For Bank of the James, move to NASDAQ a growth milestone

When Bank of the James began trading on NASDAQ a few weeks ago, it was a move long in the making that places the bank among just a handful of Central Virginia community banks to trade on one of the nation’s two high-profile stock exchanges.

Most community banks trade “over the counter,” as Bank of the James did prior to late January. That is a method of buying and selling stock not listed on an exchange, usually used by smaller companies. Because over-the-counter stocks are unlisted, there is no central exchange for people to buy or sell stocks.

Listing on the national exchange will boost liquidity for the bank by making its stock far more accessible for buyers and sellers, in effect making it easier for investors everywhere to have an ownership stake in the company.

“That’s a pretty big step for a company,” said President and Chief Executive Officer Robert Chapman III.

The move is a natural step in the progression and growth of a company, said David West, senior vice president at the Richmond investment services firm Davenport & Company, which monitors banks in five states, including Virginia.

“It’s just a general step up in terms of recognition,” he said.

There are about 105 community banks headquartered in Virginia, said Bruce Whitehurst, president and chief executive officer of the Virginia Bankers Association. He could not say for sure how many are traded on NASDAQ or the New York Stock Exchange.

Many banks in Virginia are publicly traded, said Pat Satterfield, president of the Virginia Association of Community Banks. She said they do not track which markets banks’ stocks are traded on, however.

A look at the parent companies of smaller, community banks shows many are not listed on an exchange. Pinnacle Bankshares, the parent of First National Bank in Altavista, trades over the counter, as does the Martinsville-based Carter Bank & Trust, which has branches locally.

There are more than 40 banks with a presence in Virginia that trade on NASDAQ or the New York Stock Exchange, but many of them have locations in other states. Some are nationwide.

West said Bank of the James’s move to NASDAQ is an extension of a growing bank.

“The larger the banking institution the more likely they are to be on a global exchange,” he said.

At the same time, the move opens the door to having more potential shareholders who don’t live in the Lynchburg region, according to company officials. At the time of the switch, 95 percent of the bank’s more than 3,000 shareholders were local, said Todd Scruggs, BOTJ executive vice president and chief financial officer.

Scruggs said local people might have a more personal relationship with bank, while non-local shareholders might place more scrutiny on stock performance alone.

“You might not have as loyal of shareholders,” he said.

It also will open the bank’s stock to investment funds, Scruggs said, which often have rules barring the funds from purchase stock not listed on an exchange.

“You start to show up on their radar,” he said.

Scruggs said they chose NASDAQ out of the three major American exchanges — the New York Stock Exchange and the American Stock Exchange are the others — because its requirements fit the bank. He said the New York exchange had too large market capital requirements and the American exchange is not as powerful as it once was.

The approval process to get on the exchange required a lot of work — the company spent between three and five years researching the move and working toward acceptance. Scruggs said they had to provide a large amount of information to NASDAQ, including articles of incorporation, bylaws, filings with the SEC, litigation the company was involved in, and certified financials.

Wayne Lee, director of corporate communications for NASDAQ, said a company can seek preliminary listing reviews, which goes over the company’s public filings to determine if its numbers meet NASDAQ requirements before it applies.

“NASDAQ protects investors and the public interest by requiring companies to meet stringent listing standards and by using state-of-the-art regulatory systems,” he said.

Scruggs said BOTJ had to have the stock price above $4 per share and a certain number of shareholders with at least 100 shares.

“NASDAQ has stringent listing standards we were able to meet,” he said.

There are expenses with being on the exchange, though. He said they have to pay about $27,000 a year to be listed. There is an application fee of $5,000 for the Capital Market exchange, Lee said.

Scruggs said the initial investments were expensed for 2011.

In March, company executives will travel to New York to ring the closing bell on a day of trading. Lee said it is common for newly listed companies to ring the opening or closing bell.

“That should be pretty cool,” Scruggs said.

Bank of the James has nine full-service locations, one limited-service branch, a mortgage office in Forest and an investment division in downtown Lynchburg.

The company’s stock ended Friday at $4.90 and was down 0.09 percent.