<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark one)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1998
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission file number 1-12707
Pinnacle Bancshares, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 72-1370314
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(State or Other Jurisdiction of (I.R.S. Employer)
Incorporation or Organization) Identification No.)
1811 Second Avenue, Jasper, Alabama 35502-1388
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(Address of Principal Executive Offices)
(205) 221-4111
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 1,792,085
Transitional Small Business Disclosure Format (check one):
Yes No X
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PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
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ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Financial Condition
at March 31, 1998 (Unaudited) and December 31, 1997 2
Condensed Consolidated Statements of Financial Income
(Unaudited) for the three months ended March 31, 1997 and 1998 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the three months ended March 31, 1997 and March 31, 1998 4
Notes to Condensed Consolidated Financial Statements 5
The Condensed Consolidated Financial Statements furnished have
not been audited by independent certified public accountants,
but reflect, in the opinion of management, all adjustments necessary
for a fair presentation of financial condition and the results for
the periods presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 9
PART I1
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Signatures 12
</TABLE>
1
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ITEM 1. FINANCIAL STATEMENTS
PINNACLE BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
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(Unaudited)
<S> <C> <C>
ASSETS
Cash on hand and in banks $ 2,747,482 $ 3,665,558
Interest-bearing deposits at other banks 4,873,353 16,643,829
Securities available for sale 44,423,262 39,625,951
Accrued interest on securities and deposits 491,104 232,647
Loans receivable, net 137,676,037 131,970,668
Loans held for sale (fair value $1,857,042 and $3,242,275
at December 31, 1997 and March 31, 1998, respectively) 1,857,042 3,242,275
Real estate owned 2,140,003 1,919,546
Premises and equipment, net 5,785,279 5,861,912
Other assets 1955,466 2,182,130
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$201,949,028 205,344,516
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits 179,377,212 181,966,444
Borrowed funds 3,640,000 3,520,000
Official checks outstanding 836,383 1,010,177
Other liabilities 1,314,305 1,707,456
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185,167,900 188,204,077
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STOCKHOLDERS' EQUITY
Preferred stock, par $.01 per share, no shares issued,
100,000 and 10,000,000 authorized 0 0
Common stock, par $.01 per share, 1,786,586 and
1,787,085 outstanding, 2,400,000 and 10,000,000 authorized 17,865 17,871
Additional paid-in capital 8,083,332 8,087,734
Retained earnings 8,665,499 8,989,882
Unrealized gain on securities for sale, net 14,432 44,952
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16,781,128 17,140,439
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$201,949,028 $205,344,516
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</TABLE>
See accompanying notes to consolidated financial statements
2
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PINNACLE BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1997 1998
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(unaudited)
<S> <C> <C>
INTEREST REVENUE:
Interest on Loans $ 2,997,638 $ 3,091,168
Interest and dividends on securities 777,649 681,520
Other interest 75,284 160,558
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3,850,571 3,933,246
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INTEREST EXPENSE:
Interest on deposits 2,132,471 2,182,018
Interest on borrowed funds 51,829 51,629
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2,184,300 2,233,647
Net interest income before provision for
loan losses 1,666,271 1,699,599
Provision for losses on loans 75,000 141,000
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Net interest income after provision for 1,591,271 1,558,599
losses on loans
NONINTEREST INCOME:
Fees and service charges 152,253 160,142
Real estate operations, net 35,141 (1,446)
Net gain on sale of:
Loans 69,849 184,207
Other Income 60,750 56,561
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317,993 399,464
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NONINTEREST EXPENSE:
Compensation and benefits 599,946 656,243
Occupancy 265,223 256,045
FDIC insurance 6,074 28,140
Marketing and professional 33,297 38,193
Other 203,599 208,945
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1,108,139 1,187,566
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Earnings before income tax expense 801,125 770,497
Income Tax expense 298,796 267,404
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Net earnings $ 502,329 $ 503,093
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Basic Earnings per share $ 0.28 $ 0.28
Diluted Earnings per share $ 0.28 $ 0.28
Cash Dividends per share $ 0.10 $ 0.10
Weighted average shares outstanding 1,779,646 1,787,049
</TABLE>
See accompanying notes to consolidated financial statements.
