<PAGE>
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, 2000
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 11, 2000, 720,096 shares of Pinnacle Bankshares Corporation's common
stock, $3 par value, were outstanding.
Transitional small business disclosure format: Yes No x .
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PINNACLE BANKSHARES CORPORATION
FORM 10-QSB
March 31, 2000
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 3
Consolidated Statements of Income and
Comprehensive Income for three month periods
ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for
three month periods ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
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 14
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
==================================================================================================================
Assets March 31, 2000 December 31, 1999
(Unaudited) (Audited)
<S> <C> <C>
Cash and cash equivalents: (note 2)
Cash and due from banks $ 4,200 $ 5,362
Federal funds sold 1,605 2,768
-------------- -----------------
Total cash and cash equivalents 5,805 8,130
Securities (note 3):
Available-for-sale, at fair value 21,662 21,920
Held-to-maturity, at amortized cost 15,476 15,340
Federal Reserve Bank stock, at cost 75 75
Federal Home Loan Bank Stock, at cost 427 427
Loans, net (note 4) 104,771 100,737
Premises and equipment, net 4,040 4,084
Accrued income receivable 1,110 1,227
Other assets 2,033 2,016
-------------- -----------------
Total assets $ 155,399 $ 153,956
==================================================================================================================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand 11,686 11,595
Savings and NOW accounts 44,043 43,770
Time 81,758 81,024
-------------- -----------------
Total deposits 137,487 136,389
Note payable to Federal Home Loan Bank 775 800
Accrued interest payable 686 602
Other liabilities 583 575
-------------- -----------------
Total liabilities 139,531 138,366
-------------- -----------------
Stockholders' equity:
Common stock, $3 par value. Authorized 3,000,000 shares;
issued and outstanding 720,096 shares in 2000 and
719,925 shares in 1999 2,160 2,160
Capital surplus 372 367
Retained earnings 13,735 13,460
Accumulated other comprehensive loss (399) (397)
-------------- -----------------
Total stockholders' equity 15,868 15,590
-------------- -----------------
Total liabilities and stockholders' equity $ 155,399 $ 153,956
==================================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
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PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands of dollars, except for per share amounts)
<TABLE>
<CAPTION>
=============================================================================================================================
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $2,335 $2,077
Interest on securities:
U.S. Treasury 54 56
U.S. Government agencies 255 240
Corporate 77 70
States and political subdivisions (tax exempt) 156 151
Other 9 22
Interest on federal funds sold 30 124
-------------------------------------------
Total interest income 2,916 2,740
-------------------------------------------
Interest expense:
Interest on deposits:
Savings and NOW accounts 310 310
Time - other 874 889
Time - $100,000 and over 191 201
Other interest expense 12 14
-------------------------------------------
Total interest expense 1,387 1,414
-------------------------------------------
Net interest income 1,529 1,326
Provision for loan losses 90 75
-------------------------------------------
Net interest income after provision for loan losses 1,439 1,251
Noninterest income:
Service charges on deposit accounts 90 61
Commissions and fees 34 67
Other operating income 67 42
-------------------------------------------
Total noninterest income 191 170
-------------------------------------------
Noninterest expense:
Salaries and employee benefits 575 499
Occupancy expense 57 48
Furniture and equipment 103 77
Other operating expenses 347 265
-------------------------------------------
Total noninterest expense 1,082 889
-------------------------------------------
Income before income tax expense 548 532
Income tax expense 143 139
-------------------------------------------
Net income $ 405 $ 393
-------------------------------------------
Other comprehensive loss, net of income tax benefit:
Net unrealized losses on securities available-for-sale (2) (117)
-------------------------------------------
Comprehensive income $ 403 $ 276
=============================================================================================================================
Net income per share (note 5): Basic $ 0.56 $ 0.55
Diluted $ 0.56 $ 0.54
=============================================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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PINNACLE BANKSHARES CORPORATION AND SIBSIDIARY
