U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
Commission File Number: 333-20399
PINNACLE BANKSHARES CORPORATION
(Exact name of small business issuer as specified in its charter)
VIRGINIA 54-1832714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 29
Altavista, Virginia 24517
(Address of principal executive offices)
(804) 369-3000
(Issuer's telephone number, including area code)
Check whether the issuer (1) has 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
--------- ---------
At October 14, 1997, 719,025 shares of Pinnacle Bankshares Corporation's common
stock, $3 par value, were outstanding.
Transitional small business disclosure format: Yes No x .
--- ---
<PAGE>
PINNACLE BANKSHARES CORPORATION
FORM 10-QSB
September 30, 1997
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30,
1997 and December 31, 1996 3
Consolidated Statements of Income for the three
month periods ended September 30, 1997 and 1996 4
Consolidated Statements of Income for the nine
month periods ended September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
periods ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis or Plan
of Operations 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PINNACLE BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
=============================================================================================
Assets September 30, 1997 December 31, 1996
<S> <C>
Cash and cash equivalents: (note 2)
Cash and due from banks $2,690 $3,159
Federal funds sold 1,590 2,585
-----------------------------------
Total cash and cash equivalents 4,280 5,744
Securities (note 3):
Available-for-sale, at fair value 22,379 23,861
Held-to-maturity, at amortized cost 11,302 11,905
Federal Reserve Bank stock, at cost 75 75
Federal Home Loan Bank Stock, at cost 409 403
Loans, net (note 4) 86,481 79,842
Bank premises and equipment, net 2,444 1,216
Other real estate owned 150 156
Accrued income receivable 975 1,066
Other assets 563 683
-----------------------------------
Total assets $129,058 $124,951
=============================================================================================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand 8,934 9,830
Savings and NOW accounts 37,830 36,322
Time 67,247 65,052
Total deposits 114,011 111,204
-----------------------------------
Accrued interest payable 654 537
Other liabilities 703 553
-----------------------------------
Total liabilities 115,368 112,294
-----------------------------------
Stockholders' equity:
Common stock, $3 par value. Authorized
3,000,000 shares, issued and
outstanding 719,025 shares in
1997 and 1996 2,157 2,157
Capital surplus 338 338
Retained earnings 11,107 10,174
Unrealized gains(losses) on available-for-sale
securities, net of deferred tax expense
(benefit) 88 (12)
------------------------------
Total stockholders' equity 13,690 12,657
Total liabilities and stockholders' equity $129,058 $124,951
=============================================================================================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
PINNACLE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands of dollars, except for per share amounts)
<TABLE>
<CAPTION>
For the Period For the Period
July 1, 1997 July 1, 1996
Through Through
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C>
Interest Income:
Interest and fees on loans $2,002 $1,810
Interest on securities:
U.S. Treasury 65 60
U.S. Government agencies 282 313
Corporate 43 43
States and political subdivisions
(tax exempt) 126 136
Other 18 0
Interest on federal funds sold 53 25
-------------------------------------
Total interest income 2,589 2,387
Interest expense:
Interest on deposits:
Savings and NOW accounts 286 276
Time - other 807 782
Time - $100,000 and over 167 125
-------------------------------------
Total interest expense 1,260 1,183
-------------------------------------
Net interest income 1,329 1,204
Provision for loan losses 75 45
-------------------------------------
Net interest income after provision for loan losses 1,254 1,159
Noninterest income:
Service charges on deposit accounts 63 61
Other operating income 32 23
-------------------------------------
Total noninterest income 95 84
-------------------------------------
Noninterest expense:
Salaries and employee benefits 414 389
Occupancy expense 26 25
Furniture and equipment 80 78
FDIC assessment 5 98
Other operating expenses 187 159
-------------------------------------
Total noninterest expense 712 749
-------------------------------------
Income before income tax expense 637 494
Income tax expense 179 130
-------------------------------------
Net income $458 $364
===============================================================================================
Net income per share (note 5) $0.64 $0.51
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
PINNACLE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands of dollars, except for per share amounts)
<TABLE>
<CAPTION>
For the Period For the Period
January 1, 1997 January 1, 1996
Through Through
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C>
Interest Income:
Interest and fees on loans $5,804 $5,290
Interest on securities:
U.S. Treasury 194 165
U.S. Government agencies 864 956
Corporate 129 124
States and political subdivisions
(tax exempt) 392 414
Other 50 2
