This excerpt taken from the RIVR ARS filed Mar 16, 2005.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total allowance for loan losses to a level considered appropriate by management based upon historical experience, the volume and type of lending conducted by River Valley Financial, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to the primary market area, and other factors related to the collectibility of the loan portfolio. As a result of such analysis, management recorded a $508,000 provision for losses on loans in 2003, a decrease of $62,000, or 10.9%, compared to the $570,000 provision recorded in 2002. The current period provision generally reflects growth in the loan portfolio, coupled with a change in the loan mix, that is more 1-4 family residential loans and less consumer loans.
Non-performing loans for the period ended December 31, 2003 were $0.5 million, a decrease of approximately $600,000 from the $1.1 million recorded as of fiscal year ended 2002. Net charge-offs amounted to $553,000 in 2003, compared to $441,000 in 2002. While management believes that the allowance for losses on loans is adequate
at December 31, 2003, based upon available facts and circumstances, there can be no assurance that the loan loss allowance will be adequate to cover losses on nonperforming assets in the future.