CONSOLIDATED STATEMENTS ON CASH FLOWS
(Unaudited)
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $405 $393
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of bank premises and equipment 81 60
Amortization of core deposit premium 3 3
Amortization of net unearned fees (23) (39)
Net amortization of premiums and
discounts on securities 8 9
Provision for loan losses 90 75
Provision for deferred income taxes 30 84
Net (increase) decrease in:
Accrued income receivable 117 83
Other assets (23) (202)
Net increase (decrease) in:
Accrued interest payable 84 142
Other liabilities 8 (138)
------ -------
Net cash provided by operating activities 780 470
====== =======
Cash flows from investing activities:
Purchases of held-to-maturity securities (272) (1,990)
Purchases of available-for-sale securities (1,456) (4,497)
Proceeds from maturities and calls of held-to-maturity securities 130 1,500
Proceeds from paydowns and maturities of held-to-maturity
mortgage-backed securities 1 1
Proceeds from maturities and calls of available-for-sale securities 1,500 200
Proceeds from paydowns and maturities of available-for-sale
mortgage-backed securities 209 652
Purchase of Federal Home Loan Bank stock -- (18)
Net increase in loans (4,161) (3,460)
Recoveries on loans charged off 33 45
Purchases of premises and equipment (37) (434)
Proceeds from sale of other real estate owned -- 48
------ -------
Net cash provided used in investing activities (4,053) (7,953)
====== =======
Cash flows from financing activites:
Net increase in demand, savings and NOW deposits 364 3,624
Net increase in time deposits 734 4,869
Proceeds from issuance of common stock 5 --
Dividends paid (130) (129)
Repayments of note payable to Federal Home Loan Bank (25) (25)
------ -------
Net cash provided by financing activities 948 8,339
====== =======
Net increase(decrease) in cash and cash equivalents (2,325) 856
Cash and cash equivalents, beginning of period 8,130 10,682
------ -------
Cash and cash equivalents, end of period $5,805 $11,538
====== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
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PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000
(Unaudited)
(In thousands, except for share data)
(1) General
The consolidated financial statements include the accounts of Pinnacle
Bankshares Corporation ("Bankshares") and its wholly-owned subsidiary, The First
National Bank of Altavista (the "Bank"), (collectively, the "Company"). 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, 2000, the results of
operations for the three-month periods ended March 31, 2000 and 1999, and the
cash flows for the three-month periods ended March 31, 2000 and 1999.
These interim period consolidated financial statements and financial
information included herein should be read in conjunction with the consolidated
financial statements and notes thereto included in Pinnacle Bankshares
Corporation's 1999 Annual Report and additional information supplied in the 1999
Form 10-KSB.
The results of operations for the interim period ended March 31, 2000 is
not necessarily indicative of the results to be expected for the full year
ending December 31, 2000.
(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, interest-bearing deposits, and federal funds sold. Generally, federal
funds are purchased and sold for one-day periods.
(3) Securities
The amortized costs, gross unrealized gains, gross unrealized losses, and
fair values for securities at March 31, 2000, are shown in the table below. As
of March 31, 2000, securities with amortized costs of $1,473 and fair values of
$1,458 were pledged as collateral for public deposits.
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(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 $15,949 -- (526) 15,423
Obligations of states and
political subdivisions 4,191 22 (73) 4,140
Mortgage-backed securities-
Government 2,075 12 (38) 2,049
Other securities 50 -- -- 50
--------------------------------------------------------------------------
Totals $22,265 34 (637) 21,662
--------------------------------------------------------------------------
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 $ 1,675 - (47) 1,628
Obligations of states and
political subdivisions 13,798 14 (525) 13,287
Mortgage-backed securities-
Private 3 - - 3
--------------------------------------------------------------------------
Totals $ 15,476 14 (572) 14,918
--------------------------------------------------------------------------
(4) Allowance for Loan Losses
Changes in the allowance for loan losses are as follows:
2000 1999
---- ----
Balance at January 1, $ 938 $ 877
Provision for loan losses 90 75
Loans charged off (76) (119)
Recoveries 33 45
------ ------
Balance at March 31, $ 985 $ 878
====== ======
(5) Net Income Per Share
Basic net income per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted net income per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the
7
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earnings of the entity.