Interest on federal funds sold 99 134
--------------------------------------
Total interest income 7,532 7,085
--------------------------------------
Interest expense:
Interest on deposits:
Savings and NOW accounts 841 838
Time - other 2,361 2,311
Time - $100,000 and over 427 411
Interest on federal funds purchased 5 -- --
--------------------------------------
Total interest expense 3,634 3,560
--------------------------------------
Net interest income 3,898 3,525
Provision for loan losses 285 135
--------------------------------------
Net interest income after provision for loan losses 3,613 3,390
Noninterest income:
Service charges on deposit accounts 187 178
Net gain(loss) on calls and sales of securities 4 12
Other operating income 117 80
--------------------------------------
Total noninterest income 308 270
--------------------------------------
Noninterest expense:
Salaries and employee benefits 1,229 1,156
Occupancy expense 74 72
Furniture and equipment 238 224
FDIC assessment 16 118
Other operating expenses 575 495
--------------------------------------
Total noninterest expense 2,132 2,065
--------------------------------------
Income before income tax expense 1,789 1,595
Income tax expense 497 426
--------------------------------------
Net income $1,292 $1,169
================================================================================================
Net income per share (note 5) $1.80 $1.63
================================================================================================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
PINNACLE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS ON CASH FLOWS
(Unaudited)
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
For the Period For the Period
January 1, 1997 January 1, 1996
Through Through
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C>
Cash flows from operating activities:
Net income $1,292 $1,169
Adjustments to reconcile net income to
net cash provided
by operating activities:
Depreciation of bank premises and equipment 158 151
Amortization of core deposit premium 12 14
Amortization of organization costs 3 --
Amortization of net unearned fees (74) (79)
Net amortization (accretion) of premiums and
discounts on securities 5 (4)
Provision for loan losses 285 135
Provision for deferred income taxes 15 (6)
Net (gain) loss on calls and sales of securities (4) (12)
Net (increase) decrease in:
Accrued income receivable 91 15
Other assets (22) (6)
Net increase (decrease) in:
Accrued interest payable 117 117
Other liabilities 150 220
-----------------------------------
Net cash provided by operating activities 2,028 1,714
=============================================================================================
Cash flows from investing activities:
Purchases of held-to-maturity securities -- (1,657)
Purchases of available-for-sale securities (217) (5,460)
Proceeds from maturities and calls of
held-to-maturity securities 604 1,435
Proceeds from sale, maturities and calls of
available-for-sale securities 1,849 4,223
Purchase of Federal Home Loan Bank stock (6) (403)
Net increase in loans (6,921) (3,045)
Recoveries on loans charged off 131 109
Purchases of bank premises and equipment (1,386) (157)
Rent payments on other real estate owned 6 2
-----------------------------------
Net cash used in investing activities (5,940) (4,953)
=============================================================================================
Cash flows from financing activites:
Net increase (decrease) in demand, savings
and NOW deposits 612 (14)
Net increase (decrease) in time deposits 2,195 1,175
Dividends paid (359) (312)
-----------------------------------
Net cash provided by financing activities 2,448 849
=============================================================================================
Net increase in cash and cash equivalents (1,464) (2,390)
Cash and cash equivalents, beginning of year 5,744 6,165
-----------------------------------
Cash and cash equivalents, end of period $4,280 $3,775
=============================================================================================
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
PINNACLE BANKSHARES CORPORATION
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
(In thousands, except for share data)
(1) General
The consolidated financial statements include the accounts of Pinnacle
Bankshares Corporation (the "Company") and its wholly-owned subsidiary, The
First National Bank of Altavista (the "Bank"). All material intercompany
accounts and transactions have been eliminated. The financial statements conform
to generally accepted accounting principles and to general banking industry
practices. In the opinion of the company's management, the accompanying
unaudited consolidated financial statements contain all adjustments of a normal
recurring nature, necessary to present fairly the financial position as of
September 30, 1997, the results of operations for the three-month and nine-month
periods ended September 30, 1997 and 1996, and cash flows for the nine-month
periods ended September 30, 1997 and 1996.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in The
First National Bank of Altavista's Annual Report for the year ended December 31,
1996.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year ending December 31,
1997.
