Feds Hit Capital One Where It Hurts: Earnings

NEW YORK ( TheStreet) -- Capital One ( COF) on Wednesday afternoon reported second-quarter earnings of $92 million, or 16 cents a share, missing the consensus estimate of a $1.30 profit, among analysts polled by Thomson Reuters.

Among the numerous one-time items affecting the second-quarter results were $60 million in civil penalties related to credit card settlements with the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, which were both announced Wednesday and included $150 million in refunds to the company's credit card customers.

Capital One said "the total income statement impact of these expected refunds is approximately $116 million, including a $75 million reserve accrued in the first quarter to reverse previously recognized revenues and an additional $41 million additional reserve this quarter to reflect the final agreements with the company's regulators," and that the company was "no longer recognizing revenue for any amounts billed for these products," including "approximately $24 million of billed amounts in the second quarter."

Second-quarter results also included "charges related to the HSBC U.S. Card acquisition which was completed during the second quarter and included $27.6 billion in credit card loans , including an expense of $174 million to establish a finance charge and fee reserve for estimated uncollectible billed finance charges and fees and loan premium amortization expense of $63 million. "

In comparison to the second-quarter results, the McLean, Va., lender earned $1.4 billion, or $2.72 a share, in the first quarter, and $911 million, or $1.97 a share, during the second quarter of 2011. The first-quarter results included a bargain purchase gain of $594 million, related to the company's purchase of ING Direct (USA) from ING Groep ( ING).

The second-quarter bottom line also reflected a $1.7 billion provision for credit losses, including "a $1.2 billion allowance build for the non-impaired loans brought on to the balance sheet as a result of the HSBC U.S. Card acquisition." Capital One's provisions for credit losses were $573 million during the first quarter, and $343 million during the second quarter of 2011.

Capital One's shares declined 2% on Wednesday, to close at $54.89. The shares have now returned 40% year-to-date, following a flat return during 2011.

COF Chart COF data by YCharts

The shares trade 1.5 times their reported June 30 tangible book value of $35.67, and for eight times the 2013 consensus estimate of $6.83 a share. The consensus 2012 EPS estimate is $6.57.

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.