Capital One Financial Corp. (COF) said Wednesday its second quarter profit sharply declined from last year, hurt mainly by a steep increase in provision for credit losses, a settlement, and as well as higher operating costs.
Revenues for the quarter meanwhile improved from last year on growth in Domestic card and Consumer Banking businesses, reflecting increased customer confidence in borrowing amid a slight improvement in the U.S. economy. Nonetheless, reported revenues came in below Street estimates.
Results for the 2012 quarter were impacted by $1.2 billion credit-loss allowance on non-impaired loans arising from the HSBC U.S. Card business acquired last year.
Capital One earlier warned the HSBC U.S. credit card business will have a major impact on its results, mainly in 2012, due to purchase accounting effects and other factors.
"While second quarter results reflect significant purchase accounting impacts and other items, the strong underlying performance of our businesses continues to demonstrate that we're well positioned to deliver sustained shareholder value," said Capital One CEO Richard Fairbank.
Capital One has significantly shored up its business prospects. Apart from the HSBC U.S. Card business which has boosted its loan portfolio by about $30 billion, the company in February completed the purchase of the ING Direct business in the U.S. from ING Groep N.V. It is now the sixth largest depository institution and the leading direct bank in the U.S.
McLean, Virginia-based Capital One reported second quarter net income to common shares of $92 million or $0.16 per share, compared to $911 million or $1.97 per share last year.
On average, 18 analysts polled by Thomson Reuters expected earnings of $1.29 per share for the quarter. Analysts' estimates typically exclude special items.
Total revenues for the quarter were about $5.1 billion, compared to $4 billion last year. Sixteen analysts expected revenue of $5.16 billion for the quarter.
Lending costs were higher in the quarter, with net interest margin falling to 6.04 percent from 7.20 percent last year, and non interest expense increased to $3.14 billion from $2.26 billion last year.
Meanwhile, the quarter saw lower delinquencies, leading to a decrease in net charge-offs to $738 million from $931 million last year.
Tier 1 capital ratio, a measure of a bank's financial strength, was higher at 9.9 percent, compared to 9.4 percent in the same quarter last year.
End of period net loans held for investments totaled $198 billion, compared to $124.5 billion last year, reflecting partly the addition of HSBC U.S. Card portfolio to the Domestic Card business.
End of period customer deposits totaled $213.9 billion, compared to $126 billion in the prior year.
Capital One earlier agreed to pay $210 million to settle charges that its call center vendors used deceptive marketing tactics to make customers pay for add-on products. Most of the payment will go to 2 million customers impacted between 2010 and 2012. The enforcement action was initiated for the first time by the Consumer Financial Protection Bureau.
Capital One closed Wednesday at $54.89, down 1.68%, on a volume of about 4.2 million shares on the NYSE. In after hours, the stock fell 0.06%. In the past year, the stock has traded in a range of $35.94 - $57.49.
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