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10 Bank Stock Picks for Bottom-Fishing Investors

7. Virginia Commerce Bancorp

Shares of Virginia Commerce Bancorp (VCBI) of Arlington closed at $5.79 Wednesday, down 11% from a week earlier -- for the best one-week performance among this group of 10 bank stocks -- and down 6% year-to-date.

The shares traded for 0.9 times tangible book value as of Wednesday's market close, according to SNL Financial.

The company owes $71 million in TARP money.

Virginia Commerce reported second-quarter net income to common stockholders of $7.5 million, or 24 cents a share, increasing from $3.7 million, or 12 cents a share, in the first quarter, and $4.3 million, or 15 cents a share, in the second quarter of 2010. The operating improvement reflected a decline in credit costs, with a second-quarter provision for loan losses of $1.4 million, declining from $5.8 million the previous quarter and $4.2 million a year earlier.

A $3.2 million release of loan loss reserves provided a direct boost to the company's second-quarter results, however, the company's ratio of reserves to total loans was a strong 2.47% of total loans, when compared to an annualized second-quarter ratio of net charge-offs (loan losses less recoveries) to average loans of 0.75%.

CEO Peter Converse said on July 20 when the company announced its second-quarter results that provisions for loan losses would likely "range between the first and second quarter levels through the remainder of this year."

Virginia Commerce's second-quarter net interest margin was 3.99%, which was the same as the previous quarter but up from 3.89% a year earlier. Maintaining a margin of close to 4% in such a low-rate environment is an impressive achievement for the bank.

Total loans were $2.1 billion as of June 30, declining 4% from a year earlier. Converse said that the bank's loan "pipeline is building, our loan officers are heavily involved in prospecting, and our focus on commercial and industrial lending is yielding positive growth. As a result, we expect a reversal of negative loan growth to emerge in the second half."

While Virginia Commerce said its tangible common equity ratio was 7.18% as of June 30, and Converse didn't discuss the company's plans for repaying TARP.

The shares trade for 8.4 times the consensus 2012 earnings estimate of 74 cents a share, among analysts polled by FactSet.

Two of the six analysts covering Virginia Commerce Bancorp rate the shares a buy, while the remaining analysts all have neutral ratings.

While the TARP overhang is placing a drag on the shares, Virginia Commerce appears to be a relatively low-risk play at its reduced valuation.

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