(2) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks (with original maturities of three months
or less), and federal funds sold.
(3) Securities
The amortized costs, gross unrealized gains, gross unrealized losses,
and fair values for securities at September 30, 1997, are shown in the table
below. As of September 30, 1997, securities with amortized costs of $3,950 and
fair values of $3,976 were pledged as collateral for public deposits.
7
<PAGE>
(3) (Continued)
Gross Gross
Amortized Unrealized Unrealized Fair
Available-for-Sale: Costs Gains Losses Values
- --------------------------------------------------------------------------------
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $11,341 49 (49) 11,341
Obligations of states and
political subdivisions 3,647 101 -- 3,748
Mortgage-backed securities-
Government 6,384 52 (35) 6,401
Other securities 107 -- -- 107
Corporate securities 766 16 -- 782
- --------------------------------------------------------------------------------
Totals $22,245 218 (84) 22,379
- --------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Held-to-Maturity: Costs Gains Losses Values
- --------------------------------------------------------------------------------
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 3,640 14 (5) 3,649
Obligations of states and
political subdivisions 7,649 131 (13) 7,767
Mortgage-backed securities-
Private 13 -- -- 13
- --------------------------------------------------------------------------------
Totals $11,302 145 (18) 11,429
- --------------------------------------------------------------------------------
(4) Allowance for Loan Losses
Changes in the allowance for loan losses are as follows:
Balance at January 1, 1997 $674
Provision for loan losses 285
Loans charged off (318)
Recoveries 131
---
Balance at September 30, 1997 $772
====
(5) Net Income Per Share
Net income per share is based upon the weighted average number of
common stock shares outstanding during the period. Shares outstanding for all
periods presented were 719,025.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Amounts in 000's)
The following discussion supplements and provides information about the
major components of the results of operations and financial condition, liquidity
and capital resources of Pinnacle Bankshares Corporation (the "Company"). The
discussion below reflects the Consolidated Financial Statements of the Company
and its subsidiary. This discussion and analysis should be read in conjunction
with the Consolidated Financial Statements, and supplemental financial data.
OVERVIEW
Total assets at September 30, 1997 were $129,058, up 3.29% from
$124,951 at December 31, 1996. The principal components of the Company's assets
at the end of the period were $33,681 in securities and $86,481 in net loans.
During the nine month period, gross loans increased 8.25% or $6,680. The
Company's lending activities are a principal source of income.
The Company's premises and equipment grew 89.12%, basically due to
contracts-in-progress related to construction of an addition to the main office
facility. In addition, on August, 14, 1997, the Bank formed a subsidiary, FNB
Property Corp., and through this subsidiary has purchased property in Campbell
County for future expansion.
Total liabilities at September 30, 1997 were $115,368, up from $112,294
at December 31, 1996, with the increase reflective of a rise in total deposits
of $2,807 or 2.52%. Non-interest bearing demand deposits decreased $896 or 9.11%
and represented 7.84% of total deposits. The Company's deposits are provided by
individuals and businesses located within the communities served.
Total shareholders' equity at September 30, 1997 was $13,690. At
December 31, 1996, total shareholders' equity was $12,657.
