Whether you are a business owner or you are an individual who is looking for a new bank, there are some things you need to know before choosing a bank. This article discusses some of the things you need to look for in a bank, including Customer service, year over year loan growth, and ISS Governance QualityScore.
Allowance for loan and lease losses (ALLL) to gross loans
Using the allowance for loan and lease losses (ALLL) to the tune of a tidy $42 million, US Metro Bank has a rosy picture for the year ahead. The lender's gross loan portfolio increased by 42% year over year. Loans of all types increased by $178.2 million, with a notable $45.6 million drop in Payroll Protection Program loans. Interest expense also decreased by $2.4 million. In the first quarter of 2019, the lender lost its mojo after a big accounting mistake in January. The newfound confidence should be a welcome sign.
The allowance for loan and lease losses is one of many ways in which the Feds maintain a safe and sound operation. One of the more obvious is the reclassification of non-interest bearing loans, into the aforementioned category. The ALLL is used as a contra-asset account, or, as the name implies, to offset estimated uncollectible loans and leases. This is achieved by using a cleverly disguised accounting scheme involving a judicious mix of charge-offs, recoveries and other reclassifications. The key to success is ensuring that the allowance is large enough to absorb losses that are not expected. The allowance for loan and lease losses is not used to offset loans held for sale.
The ALLL has the distinction of being the largest single line item of the bank's balance sheet. The aforementioned $42 million was augmented by $49.6 million in interest income, $28.5 million in total deposits and $960,000 in provision expense for the year. The gross loan totals were comprised of $696 million in non-individually assessed loans, and $54 million in real estate secured loans.
The aforementioned $54 million in gross loans also accounted for the largest PLLL, which is not surprising considering the Bank has a loan portfolio of more than $1.3 billion. Overall, the loan book has improved in size, as measured by the gross loan volume, and the ALLL has improved in size as well, but the lender's financial health remains in question. The ALLL has not been as impressive as the lender's overall balance sheet, but the aforementioned improvements have been noteworthy.
Year over year loan growth
Founded in 2006, US Metro Bank is a California-chartered full service commercial nonmember bank that targets small and medium-sized businesses, professionals, and executives. The bank offers a wide array of loan products, from Small Business Loans to Commercial Real Estate loans. The bank has six branch offices in California.
US Metro Bank has a diversified asset mix with a focus on Commercial Real Estate and Small Business Loans. The bank's loan portfolio has a higher Commercial Real Estate percentage than other California-chartered banks. Despite its focus on higher-risk loans, the bank remains above regulatory minima.
While the bank's gross loans have increased 12% over the last year, the loan quality has shown an impressive 7% improvement. As of June 30, 2021, the bank's nonperforming loans accounted for only 2.76% of its total loan portfolio. The bank's non-performing loan ratio is not as high as it was a year ago, but it is still well above the industry average.
The most impressive part of the US Metro Bank's financial performance was its 'best-in-class' net interest income. As of June 30, 2021, the California-chartered bank reported a 36% increase in its consolidated net interest income over the same period the year before. This is despite a decrease in the number of loans that were on COVID-19 modified terms. The bank has also increased its average loan size by nearly $100 million.
The bank is expected to report a profit of $2.8 million in the first quarter of 2022, which is a big improvement over the $11.7 million loss it posted in the same period the year before. The bank's consolidated capital ratios have increased over the past twelve months, albeit at a relatively slow clip. The bank's common equity Tier 1 capital ratio was 11.5 percent at June 30, 2021, while its LCR was 257%. The bank's capital ratios may be a bit higher than the government's minimum of 8%, but it still has room to grow.
The bank's first quarter financial performance is not without a few snafus. It recorded a small provision for loan loss expense of $0.9 million for the three months ending March 31, 2021.
ISS Governance QualityScore
ISS ESG Governance QualityScore is a data-driven scoring solution that helps institutional investors to monitor the governance quality of their portfolio companies. The score includes more than 230 factors. The score provides a relative assessment of a company's governance quality. ISS ESG Governance QualityScore is the only score that provides this kind of comparative data. The score is updated on a daily basis and available in the Open:FactSet Marketplace.
ISS is one of the world's leading providers of corporate governance solutions. It provides a variety of services to help investors make informed, responsible investment decisions. Its research and analysis is driven by public annual reports and filings. Its screening application allows investors to quickly and easily access the data they need. It also integrates non-financial data, including diversity and inclusion performance metrics.
ISS' methodology incorporates global governance standards. It assigns weights to core governance factors based on prevailing governance standards in each region. It also updates its core governance factors on a continuous basis through event-driven data. ISS monitors these factors to ensure they remain relevant.
The library includes a library of 230 governance factors, which are updated on an ongoing basis. The factors include corporate governance attributes, such as audit and risk oversight, board structure, shareholder rights, compensation, and diversity and inclusion. The factors are also divided into four categories. Each category has a subcategory.
Each category includes a set of factors that evaluate a company's governance practices. ISS assigns a score to each factor, based on its significance and impact on a company's governance practices. Depending on the category, the score ranges from one to ten deciles. A score in the first decile indicates higher governance quality. A score in the tenth decile indicates higher governance risk.
ISS also conducts an annual methodology review, which ensures that the GQS methodology continues to adapt to the evolving regulatory and market practices. The review includes a review of the factors included in the GQS, as well as an analysis of the reasons for any changes in scoring. This allows investors to gain a deeper understanding of the factors and underlying drivers of governance risk.
Customer service
Whether it's a new customer or a long-term client, Metro Bank is committed to providing excellent customer service. As a full-service commercial nonmember bank, it's targeted at small and medium-sized businesses, professionals and executives. With branches in Los Angeles, Torrance and Buena Park, as well as a loan production office in Dallas, US Metro Bank is open seven days a week. The average time it takes to open a new account is 15 minutes, and customers can take advantage of Metro Bank's 7-day guarantee for switching banks. It also offers free treats for pets at most locations.
Metro Bank has been using the Recognize platform for five years. Since then, employees have sent over 34210 recognitions, which helped the bank win numerous awards. There are nine value-based badges that employees can earn, which promote outstanding customer service across all branches. There's also a badge for employees who show a strong teamwork mindset. The bank's "One Team" badge is awarded to employees who demonstrate an all-for-one attitude. The bank's leadership team has the final say on which badges are given.
Metro Bank uses the Recognize platform to promote customer service across all departments and branches. The bank has sent over 500 recognitions per week, and its engagement has continued to be strong. The bank's employees have earned over 34210 recognitions in the last five years, which helped it win numerous awards.