This excerpt taken from the BNV 10-K filed Mar 30, 2007.
The Banks allowance for loan losses may not be adequate to cover actual losses.
The Bank seeks to mitigate the risks inherent in our loan portfolio by adhering to specific underwriting practices. These practices include analysis of a borrowers prior credit history, financial statements, tax returns and cash flow projections, valuation of collateral based on reports of independent appraisers and verification of liquid assets. Although the Bank believes that its underwriting criteria are appropriate for the various kinds of loans it makes, it may incur losses on loans that meet its underwriting criteria, and these losses may exceed the amounts set aside as reserves in its allowances for loan losses.
Like all financial institutions, the Bank maintains an allowance for loan losses to provide for loan defaults and non-performance. Its allowances for loan losses may not be adequate to cover actual loan losses, and future provisions for loan losses could materially and adversely affect its operating results. The Banks allowance for loan losses is based on an evaluation of the risks associated with its loans receivable as well as its prior experience. A substantial portion of its loans are unseasoned and lack an established record of performance. To date, it has experienced negligible losses. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates that may be beyond its control, and these losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review the Banks loans and assess the adequacy of the allowance for loan losses. While the Bank believes that its allowance for loan losses is adequate to cover current losses, the Bank cannot be assured that it will not need to increase its allowance for loan losses or that regulators will not require the Bank to increase this allowance. Either of these occurrences could materially and adversely affect the Banks earnings and profitability.