The Company had net income of $1,292 for the nine months ended
September 30, 1997, compared with net income of $1,169 for the comparable period
in 1996, an increase of 10.52%. The results of operations for the nine month
periods ended September 30, 1997 and 1996 are not necessarily indicative of the
results to be expected for the full year.
Profitability as measured by the Company's return on average assets
(ROA) was 1.36% for the third quarter of 1997, up from 1.29% for the same period
of 1996. Another key indicator of performance, the return on average equity
(ROE) for September 30, 1997 was 13.33%, compared to 13.31% for September 30,
1996.
9
<PAGE>
NET INTEREST INCOME
Net interest income represents the principal source of earnings for the
Company. Net interest income equals the amount by which interest income exceeds
interest expense. Changes in the volume and mix of earning assets and
interest-bearing liabilities, as well as their respective yields and rates, have
a significant impact on the level of net interest income. Changes in the
interest rate environment and the Company's cost of funds also affected net
interest income.
The net interest margin increased from 4.31% for the nine months
ending September 30, 1996, to 4.54% for the nine months ending September 30,
1997. Net interest income was $3,898 for the nine months ended September 30,
1997 and is attributable to interest income from loans and securities exceeding
the cost associated with interest paid on deposits. The Company benefitted from
lower interest expense due to certain deposits repricing at lower rates.
Net interest income for the three months ended September 30, 1997 was
$1,329, up $125, or 10.38% from $1,204 for the same three months of 1996.
NON-INTEREST INCOME
The Company's principal sources of non-interest income are service
charges and fees on deposits accounts, particularly transaction accounts, and
fees from loans. Non-interest income increased $38 or 14.07% for the nine month
period ending September 30, 1997 over the same period of 1996. Non-interest
income increased $11, or 13.10% when comparing the three months ended September
30, 1997 to the same period of 1996. The majority of this increase is attributed
to income generated from loan fees and commissions on credit insurance.
NON-INTEREST EXPENSE
Non-interest expense increased $67 or 3.24%, for the nine month period
ending September 30, 1997 over the same period of 1996. The increase in
non-interest expense when comparing the two periods is attributed to overall
growth of the Company and expenses connected with repossessed vehicles. A
decrease of 4.94% is reflected when comparing the three month period ended
September 30, 1997 to the same period of 1996. This decrease is due to a
decrease in FDIC expense. In 1996, the Bank was required to make a one-time SAIF
assessment to the FDIC in the amount of $89.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
A provision for loan losses of $285 was made for the first nine months
of 1997 in recognition of management's estimate of risks
10
<PAGE>
inherent with lending activities. Among other factors, management considers the
Company's historical loss experience, the size and composition of the loan
portfolio, the value and adequacy of collateral and guarantors, non-performing
credits, and current and anticipated economic conditions. There are additional
risks of future loan losses which cannot be precisely quantified or attributed
to particular loans or classes of loans. Since those risks include general
economic trends as well as conditions affecting individual borrowers, the
allowance for loan losses is an estimate. The allowance is also subject to
regulatory examinations and determination as to adequacy, which may take into
account such factors as the methodology used to calculate the allowance. The
allowance for loan losses was $772 as of September 30, 1997, and represents
approximately .88% of gross loans outstanding. Management believes the allowance
was adequate as of September 30, 1997. Management evaluates the reasonableness
of the allowance for loan losses on a quarterly basis and adjusts the provision
as deemed necessary.
NON-PERFORMING ASSETS
Total nonperforming assets, which consist of nonaccrual loans, were $80
at September 30, 1997 and December 31, 1996. Management believes losses, if any,
will be minimal. Loans are generally placed in nonaccrual status when the
collection of principal and interest is 90 days or more past due, unless the
obligation is both well-secured and in the process of collection.
LIQUIDITY
Liquidity measures the ability of the Company to meet its maturing
obligations and existing commitments, to withstand fluctuations in deposit
levels, to fund its operations, and to provide for customers' credit needs.
