uploads/// Commercial Banking

Capital One’s commercial banking loan growth is on track


Mar. 24 2015, Updated 5:04 p.m. ET

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.


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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).


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