3
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PINNACLE BANCSHARES, INC,
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1997 1998
(unaudited)
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net earnings $ 502,329 $ 503,093
Adjustment to reconcile net earnings to net cash flows provided by
operating activities:
Depreciation 122,344 115,213
Provision for losses on loans 75,000 141,000
Net (gain) loss on sale of:
Loans held for sale (69,849) (184,206)
Amortization, net 60,724 (82,512)
Proceeds from sale of loans 9,057,577 9,018,326
Loans originated for sale (9,091,717) (10,403,559)
(Decrease) Increase in other assets (121,807) 21,417
(Increase ) decrease in other liabilities (40,051) 393,151
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Net cash provided by (used in) operating activities 494,550 (478,077)
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CASH FLOWS PROVIDED BY USED IN INVESTING ACTIVITIES:
Principal collected on loans and securities 17,983,775 25,759,397
Loans originated for portfolio (23,731,621) (19,090,103)
Net change in interest bearing deposits at other banks (784,600) (11,770,476)
Proceeds from sale of securities 196,000 --
Proceeds from maturing securities 1,113,340 4,000,000
Proceeds from sale of fixed assets 869,351 --
Purchase of premises and equipment -- (191,846)
Proceeds from real estate owned, net -- 220,457
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Net cash (used in) investing activities (4,353,755) (1,072,571)
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CASH FLOWS USED IN FINANCING ACTIVITIES:
Net increase ( decrease) in passbook, NOW, and money market deposit accounts 1,782,627 1,102,652
Proceeds from sales of time deposits 9,368,146 8,357,166
Payments from maturing time deposits (6,710,726) (6,870,586)
Payments on borrowed funds (110,000) (120,000)
Increase (decrease) in official checks outstanding 428,726 173,794
Proceeds from stock options exercised -- 4,408
Payments of dividends (177,965) (178,710)
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Net cash provided by financing activities 4,580,808 2,468,724
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NET (INCREASE) DECREASE IN CASH 721,603 918,076
CASH AT BEGINNING OF PERIOD 2,879,396 2,747,482
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CASH AT END OF PERIOD $ 3,600,999 $ 3,665,558
============ ============
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest on deposits and borrowed funds $ 1,965,358 $ 1,989,731
Cash payments for income taxes 85,000 322,207
Real estate acquired through foreclosure 1,023,833 234,592
</TABLE>
See accompanying notes to consolidated financial statements.
4
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PINNACLE BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited interim condensed consolidated financial statements
include the accounts of Pinnacle Bancshares, Inc. (the "Company"), Pinnacle Bank
(the "Bank"), and the Bank's wholly owned subsidiaries First General Services(s)
and First General Ventures. All significant inter company transactions and
accounts have been eliminated in consolidation.
In the opinion of management, all adjustments (none of which are other than
normal recurring accruals) necessary for a fair presentation of the results of
such interim periods have been included. The results of operations for the three
month period ending March 31, 1998, are not necessarily indicative of the
results of operations which may be expected for the entire year.
These condensed consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997. The
accounting policies followed by the Company are set forth in the summary of
Significant Accounting Policies in the Company's financial statements.
2. CONVERSION AND REORGANIZATION:
On January 29, 1997, the stockholders of the Bank approved the conversion of the
Bank from a federal stock savings bank to an Alabama-chartered commercial bank
and the reorganization of the converted Bank into the holding company form of
ownership by approving an Agreement and Plan of Conversion and Reorganization,
pursuant to which the converted bank subsidiary of the Company, and each
outstanding share of common stock of the Bank was converted into one share of
common stock of the Company. The fiscal year of the Company and the converted
Bank ends on December 31, of each year.
3. STOCK SPLIT:
On September 24, 1997, the Company announced that it Board of Directors had
declared a two-for-one stock split to be effected in the form of a 100% stock
dividend payable to shareholders of record on October 15, 1997.
5
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4. YEAR 2000 RISK ASSESSMENT AND ACTION PLAN:
The Company is aware of the current concerns throughout the business community
of reliance upon computer software that does not properly recognize the year
2000 in date formats, often referred to as the "Year 2000 Problem." The Year
2000 Problem is the result of software being written using two digits rather
than four digits to define the applicable year (i.e., "98" rather than "1998").
A failure by a business to properly identify and correct a Year 2000 Problem in
its operations could result in system failures or miscalculations. In turn, this
could result in disruptions of operations, including among other things, a
temporary inability to process transactions, or otherwise engage in routine
business transactions on a day-to-day basis.
Operations of the Company depend upon the successful operation on a daily basis
of its computer software programs. The Company relies upon software purchased
from third-party vendors rather than internally generated software. In its
analysis of the software, and based upon its ongoing discussions with these
vendors, a plan of action has been put in place by the Company to minimize its
risk exposure to the Year 2000 Problem.