Liquidity represents an institution's ability to meet present and future
financial obligations through either the sale or maturity of existing assets or
the acquisition of additional funds from alternative funding sources. Liquidity
is provided by cash and due from banks, federal funds sold, investments
available for sale, interest-earning deposits in other financial institutions
and loan repayments. As a result of the Company's management of liquid assets
and the ability to generate liquidity through alternative funding sources,
management believes that the Company maintains overall liquidity which is
sufficient to satisfy its depositors' requirements and to meet customers' credit
needs. At September 30, 1997, cash, securities classified as available for sale
and federal funds sold were 21.60% of total earning assets compared to 24.71% at
December 31, 1996. Liquidity is also provided by managing the investment
maturities. Additional sources of liquidity available to the Company include its
capacity to borrow additional funds through correspondent banks.
11
<PAGE>
CAPITAL
The Company's financial position at September 30, 1997 reflects
liquidity and capital levels currently adequate to fund anticipated future
business expansion. Capital ratios are well in excess of required regulatory
minimums for a well-capitalized institution. The assessment of capital adequacy
depends on a number of factors such as asset quality, liquidity, earnings
performance, and changing competitive conditions and economic forces. The
adequacy of the Company's capital is reviewed by management on an ongoing basis.
Management seeks to maintain a capital structure that will assure an adequate
level of capital to support anticipated asset growth and to absorb potential
losses.
Shareholders' equity reached $13,690 at the end of the third quarter of
1997 compared to $12,657 at December 31, 1996. The leverage ratio consists of
Tier I capital divided by quarterly average assets. At September 30, 1997, the
Company's leverage ratio was 10.42% compared to 10.14% at December 31, 1996.
Each of these exceeds the required minimum leverage ratio of 3%.
EFFECTS OF INFLATION
The effect of changing prices on financial institutions is typically
different from other industries as the Company's assets and liabilities are
monetary in nature. Interest rates are significantly impacted by inflation, but
neither the timing nor the magnitude of the changes are directly related to
price level indices. Impacts of inflation on interest rates, loan demand, and
deposits are reflected in the financial statements.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is
a party or of which the property of the Company is subject.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27-Financial Data Schedule
(b) Reports on Form 8-K
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
PINNACLE BANKSHARES CORPORATION
OCTOBER 22, 1997 /s/ Robert H. Gilliam Jr.
- ------------------------- --------------------------------------
Date Robert H. Gilliam Jr., President and
Chief Executive Officer
OCTOBER 22, 1997 /s/ Dawn P. Crusinberry
- ------------------------- --------------------------------------
Date Dawn P. Crusinberry, Secretary,
Treasurer and Chief Financial Officer
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-QSB FOR THE QUARTERLY PERIOD ENDING SEPTEMBER 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH 10-QSB
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,690
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,590
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,379
<INVESTMENTS-CARRYING> 11,302
<INVESTMENTS-MARKET> 11,429
<LOANS> 86,481
<ALLOWANCE> 772
<TOTAL-ASSETS> 129,058
<DEPOSITS> 114,011
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,357
<LONG-TERM> 0
0
0
<COMMON> 2,157
<OTHER-SE> 11,533
<TOTAL-LIABILITIES-AND-EQUITY> 129,058
<INTEREST-LOAN> 5,804
<INTEREST-INVEST> 1,629
<INTEREST-OTHER> 99
<INTEREST-TOTAL> 7,532
<INTEREST-DEPOSIT> 3,629
<INTEREST-EXPENSE> 3,634
<INTEREST-INCOME-NET> 3,898
<LOAN-LOSSES> 285
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 2,132
<INCOME-PRETAX> 1,789
<INCOME-PRE-EXTRAORDINARY> 1,789
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,292
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.80
<YIELD-ACTUAL> 4.54
<LOANS-NON> 80
<LOANS-PAST> 513
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 674
<CHARGE-OFFS> 318
<RECOVERIES> 131
<ALLOWANCE-CLOSE> 772
<ALLOWANCE-DOMESTIC> 772
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 504
</TABLE>
