Capital One focuses on a few products in consumer banking
Capital One’s (COF) consumer banking business is concentrated on a few products. This is in contrast to banks like Wells Fargo (WFC), U.S. Bank (USB), and PNC Bank (PNC). They offer a wide variety of consumer loans.
The consumer banking business offers auto finance and home loans. The bank also offers various checking and deposit accounts in retail banking. It has a pure online bank—Capital One 360. Capital One 360 came about due to the ING Direct acquisition in 1992.
Consumer banking results disappointed in 2014
Overall, consumer banking results were below expectations in 2014. Consumer banking’s total revenue stood at $6,432 million in 2014. This was a drop of nearly 3%—compared to 2013. Provisions rose by 7% to $703 million in 2014. For 2014, the net income stood at $1,195 million. This was a drop of 18% in 2014—compared to 2013. The 30+ day delinquency rate rose by 34 basis points, or bps. At the end of 2014, the delinquency rate stood at 4.23%. The net charge-off rate also rose by 10 bps in 2014.
Credit demand remains weak and yield increases
The fall in revenue was mainly due to poor loan growth throughout 2014. The demand for credit was generally weak throughout 2014. However, the bank did increase the yields on it consumer loans. The average yield on loans stood at 6.26% in 2014. This was an increase of 16 bps in 2014—compared to 2013.
The increase in yields is at a divergence from the sector trends. This indicates that Capital One is going after high yielding loans. It isn’t focused on increasing margins. Capital One accounts for 1.46% of the Financial Select Sector SPDR (XLF).