The following is a reconciliation of the numerators and denominators of the
basic and diluted net income per share computations for the periods indicated:
Three Months Net Income Shares Per Share
Ended March 31, 2000 (Numerator) (Denominator) Amount
- -------------------------------- ------------ ------------- -----------
Basic net income per share $ 405 720,058
Effect of dilutive stock options - 6,011 $ .56
---------- ----------- ===========
Diluted net income per share $ 405 726,069 $ .56
========== =========== ===========
Three Months
Ended March 31, 1999
- --------------------
Basic net income per share $ 393 719,025
Effect of dilutive stock options - 6,049 $ .55
---------- ----------- ===========
Diluted net income per share $ 393 725,074 $ .54
========== =========== ===========
8
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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 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.
This Form 10-QSB may contain certain "forward-looking" information within
the meaning of the federal securities laws. The forward-looking information may
include, among other information, (i) statements concerning the Company's
outlook for the future, (ii) statements of belief, (iii) future plans,
strategies or anticipated events, and (iv) similar information and statements
concerning matters that are not historical facts. Such forward-looking
information is subject to risks and uncertainties that may cause actual events
to differ materially from the expectations of the Company.
OVERVIEW
Total assets at March 31, 2000 were $155,399, up 0.94% from $153,956 at
December 31, 1999. The principal components of the Company's assets at the end
of the period were $37,138 in securities and $104,771 in net loans. During the
three month period, gross loans increased 3.85% or $4,080. The Company's lending
activities are a principal source of income.
Total liabilities at March 31, 2000 were $139,531, up from $138,366 at
December 31, 1999, with the increase almost entirely represented by $1,098 or
0.81% growth in deposits. Non-interest bearing demand deposits increased $91 or
0.78% and represented 8.50% of total deposits. The Company's deposits are
provided by individuals and businesses located within the communities served.
Total stockholders' equity at March 31, 2000 was $15,868 consisting of
$13,735 in retained earnings and $399 of unrealized losses on securities
available-for-sale, net of the related deferred tax benefit. At December 31,
1999, total stockholders' equity was $15,590.
The Company had net income of $405 for the three months ended March 31,
2000, compared with net income of $393 for the comparable period in 1999, an
increase of 3.05%. The results of operations for the three month period ended
March 31, 2000 is not necessarily indicative of the results to be expected for
the full year ending December 31, 2000.
9
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Profitability as measured by the Company's return on average assets (ROA)
was 1.05% for the first quarter of 2000, down from 1.06% for the same period of
1999. Another key indicator of performance, the return on average equity (ROE)
for March 31, 2000 was 10.30%, compared to 10.34% for March 31, 1999.
NET INTEREST INCOME
Net interest income represents the principal source of 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 increased from 3.99% for the three months ending
March 31, 1999, to 4.48% for the three months ending March 31, 2000. Net
interest income was $1,529 for the three months ended March 31, 2000 and is
attributable to interest income from loans and securities exceeding the cost
associated with interest paid on deposits.
Interest expense on deposits decreased 1.79% in the first quarter of 2000
over the first quarter of 1999. Interest income on loans and securities
increased 6.42% in the first quarter of 2000 over the first quarter of 1999.
Interest and fees on loans was $2,335 at March 31, 2000, up $258 from $2,077 at
March 31, 1999.
NON-INTEREST INCOME
Non-interest income increased $21 or 12.35% in the first quarter of 2000
over the first quarter of 1999. The Company's principal sources of non-interest
income are service charges and fees on deposits accounts, particularly
transaction accounts, and fees from loans. Finance charges on the Business
Manager Receivables Financing Program was another source of the increase. Fees
from this program increased $12 for the three months ended March 31, 2000
compared to the same period in 1999.
