I have had a number of people ask what our third quarter earnings release really means. I will answer the question in three parts.
First, I will share with you my perspective on the economic conditions that shape bank performance. Second, I will focus on the numbers and what they mean. Third and last, I will address how it positions the bank for the future.
While there is some indication that the recession has ended, everyone reading this letter knows that the economy is in shambles and unlikely to recover quickly. Automotive, manufacturing, real estate and construction, all part of the backbone of the Rock River Valley economy, have suffered greatly in the worst recession in over 70 years. Unemployment has soared to the mid-teens and led to a weak housing market and even weaker retail sales. As a community bank, we experience the impact of this economy right along with our clients.
That said, we have done a good job of navigating in a very challenging economic environment. We have been able to continue to make money in spite of reserving $3.4 million for potential loan losses and paying close to $700,000 year to date in increased FDIC insurance. At 2.11% our ratio of nonperforming loans, which has stabilized over the last couple of quarters, is better than peer. Our charge-off levels, while elevated from early periods, are also better than peer. After the large provision in 2009, the allowance for loan losses now equals 75% of nonperforming loans, a very strong number by any measure. Lastly, but probably most importantly, our risk based capital ratio at 9/30 stood at 12.8%, well above the 10% number needed to continue to be well capitalized. All these ratios represent strength.
No one knows when this recession will end or when the recovery will begin. What we do know is that we are committed to being proactive in maintaining a strong financial position in these unprecedented times. It is that commitment to strength and stability that is the foundation of our clients’ trust in us. It is a commitment we will not compromise.
