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American National Downed to Strong Sell

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American National Bankshares Inc. (AMNB - Free Report) has witnessed sharp downward estimate revisions after reporting disappointing third-quarter 2012 results that included an 11.5% year-over-year decrease in earnings per share and a negative earnings surprise of 2.1%. Consequently, this southeast-regional bank sunk to a Zacks #5 Rank (Strong Sell) on December 5.

The stock has been on a downtrend since the beginning of May and given its expected negative earnings growth rates in the upcoming quarters, it has more downside left. Moreover, Zacks ESP (Expected Surprise Prediction) of negative 2.3% indicates that the company will miss the Zacks Consensus Estimate for the fourth quarter as well.
What are the Concerns?

Increasing noninterest expense, declining net interest margin, weakening loan portfolio and deteriorating credit quality are the primary headwinds for American National.  

On November 27, American National reported third-quarter earnings per share of 46 cents, missing the Zacks Consensus Estimate by a penny and the year-ago earnings by 6 cents.

Earnings were primarily aided by reduction in both provision for loan losses (down 36.6% year over year) and interest expense (down 16%). However, these positives were more than offset by an 8.3% decline in interest and dividend income, and a 3.7% increase in noninterest expense. Personnel costs relating to last year’s merger with MidCarolina Financial Corporation are primarily responsible for higher noninterest expense.        

Though American National’s capital ratios remained strong and exceed all regulatory requirements, credit quality showed deterioration with net charge offs increasing 13 basis points (bps) year over year to 0.22% and the allowance for loan losses increasing 39 bps to 1.50% of total loans as of September 30, 2012.  

Estimate Revisions Show Weakness

The Zacks Consensus Estimate for 2012 decreased 2.5% to $1.93 per share owing to 2 out of 4 downward estimate revisions over the last 60 days. The company has seen one estimate revising downward in the last 30 days, reducing the estimate by 2.0%. No upward estimate revision was witnessed in the last 60 days.

For 2013, 3 out of 4 estimates were revised downward over the last 60 days, sinking the Zacks Consensus Estimate by 11.7% to $1.62 per share.
Among southeast-regional banks, Cardinal Financial Corp. and IberiaBank Corp. (IBKC - Free Report) hold a Zacks #1 Rank (Strong Buy).

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