Davenport Upgrades Virginia Commerce Bancorp (VCBI) to Buy

July 18, 2008 9:41 AM EDT

Davenport upgrades Virginia Commerce Bancorp (NASDAQ: VCBI) from Neutral to Buy with a $6.50 price target.

The firm lowers their 2008 EPS estimate from $0.80 to $0.52 and introduces their 2009 EPS estimate of $0.70. The revision in estimates is due to an increased loan loss provision in the second half (from $5.4 million to $14..4 million) and dilution of the company's shares based upon the firm's belief that "VCBI will look to raise $10-15 million in capital via a rights offering and $20-25 million through a trust preferred issuance." The firm's loan loss provision could be conservative because it “reflects approximately 60bps of charge-offs (above management’s 50bp worst-case scenario guidance) and a loan loss allowance build to 1.25% (above the current 1.18%)."

With respect to the upgrade, the firm said, "While uncertainty remains in terms of real estate values and credit quality, as well as a sour taste coming from the potential capital raise, we believe that VCBI shares are attractively valued at 71% of book value. Our estimates reflect credit deterioration above and beyond management’s worst-case scenario guidance. We believe that the risk reward scenario is favorable, although our risk profile is now above average to reflect the volatile Northern Virginia real estate market. All in all, market fear has created an opportunity for outsized returns over the next several years."

Virginia Commerce Bancorp, Inc. is the parent bank holding company of Virginia Commerce Bank (the Bank), a state-chartered bank.

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