U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
Commission File Number: 000-23909
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 April 14, 1998, 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
March 31, 1998
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997 3
Consolidated Statements of Income for the
periods ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
periods ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis or Plan
of Operations 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
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>
March 31, 1998 December 31, 1997
<S> <C>
Assets
Cash and cash equivalents: (note 2)
Cash and due from banks $2,755 $3,304
Federal funds sold 7,476 3,387
--------------- -----------------
Total cash and cash equivalents 10,231 6,691
Securities (note 3):
Available-for-sale, at fair value 20,954 22,039
Held-to-maturity, at amortized cost 11,586 10,701
Federal Reserve Bank stock, at cost 75 75
Federal Home Loan Bank Stock, at cost 409 409
Loans, net (note 4) 84,812 86,816
Bank premises and equipment, net 3,437 3,158
Other real estate owned 152 151
Accrued income receivable 964 1,045
Other assets 580 565
--------------- -----------------
Total assets $133,200 $131,650
=============== =================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand 9,308 9,524
Savings and NOW accounts 37,612 37,104
Time 69,684 68,905
--------------- -----------------
Total deposits 116,604 115,533
Note payable to Federal Home Loan Bank 975 1,000
Accrued interest payable 647 534
Other liabilities 664 541
--------------- -----------------
Total liabilities 118,890 117,608
--------------- -----------------
Stockholders' equity:
Common stock, $3 par value. Authorized 3,000,000 shares,
issued and outstanding 719,025 shares in 1998 and 1997 2,157 2,157
Capital surplus 338 338
Retained earnings 11,679 11,409
Accumulated other comprehensive income 136 138
--------------- -----------------
Total stockholders' equity 14,310 14,042
Total liabilities and stockholders' equity $133,200 $131,650
=============== =================
</TABLE>
See accompanying notes to consolidated 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
January 1, 1998 January 1, 1997
Through Through
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C>
Interest Income:
Interest and fees on loans $1,996 1,871
Interest on securities:
U.S. Treasury 58 65
U.S. Government agencies 246 296
Corporate 45 14
States and political subdivisions (tax exempt) 129 165
Other 15 12
Interest on federal funds sold 95 30
-------------- --------------
Total interest income 2,584 2,453
-------------- --------------
Interest expense:
Interest on deposits:
Savings and NOW accounts 283 276
Time - other 812 774
Time - $100,000 and over 167 138
Other interest expense 15 --
-------------- --------------
Total interest expense 1,277 1,188
-------------- --------------
Net interest income 1,307 1,265
Provision for loan losses 75 60
-------------- --------------
Net interest income after provision for loan losses 1,232 1,205
Noninterest income:
Service charges on deposit accounts 62 61
Net gain(loss) on calls and sales of securities 1 4
Other operating income 58 47
-------------- --------------
Total noninterest income 121 112
-------------- --------------
Noninterest expense:
Salaries and employee benefits 458 408
Occupancy expense 35 24
Furniture and equipment 74 79
Other operating expenses 235 195
-------------- --------------
Total noninterest expense 802 706
-------------- --------------
Income before income tax expense 551 611
Income tax expense 160 169
-------------- --------------
Net income $391 $442
============== ==============
Net income per share (note 5) $0.54 $0.61
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<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, 1998 January 1, 1997
Through Through
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C>
Cash flows from operating activities:
Net income $391 $442
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of bank premises and equipment 43 53
Amortization of core deposit premium 4 4
Amortization of net unearned fees (27) (26)
Amortization of organizational costs 2 --
Net amortization (accretion) of premiums and
discounts on securities 4 2
Provision for loan losses 75 60
Provision for deferred income taxes (17) 24
Net (gain) loss on sale of premises and equipment (6) --
Net (gain) loss on calls and sales of securities (1) (4)
Net (increase) decrease in:
Accrued income receivable 81 108
Other assets 31 (44)
Net increase (decrease) in:
Accrued interest payable 113 68
Other liabilities 123 44
-------------- --------------
Net cash provided by operating activities 816 731
============== ==============
Cash flows from investing activities:
Purchases of held-to-maturity securities (1,224) 0
Purchases of available-for-sale securities (3,498) (217)
Proceeds from maturities and calls of held-to-maturity securities 339 570
Proceeds from sale, maturities and calls of available-for-sale
securities 4,576 1,053
Purchase of Federal Home Loan Bank stock (6)
Net (increase) decrease in loans 1,888 (2,237)
Recoveries on loans charged off 35 38
Purchases of premises and equipment (326) (150)
Proceeds from sale of premises and equipment 10 --
Additions (rent payments) for other real estate owned (1) 1
-------------- --------------
Net cash provided by (used) in investing activities 1,799 (948)
============== ==============
Cash flows from financing activites:
Net increase in demand, savings and NOW deposits 292 1,614
Net increase (decrease) in time deposits 779 (576)
Dividends paid (121) (115)
Decrease in note payable to Federal Home Loan Bank (25) --
-------------- --------------
Net cash provided by financing activities 925 923
============== ==============
Net increase in cash and cash equivalents 3,540 706
Cash and cash equivalents, beginning of period 6,691 5,744
-------------- --------------
Cash and cash equivalents, end of period $10,231 $6,450
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PINNACLE BANKSHARES CORPORATION
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
(In thousands, except for share data)
Organization and Summary of Significant Accounting Policies
(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 consolidated 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 March 31, 1998, the results of operations for the three-month periods
ended March 31, 1998 and 1997, and the cash flows for the three-month periods
ended March 31, 1998 and 1997.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in
Pinnacle Bankshares Corporation's Annual Report for the year ended December 31,
1997.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
(2) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks, interest-bearing deposits, and federal funds sold.