As part of the plan, an oversight management committee has been set up to
monitor vendor compliance, and identify systems and equipment crucial to the
Company's operation. These systems are being tested to assure they will be able
to handle the Year 2000 event, thus minimizing risk to the Company.
5. PENDING ACCOUNTING PRONOUNCEMENTS:
The AICPA has issued Statements of Position 98-1, Accounting for the Costs of
Computer Software Developed or obtained for Internal Use. This statement
requires capitalization of external direct costs of materials and services;
payroll and payroll related costs for employees directly associated; and
interest cost during development of computer software for internal use (planning
and preliminary costs should be amortized on a straight-line basis unless
another systematic and rational basis is more representative of the software's
use.
This statement is effective for financial statements for fiscal years beginning
after December 15, 1998 (prospectively) and is not expected to have a material
effect on the consolidated financial statements.
6
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6. NET INCOME PER SHARE:
Basic net income per share was computed by dividing net income by the weighted
average number of share of common stock outstanding during the three month
period ended March 31, 1998 and 1997, was computed by dividing net income by the
weighted average number of shares of common stock and the dilutive effects of
the shares awarded under the Stock Option plan, based on the treasury stock
method using an average fair market value of the stock during the respective
periods.
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," effective
December 15, 1997. As a result, the Company's reported net income per share for
1996 was restated. The following table represents the net income per share
calculations for the three months ended March 31, 1998 and 1997, accompanied by
the effect of this accounting change on previously reported earnings per share:
<TABLE>
<CAPTION>
For the Three Months Ended Net Income
March 31, 1998: Income Shares Per Share
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<S> <C> <C> <C>
Net Income $ 503,093
Basic net income per share:
Income available to common
shareholders $ 503,093 1,787,049 $.28
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Diluted securities:
Stock option
Dilutive net income per share 0 2,295
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Income available to common
shareholders plus assumed
conversations $ 503,093 1,789,344 $.28
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March 31, 1997:
Net Income $ 502,329
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Basic net income per share:
Income available to common
Shareholders $ 502,329 1,779,648 $.28
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Dilutive securities 0 6,606
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Dilutive net income per share $ 502,329 1,786,254 $.28
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</TABLE>
7
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7. COMPREHENSIVE INCOME:
The Company adopted SFAS No. 130 January 1, 1998. SFAS No. 130 established
standards for reporting and display of comprehensive income and its components.
The Company has classified the majority of its securities as available for sale
in accordance with Financial Accounting Standards Board Statement No 115. For
the quarter ended March 31, 1998, the unrealized gain on these securities
increased by $40,897. For the quarter ended March 31, 1997, the unrealized loss
on these securities decreased by $222,314. Pursuant to Statement No. 115, any
unrealized gain or loss activity of available for sale securities is to be
recorded as an adjustment to a separate component of stockholders' equity, net
of income tax effect. Accordingly, the Company recognized an increase of $30,520
for the quarter ending March 31, 1998 and a decrease of $165, 906 for the
quarter ending March 31, 1997.
Since Comprehensive income is a measure of all changes in equity of an
enterprise that result from transactions and other economic events of the
period, this change in unrealized loss serves to decrease or increase
comprehensive income. The following table represents comprehensive income for
the quarters ended March 31, 1998, and 1997:
<TABLE>
<CAPTION>
1998 1997
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Net Income $ 503,093 $ 502,329
Other Comprehensive income (loss), net of tax
Unrealized gain (loss) on securities 30,520 (165,906)
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Comprehensive income $ 533,613 $ 336,423
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</TABLE>
8. MARKET RISK:
The Company believes that there have been no material changes in reported
market risks since year end.
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PINNACLE BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION: Total assets increased from $201.9 million as of December
31, 1997 to $205.3 million as of March 31, 1998. This increase was due primarily
to an increase in cash and interest bearing deposits of approximately $12.7
million and was offset by a decrease in securities available for sale of
approximately $4.8 million and a decrease in total loans of approximately $4.3
million.
INVESTMENTS: The Bank's investment portfolio at December 31, 1997 and at March
31, 1998 consisted primarily of U.S. Treasury and Agency securities with a
majority maturing in two years or less. The Bank presently intends to sell most
long-term fixed-rate mortgage loans as they are originated.
RESULTS OF OPERATIONS: Net interest income after the provision for loans losses
on loans showed a decrease of $32,672 or 2.0% for the three month period ended
March 31, 1998 as compared to the corresponding period in the previous year.
This decrease was primarily due to an increase in the provision for loan losses
of $66,000. Market interest rates have remained relatively steady during the
three months ended March 31, 1998. However, if rates were to rise rapidly, the
Banks net income would be adversely affected.
