29)
Goodwill, net of related deferred tax liabilities(14,444)(14,448)
Intangible assets, net of related deferred tax liabilities(81)(86)
Other(2)
(18)— 
Common equity Tier 1 capital43,051 40,736 
Tier 1 capital instruments4,847 4,847 
Tier 1 capital47,898 45,583 
Tier 2 capital instruments3,110 3,385 
Qualifying allowance for credit losses3,772 3,820 
Tier 2 capital6,882 7,205 
Total capital$54,780 $52,788 
Regulatory Capital Metrics
Risk-weighted assets$295,209 $297,903 
Adjusted average assets408,596 406,762 
Total leverage exposure424,389 427,522 
__________
(1)Excludes certain components of AOCI as permitted under the Tailoring Rules.
(2)Includes deferred tax assets deducted from regulatory capital.
Capital Planning and Regulatory Stress Testing
In March 2021, the Federal Reserve extended the temporary capital distribution restrictions in place during the first quarter of 2021 for all BHCs participating in the Comprehensive Capital Analysis and Review (“CCAR”) through the second quarter of 2021. In particular, for the first and second quarters of 2021, the aggregate amount of common stock dividend payments and share repurchases for each quarter shall not exceed an amount equal to the average net income earned across the four preceding calendar quarters. In addition, common stock dividend payments for each of the first and second quarters of 2021 continue to be capped at the amount paid in the second quarter of 2020.
If a participating BHC remains above all of its minimum risk-based capital requirements in its 2021 supervisory stress test, these temporary capital distribution restrictions will no longer apply to such BHC after the second quarter of 2021, and the normal restrictions under the stress capital buffer framework will apply instead. For any participating BHC that falls below any of its minimum risk-based capital requirements in its 2021 supervisory stress test, these temporary capital distribution restrictions will continue to apply for such BHC through the end of the third quarter of 2021.
On April 2, 2021, we submitted our capital plan to the Federal Reserve as part of the 2021 CCAR cycle. The stress testing results are expected to be released by the Federal Reserve by July 1, 2021. Our 2021 supervisory stress test result will determine the size of our stress capital buffer requirement for the period beginning from October 1, 2021 through September 30, 2022.
On January 25, 2021, our Board of Directors authorized the repurchase of up to $7.5 billion of shares of our common stock and we repurchased approximately $490 million of shares of our common stock during the first quarter of 2021. Based on our average net income across the four preceding calendar quarters, our share repurchase capacity in the second quarter of 2021 is expected to be approximately $1.7 billion.
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For the description of the regulatory capital planning rules we are subject to, see “MD&A—Supervision and Regulation” in this Report as well as “Part I—Item 1. Business—Supervision and Regulation” in our 2020 Form 10-K.
Equity Offerings and Transactions
On May 4, 2021, we issued 27,000,000 depositary shares, each representing a 1/40th interest in a share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series L, $0.01 par value, with a liquidation preference of $25 per depositary share (“Series L Preferred Stock”). The net proceeds of the offering of Series L Preferred Stock were approximately $652.9 million after deducting underwriting commissions and offering expenses. Dividends on the Series L Preferred Stock are payable quarterly in arrears at a rate of 4.375% per annum.
Dividend Policy and Stock Purchases
In the first three months of 2021, we declared and paid common stock dividends of $185 million, or $0.40 per share, and preferred stock dividends of $61 million. The following table summarizes the dividends paid per share on our various preferred stock series in the first quarter of 2021.
Table 16: Preferred Stock Dividends Paid Per Share
SeriesDescriptionIssuance DatePer Annum
Dividend Rate
Dividend Frequency2021
Q1
Series EFixed-to-Floating Rate
Non-Cumulative
May 14, 20155.550% through 5/31/2020;
3-mo. LIBOR + 380 bps thereafter
Semi-Annually through 5/31/2020; Quarterly thereafter$10.06
Series G5.200%
Non-Cumulative
July 29, 20165.200Quarterly13.00
Series H6.000%
Non-Cumulative
November 29, 20166.000Quarterly15.00
Series I5.000%
Non-Cumulative
September 11, 20195.000Quarterly12.50
Series J4.800%
Non-Cumulative
January 31, 20204.800Quarterly12.00
Series K4.625%
Non-Cumulative
September 17, 20204.625Quarterly11.56
The declaration and payment of dividends to our stockholders, as well as the amount thereof, are subject to the discretion of our Board of Directors and depend upon our results of operations, financial condition, capital levels, cash requirements, future prospects, regulatory requirements and other factors deemed relevant by the Board of Directors. As a BHC, our ability to pay dividends is largely dependent upon the receipt of dividends or other payments from our subsidiaries. The Banks are subject to regulatory restrictions that limit their ability to transfer funds to our BHC. As of March 31, 2021, funds available for dividend payments from COBNA and CONA were $4.5 billion and $1.3 billion, respectively. There can be no assurance that we will declare and pay any dividends to stockholders.
On January 25, 2021, our Board of Directors authorized the repurchase of up to $7.5 billion of shares of our common stock and we repurchased approximately $490 million of shares of our common stock during the first quarter of 2021. The timing and exact amount of any future common stock repurchases will depend on various factors, including regulatory approval, market conditions, opportunities for growth, our capital position and the amount of retained earnings. Our stock repurchase program does not include specific price targets, may be executed through open market purchases or privately negotiated transactions, including utilizing Rule 10b5-1 programs, and may be suspended at any time. For additional information on dividends and stock repurchases, see “MD&A—Capital Management—Capital Planning and Regulatory Stress Testing” and “Part I—Item 1. Business—Supervision and Regulation—Dividends, Stock Repurchases and Transfers of Funds”in our 2020 Form 10-K.
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RISK MANAGEMENT
Risk Management Framework
Our Risk Management Framework (the “Framework”) sets consistent expectations for risk management across the Company. It also sets expectations for our “Three Lines of Defense” model, which defines the roles, responsibilities and accountabilities for taking and managing risk across the Company. Accountability for overseeing an effective Framework resides with our Board of Directors either directly or through its committees.
The “First Line of Defense” consists of any line of business or function that is accountable for risk taking and is responsible for: (i) engaging in activities designed to generate revenue or reduce expenses; (ii) providing operational support or servicing to any business function for the delivery of products or services to customers; or (iii) providing technology services in direct support of first line business areas. Each line of business or first line function is responsible for managing the risks associated with their activities, including identifying, assessing, measuring, monitoring, controlling and reporting the risks within its business activities, consistent with the risk framework. The “Second Line of Defense” consists of two types of functions: Independent Risk Management (“IRM”) and Support Functions. IRM oversees risk-taking activities and assesses risks and issues independent from the first line of defense. Support Functions are centers of specialized expertise (e.g., Human Resources, Accounting, Legal) that provide support services to the Company. The “Third Line of Defense” is comprised of the Internal Audit and Credit Review functions. The third line provides independent and objective assurance to senior management and to the Board of Directors that the first and second lines of defense have systems and governance processes which are well-designed and working as intended, and that the Framework is appropriate for our size, complexity and risk profile.
Our Framework consists of the following nine elements:

 Governance and Accountability


Strategy and Risk Alignment


Risk Identification

Assessment, Measurement
and Response


Monitoring and Testing


Aggregation, Reporting and Escalation


Capital and Liquidity Management (including Stress Testing)


Risk Data and Enabling Technology


Culture and Talent Management

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We provide additional discussion of our risk management principles, roles and responsibilities, framework and risk appetite under “MD&A—Risk Management” in our 2020 Form 10-K.
Risk Categories
We apply our Framework to protect the Company from the major categories of risk that we are exposed to through our business activities. We have seven major categories of risk as noted below. We provide a description of these categories and how we manage them under “MD&A—Risk Management” in our 2020 Form 10-K.
Compliance risk
Credit risk
Liquidity risk
Market risk
Operational risk
Reputation risk
Strategic risk
CREDIT RISK PROFILE
Our loan portfolio accounts for the substantial majority of our credit risk exposure. Our lending activities are governed under our credit policy and are subject to independent review and approval. Below we provide information about the composition of our loan portfolio, key concentrations and credit performance metrics.
We also engage in certain non-lending activities that may give rise to ongoing credit and counterparty settlement risk, including purchasing securities for our investment securities portfolio, entering into derivative transactions to manage our market risk exposure and to accommodate customers, extending short-term advances on syndication activity including bridge financing transactions we have underwritten, depositing certain operational cash balances in other financial institutions, executing certain foreign exchange transactions and extending customer overdrafts. We provide additional information related to our investment securities portfolio under “MD&A—Consolidated Balance Sheets Analysis—Investment Securities” and credit risk related to derivative transactions in “Note 8—Derivative Instruments and Hedging Activities.”
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Portfolio Composition and Maturity Profile of Loans Held for Investment
We provide a variety of lending products. Our primary products include credit cards, auto loans and commercial lending products. For information on our lending policies and procedures, including our underwriting criteria for our primary loan products, see “MD&A—Credit Risk Profile” in our 2020 Form 10-K.
Our loan portfolio consists of loans held for investment, including loans held in our consolidated trusts, and loans held for sale. The information presented in this section excludes loans held for sale, which totaled $2.9 billion and $2.7 billion as of March 31, 2021 and December 31, 2020, respectively.
Table 17 presents the composition of our portfolio of loans held for investment by portfolio segment as of March 31, 2021 and December 31, 2020.
Table 17: Portfolio Composition of Loans Held for Investment
March 31, 2021December 31, 2020
(Dollars in millions)Loans% of TotalLoans% of Total
Credit Card:
Domestic credit card$91,099 37.5 %$98,504 39.1 %
International card businesses8,028 3.3 8,452 3.4 
Total credit card99,127 40.8 106,956 42.5 
Consumer Banking:
Auto67,059 27.6 65,762 26.2 
Retail banking(1)
3,143 1.3 3,126 1.2 
Total consumer banking70,202 28.9 68,888 27.4 
Commercial Banking:(1)
Commercial and multifamily real estate30,008 12.3 30,681 12.2 
Commercial and industrial43,794 18.0 45,099 17.9 
Total commercial banking73,802 30.3 75,780 30.1 
Total loans held for investment$243,131 100.0 %$251,624 100.0 %
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(1)Includes PPP loans of $1.1 billion and $275 million in our retail and commercial loan portfolios, respectively, as of March 31, 2021, and $919 million and $238 million as of December 31, 2020, respectively. See “MD&A—Credit Risk Profile—COVID-19 Customer Assistance Programs and Loan Modifications” for more information.
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Geographic Composition
We market our credit card products throughout the United States, Canada and the United Kingdom. Our credit card loan portfolio is geographically diversified due to our product and marketing approach. The table below presents the geographic profile of our credit card loan portfolio as of March 31, 2021 and December 31, 2020.
Table 18: Credit Card Portfolio by Geographic Region
March 31, 2021December 31, 2020
(Dollars in millions)Amount% of TotalAmount% of Total
Domestic credit card:
California$9,256 9.3