Commercial banking focuses on a few specialities
Commercial banking is used to provide lending and depository services, treasury management, and private banking and wealth management services. It includes commercial and multi-family real estate and commercial and industrial lending. The bank focuses on specialized industries in attractive markets. Capital One (COF) focuses on energy, healthcare, nonprofit, government, security, and vacation ownership.
Loan growth continues
Commercial banking continued to see good growth in loans. This was mainly due to industry led economic recovery. Loan assets increased by 13% in 4Q14—compared to 4Q13. This was reflected in revenue trends for 2014. For 2014, the net interest income was $1,751 million. This was an increase of 5%—compared to 2013. Non-interest income stood at $450 million. This was an increase of 14%—compared to 2013. As a result, revenue increased by 6% in 2014—compared to 2013.
Expenses increased and yields declined
However, the sector’s bottom line performance was sluggish. Non-interest expenses stood at $1,083 million in 2014. This was a sharp increase of 13%—compared to 2013. This led to a fall in operating profits.
Commercial banking is a low-yield business. However, yields declined in 2014. Average yields stood at 3.42%. This was a fall of 42 basis points, or bps—compared to 2013. Net charge-offs, non-performing loans, and criticized loans remain at historic low levels.
The growth in commercial loans was seen across the sector. Commercial loans were a fast growing segment for Wells Fargo (WFC), U.S. Bank (USB), and PNC Bank (PNC). These three banks account for 12.93% of the Financial Select Sector SPDR (XLF).