(3) Securities
The amortized costs, gross unrealized gains, gross unrealized losses,
and fair values for securities at March 31, 1998, are shown in the table below.
As of March 31, 1998, securities with amortized costs of $3,149 and fair values
of $3,222 were pledged as collateral for public deposits.
6
<PAGE>
(3) (Continued)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Available-for-Sale: Costs Gains Losses Values
-------------------------------------------------------------------------------------------------
<S> <C>
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 9,644 46 (4) 9,686
Obligations of states and
political subdivisions 4,289 110 (2) 4,397
Mortgage-backed securities-
Government 5,946 65 (13) 5,998
Other securities 107 - - 107
Corporate securities 761 5 - 766
-------------------------------------------------------------------------------------------------
Totals $ 20,747 226 (19) 20,954
-------------------------------------------------------------------------------------------------
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 $ 3,406 18 (2) 3,422
Obligations of states and
political subdivisions 8,170 191 (13) 8,348
Mortgage-backed securities-
Private 10 - - 10
-------------------------------------------------------------------------------------------------
Totals $ 11,586 209 (15) 11,780
-------------------------------------------------------------------------------------------------
</TABLE>
(4) Allowance for Loan Losses
Changes in the allowance for loan losses are as follows:
Balance at January 1, 1998 $747
Provision for loan losses 75
Loans charged off (85)
Recoveries 35
----
Balance at March 31, 1998 $772
====
(5) Net Income Per Share
Net income per share is based upon the weighted average number of
common stock shares outstanding during the periods. Shares outstanding during
the periods were 719,025.
(6) Comprehensive Income
In June 1997, the Financial Accounting Standards Board (FASB)
7
<PAGE>
issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." Statement 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general purpose financial statements. Statement 130
was issued to address concerns over the practice of reporting elements of
comprehensive income directly in equity.
This statement requires all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed in equal prominence with the other
financial statements. It does not require a specific format for that financial
statement but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement. Enterprises are
required to classify items of "other comprehensive income" by their nature in
the financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. It does not require per
share amounts of comprehensive income to be disclosed.
Statement 130 is effective for fiscal years beginning after December
15, 1997. Comparative financial statements provided for earlier periods are
required to be reclassified to reflect the provisions of this statement.
Publicly traded enterprises that issue condensed financial statements for
interim periods are required to report a total for comprehensive income in those
financial statements.
Adoption of Statement 130 on January 1, 1998 did not have any effect on
the consolidated financial position, results of operation or liquidity of the
Company. However, Statement 130 does have an effect on financial statement
displays presented by the Company, since the Company has net unrealized gains
(losses) on available-for-sale securities, an item of other comprehensive
income. For the three months ended March 31, 1998 and 1997, total comprehensive
income was $389 and $306, respectively.
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 March 31, 1998 were $133,200, up 1.18% from $131,650 at
December 31, 1997. The principal components of the Company's assets at the end
of the period were $32,540 in securities and $84,812 in net loans. During the
three month period, gross loans decreased 2.28% or $2,009. The Company's lending
activities are a principal source of income. The Company's premises and
equipment grew 8.45% which was related to construction of an addition to the
main office facility.
Total liabilities at March 31, 1998 were $118,890, up from $115,533 at
December 31, 1997, with the increase almost entirely represented by $1,071 or
.93% growth in deposits. Non-interest bearing demand deposits decreased $216 or
2.27% and represented 7.98% of total deposits. The Company's deposits are
provided by individuals and businesses located within the communities served.
Total stockholders' equity at March 31, 1998 was $14,310 consisting of
$11,679 in retained earnings, increased by $136 of unrealized gains on
securities available-for-sale, net of the related deferred tax benefit. At
December 31, 1997, total shareholder's equity was $14,042.
The Company had net income of $391 for the three months ended March 31,
1998, compared with net income of $442 for the comparable period in 1997, a
decrease of 11.54%. The results of operations for the three month periods ended
March 31, 1998 and 1997 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 1.18% for the first quarter of 1998, down from 1.42% for the same
period of 1997. Another key indicator of performance, the return on average
equity (ROE) for March 31, 1998 was 11.03%, compared to 14.34% for March 31,
1997.
NET INTEREST INCOME
Net interest income represents the principal source of
9
<PAGE>
earnings for the Company. 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.
