Pink Sheets

Next up is to look into this bank (website). These guys started up on July 22, 1999 and got up to speed very nicely. (I've looked at another bank that recently started up and they had taken quite a bit longer to cross into reasonable profits.)

But here's what BOTJ has done:

• 2000 net loss: $86,000
• 2001 net profit: $629,000
• 2002 net profit: $814,000
• 2003 net profit: $1,416,000
• 2004 net profit: $1,472,000
• 2005 Q1 net profit: $343,000 (annualizes to $1,372,000)

Their FDIC database numbers for the end of 2004 and 2002 compare favorably to a peer group of banks with less than $100 million in assests in Virginia. The 2000 numbers looked ok. I'm impressed with how this bank has taken off since it was founded. Lynchburg, Virginia is where Jerry Falwell's megachurch was located, if I recall correctly. It's definitely outside of the DC area and not located in a bubble real estate area. I checked a couple of real estate websites: lots of reasonable houses for around $150,000.

FDIC certification #35207

Comparing BotJ to Community First Bank Lynchburg:

• net interest margin: BotJ=4.65%, CFBL=4.15% (BotJ is better)
• return on assets: BotJ=0.78%, CFBL=0.42% (BotJ is better)
• return on equity: Botj=10.51%, CFBL=4.79% (BotJ is better)
  
• provision for losses: BotJ=0.40%, CFBL=0.24% (BotJ is better)
• total non-interest income/assets: BotJ=1.04%, CFBL=0.42% (BotJ is better)
  
• total non-interest expense/assets: BotJ=3.83%, CFBL=3.27% (CFBL is better)
• net income/assets: BotJ=0.78%, CFBL=0.42% (BotJ is better)
• assets past due 30-90 days: BotJ=0.48%, CFBL=0.94% (BotJ is better)
• assets past due more than 90 days: BotJ=0, CFBL=0.14% (BotJ is better)
  
• assets in non-accrual status: BotJ=0.12%, CFBL=0.97% (BotJ is better)

Ok, how about the other Lynchburg bank, Central National Bank:

• Net interest margin: 3.50% (BotJ is better)
• return on assets: 0.74% (BotJ is better)
• return on equity: 8.15% (BotJ is better)
• net charge-offs to loans: 0.07% vs 0.29% for BotJ (CNB is better)
• provision for losses: 0.08% (BotJ is better)
• total non-interest income: 0.35% (BotJ is better)
• total non-interest expense: 2.39% (CNB has lower expenses)
• net income: 0.74% (BotJ is better)
• assets past due 30-90 days: 0.52% (BotJ is better)
• ...more than 90 days: 1.95% (BotJ is better)
• assets in non-accrual status: 1.44$ (BotJ is better)

Result: BotJ compares quite favorably to the other two local banks in Lynchburg (one national, one Virginia chartered).

Very importantly, the bank directors eat their own cooking: Most of them own at least six figure dollar amounts of stock. In total they own 18% of the bank (yes, a lot of it is via options unfortunately).

These guys own about 2.5% of the stock.

Now to the interesting part. First, we have a bank director, minister of a church, owner of a funeral home, and mayor of Lynchburg (all the same guy), resign from being an outside director of Bank of the James:

December 9, 2004

Board of Directors

Bank of the James Financial Group, Inc.

Bank of the James

Lady and Gentlemen:

It is with regret that I submit my resignation as a board member of both Bank of the James Financial Group, Inc. and Bank of the James. These resignations are effective December 31, 2004. I am resigning due to personal reasons and I wish the Bank my very best.

Sincerely,
Carl B. Hutcherson, Jr

When a company director resigns, it's a signal that something is very wrong. It can be wrong with the individual or, more likely, wrong with the business.

Next, we have this little episode:

A Bank of the James complaint to law enforcement triggered the federal investigation of Lynchburg Mayor Carl Hutcherson.
...

The Bank of the James served as the depository for a $32,500 gift from Jerry Falwell Ministries in August to an organization affiliated with Hutcherson’s church.
...
According to his Statement of Economic Interests, filed with the City Council clerk, he was compensated between $1,001 and $10,000 last year for work as a Bank of the James director. Hutcherson owned between $10,001 and $50,000 of Bank of the James stock, his disclosure form shows. An official at Falwell ministries said earlier this year that Hutcherson called in September or October to say that the bank had raised questions about the ministries’ donation to the CDC. The Trinity CDC had its incorporation revoked by the State Corporation Commission in March and has not received its nonprofit status
...
The federal Bank Secrecy Act requires banks to report suspicious activity to the Financial Crimes Enforcement Network, according to Leland Chan of the California Bankers Association. “If there’s a suspicion of virtually any crime, banks have to file a suspicious activity report,” he said.
...
In addition to Falwell ministries, Hutcherson sought donations from Centra Health in the CDC’s name. That $10,000 grant was approved, but never disbursed because Hutcherson failed to furnish necessary paperwork proving the CDC’s non-profit status.

There are other articles about this whole thing here and here. And the NAACP supports him regardless. Like most people, he's not a bad person. Apparently, he tried to borrow money from Falwell before this whole episode.

So apparently, Hutcherson's resignation was probably forced. The bank knew of his problems and couldn't have someone like that in a director position at the bank.

This is why I use a checklist!

A minor red flag is that they don't spell out the depreciation lengths in any detail (they're vague about it).

Anyway, the bank detected the fraud and triggered the investigation. The mayor resigned from the board well before this. The mayor is the one with the money problems. I believe BotJ is a good investment at the right price.

So let's say we assume earnings of about $1.35. This would probably grow with the inflation rate. the stock would probably be worth about $22. It's been selling at around $17, which is about the most I would ever want to buy it for. At that price, it's a pretty good investment.

UPDATE: I'm in. It's a small investment.