The Bank's yield on interest-bearing assets was approximately 8.18 % in the
three months ended March 31, 1997 as well as the current three month period. The
average deposits increased by $3.2 million The Bank's cost of funds increased
from approximately 4.92% in the three month period ended March 31, 1997 to 4.93%
in the current three month period.
Other non interest income, which includes fees and services charges , Real
estate operations, net, net gain (loss) on sale of loans and other income
increased approximately $81,471 in the three month period ended March 31, 1998,
as compared to the corresponding prior year period. This increase was due
primarily to an increase in gain on sale of mortgage loans of approximately
$114,358 and was offset by slight decreases in all other non interest income.
Other non interest expense increased by approximately $79,427. This increase was
due primarily to an increase in compensation and benefits of approximately
$56,297, an increase in FDIC insurance premiums of approximately $22,066 as well
as slight increases in other non interest expense.
NET EARNINGS: The Bank reported net income for the first quarter ending March
31, 1998 of $503,093 or $0.28 per share, compared with a net income of $502,329,
or $0.28 per share, in the first quarter last year.
9
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CAPITAL RESOURCES: Historically, funds provided by operations, mortgage loan
principal repayments, savings deposits and short-term borrowings have been the
Bank's principal sources of funds. In addition, the Bank has the ability to
obtain funds through the sale of mortgage loans, through borrowings from the
FHLB of Atlanta and other borrowings sources. At March 31, 1998, the Bank's
total loan commitments, including construction loans in process and unused lines
of credit were approximately $18.1 million. Management believes that the Bank's
liquidity and other sources of funds are sufficient to fund all commitments
outstanding and other cash needs. The Company and the Bank are required to
maintain certain levels of regulatory capital. At March 31, 1998 the Company and
the Bank were in requirement with all regulatory capital requirements.
YEAR 2000 RISK ASSESSMENT AND ACTION PLAN: See Note 4 of Notes to Condensed
Consolidated Financial Statements.
PENDING ACCOUNTING PRONOUNCEMENTS: See Note 5 of Notes to Condensed Financial
Statements.
FORWARD-LOOKING STATEMENTS: This Quarterly Report on Form 10-QSB contains
forward-looking statements. Additional written or oral forward-looking
statements may be made by the Company from time to time in filings with the
Securities and Exchange Commission or otherwise. The words "believe," "expect,"
"seek" and "intend," and similar expressions identify forward-looking
statements, which speak only as of the date the statement is made. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements may include, but are not
limited to, projections of income or loss, expenditures, acquisitions, plans for
future operations, financing needs or plans relating to services of the Company,
as well as assumptions relating to the foregoing. Forward- looking statements
are inherently subject to risk and uncertainties, some of which cannot be
predicted or qualified. Future events and actual results could differ materially
from those set forth in, contemplated by or underlying the forward-looking
statements.
The Company does not undertake, and specifically disclaims, any obligation to
publicly release the results of revisions which may be made to forward-looking
statements to reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
10
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-Kk
(A) Exhibit 27 - Financial Data schedule (SEC use only)
(B) No reports on Form 8-K were filed.
11
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PINNACLE BANCSHARES, INC
DATE: May 14, 1998 BY: /s/ Robert B. Nolen Jr.
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Robert B. Nolen, Jr.
President and Chief
Executive Officer
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PINNACLE BANCSHARES, INC. FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,666
<INT-BEARING-DEPOSITS> 16,644
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 39,626
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 133,355
<ALLOWANCE> 1,384
<TOTAL-ASSETS> 205,345
<DEPOSITS> 181,966
<SHORT-TERM> 3,520
<LIABILITIES-OTHER> 2,719
<LONG-TERM> 0
18
0
<COMMON> 0
<OTHER-SE> 17,122
<TOTAL-LIABILITIES-AND-EQUITY> 205,345
<INTEREST-LOAN> 3,091
<INTEREST-INVEST> 681
<INTEREST-OTHER> 161
<INTEREST-TOTAL> 3,933
<INTEREST-DEPOSIT> 2,182
<INTEREST-EXPENSE> 2,233
<INTEREST-INCOME-NET> 1,670
<LOAN-LOSSES> 141
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,188
<INCOME-PRETAX> 770
<INCOME-PRE-EXTRAORDINARY> 503
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 503
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
<YIELD-ACTUAL> 8.18
<LOANS-NON> 2,830
<LOANS-PAST> 700
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,234
<CHARGE-OFFS> 10
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 1,384
<ALLOWANCE-DOMESTIC> 1,384
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