The net interest margin decreased from 4.48% for the three months
ending March 31, 1997, to 4.39% for the three months ending March 31, 1998. Net
interest income was $1,307 for the three months ended March 31, 1998 and is
attributable to interest income from loans and securities exceeding the cost
associated with interest paid on deposits. The decrease in the interest rate
spread is due partially to an increase in deposits primarily in higher paying
IRA's and certificates of deposit.
Interest on deposits increased 7.49% in the first quarter of 1998 over
the first quarter of 1997. Interest on loans and securities increased 5.34% in
the first quarter of 1998 over the first quarter of 1997.
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 $9 or 8.04% in the first quarter
of 1998 over the first quarter of 1997. $4 of this increase is attributable to
income generated from fees on various loan products.
NON-INTEREST EXPENSE
Non-interest expense increased $96 or 13.60%, in the first quarter of
1998 over the first quarter of 1997. The increase in non-interest expense when
comparing the two periods is attributed to overall growth of the Company and
costs associated with foreclosed properties. Additions to the Company's Mortgage
Lending Department staff also contributed to the increase. Increased operating
costs were also a result of the addition to the main office facility completed
and occupied in the first quarter of 1998.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
A provision for loan losses of $75 was expensed in recognition of
management's estimate of risks 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
10
<PAGE>
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 March 31, 1998, and represents approximately .90% of
gross loans outstanding. Management believes the allowance is adequate as of
March 31, 1998. Management evaluates the reasonableness of the allowance for
loan losses on a quarterly basis and adjusts the provision as deemed necessary.
NONPERFORMING ASSETS
Total nonperforming assets, which consist of nonaccrual loans, were $38
at March 31, 1998 and December 31, 1997. 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 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.
Liquid assets include cash, interest bearing deposits with banks, federal funds
sold and investments and loans maturing within one year. The Company's ability
to obtain deposits and purchase funds at favorable rates also affects its
liquidity. 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 bank maintains overall liquidity which is sufficient to
satisfy its depositors' requirements and to meet customers' credit needs. At
March 31, 1998, cash, securities classified as available for sale and federal
funds sold were 24.66% of total earning assets compared to 23.70% at December
31,1997. Additional sources of liquidity available to the Company include its
capacity to borrow funds through correspondent banks.
CAPITAL
The Company's financial position at March 31, 1998 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.
11
<PAGE>
Stockholders' equity reached $14,310 at the end of the first quarter of
1998 compared to $14,042 at December 31, 1997. The leverage ratio consists of
Tier I capital divided by quarterly average assets. At March 31, 1998, the
Company's leverage ratio was 10.62% compared to 10.65% at December 31, 1997.
Each of these exceeds the required minimum leverage ratio of 3%.
OTHER
The Company continues to be cognizant with Year 2000(Y2K). The Company
is proceeding with its Y2K plan and time lines. The Company is committed to
having its operating systems and its vendor relationships and dependencies Y2K
compliant.
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.
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Bank is a
party or of which the property of the Bank is subject.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Pursuant to the requirements of Item 601 of Regulation S-B, the
registrant includes herewith the following exhibits.
Exhibit No. Item
----------- ----
27 Financial Data Schedule
(b) Reports on Form 8-K
None
12
<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
MAY 12, 1998 /s/ Robert H. Gilliam, Jr.
- ----------------------- ---------------------------------
Date Robert H. Gilliam, Jr., President and
Chief Executive Officer
MAY 12, 1998 /s/ Dawn P. Crusinberry
- ----------------------- ---------------------------------
Date Dawn P. Crusinberry, Secretary,
Treasurer and Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-QSB FOR THE QUARTERLY PERIOD ENDING MARCH 31, 1998 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> MAR-31-1998
<CASH> 2,755
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,476
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,954
<INVESTMENTS-CARRYING> 11,586
<INVESTMENTS-MARKET> 11,780
<LOANS> 84,812
<ALLOWANCE> 772
<TOTAL-ASSETS> 133,200
<DEPOSITS> 116,604
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,286
<LONG-TERM> 0
0
0
<COMMON> 2,157
<OTHER-SE> 12,153
<TOTAL-LIABILITIES-AND-EQUITY> 133,200
<INTEREST-LOAN> 1,996
<INTEREST-INVEST> 493
<INTEREST-OTHER> 95
<INTEREST-TOTAL> 2,584
<INTEREST-DEPOSIT> 1,262
<INTEREST-EXPENSE> 1,277
<INTEREST-INCOME-NET> 1,307
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 802
<INCOME-PRETAX> 551
<INCOME-PRE-EXTRAORDINARY> 551
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 391
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
<YIELD-ACTUAL> 4.39
<LOANS-NON> 38
<LOANS-PAST> 359
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 747
<CHARGE-OFFS> 85
<RECOVERIES> 35
<ALLOWANCE-CLOSE> 772
<ALLOWANCE-DOMESTIC> 772
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 559
</TABLE>