NON-INTEREST EXPENSE
Non-interest expense increased $193 or 21.71%, in the first quarter of 2000
over the first quarter of 1999. The increase in non-interest expense when
comparing the two periods is attributed to the effect of overall growth of the
Company on personnel expenses, fixed asset costs associated with bank premises
additions and other operating expenses. The new Airport Branch facility opened
in late June, 1999.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
A provision for loan losses of $90 was expensed in recognition of
management's estimate of risks inherent with lending activities.
10
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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
$985 as of March 31, 2000, and represents approximately .93% of gross loans
outstanding. Management believes the allowance is adequate as of March 31, 2000.
Management evaluates the reasonableness of the allowance for loan losses on a
quarterly basis and adjusts the provision as deemed necessary.
NONPERFORMING ASSETS AND IMPAIRED LOANS
Nonperforming assets, which consist of nonaccrual loans and foreclosed
properties, totaled $84 and $48 at March 31, 2000 December 31, 1999,
respectively. There were no foreclosed properties as of March 31, 2000 nor as of
December 31, 1999. Nonaccrual loans were $84 at March 31, 2000 compared to $48
at December 31, 1999. 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. The $36
increase in nonaccrual loans is attributable to one credit (which was included
in impaired loans as of December 31, 1999) being placed in nonaccrual status
during the period in accordance with the Company's nonaccrual policy. Impaired
loans equaled nonaccrual loans at March 31, 2000.
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. The
Company's liquidity is provided by cash and due from banks, federal funds sold,
investments available for sale, managing investment maturities, interest-earning
deposits in other financial institutions and loan repayments. 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. The
Company's ratio of liquid assets to deposits and short-term borrowings was
19.98% as of March 31, 2000 as compared to 22.03% as of December 31, 1999.
Additional sources of
11
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liquidity available to the Company include its capacity to borrow funds through
correspondent banks. The Company derives cash flows from its operating,
investing and financing activities. Cash flows of the Company are primarily used
to fund loans and securities and are provided by the deposits and borrowings of
the Company.
CAPITAL
The Company's financial position at March 31, 2000 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.
Stockholders' equity reached $15,868 at the end of the first quarter of
2000 compared to $15,590 at December 31, 1999. The leverage ratio consists of
Tier I capital divided by quarterly average assets. At March 31, 2000, the
Company's leverage ratio was 10.50% compared to 10.47% at December 31, 1999.
Each of these exceeds the required minimum leverage ratio of 4%.
ACQUISITION OF BRANCHES
On May 5, 2000, the Bank entered into a Purchase and Assumption Agreement
with One Valley Bank, Central Virginia, N.A. ("One Valley") under which One
Valley will sell to the Bank two branches in the Lynchburg, Virginia area. It is
anticipated that the transaction will not close until mid to late summer. The
transaction is contingent upon conditions contained in the agreement and
regulatory approval.
OTHER
The Company has not experienced any significant disruptions to our financial or
operating activities caused by failure of our computerized systems resulting
from Year 2000 issues. Management does not expect Year 2000 issues to have a
material adverse effect on the Company's operations or financial results in
2000.
The Company was prepared for the millennium change and continues to successfully
operate and handle the transactions of our customers subsequent to December 31,
1999.
12
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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) 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
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-QSB FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,200
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,605
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,662
<INVESTMENTS-CARRYING> 15,476
<INVESTMENTS-MARKET> 14,918
<LOANS> 105,756
<ALLOWANCE> 985
<TOTAL-ASSETS> 155,399
<DEPOSITS> 137,487
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,269
<LONG-TERM> 775
0
0
<COMMON> 2,160
<OTHER-SE> 13,708
<TOTAL-LIABILITIES-AND-EQUITY> 155,399
<INTEREST-LOAN> 2,335
<INTEREST-INVEST> 551
<INTEREST-OTHER> 30
<INTEREST-TOTAL> 2,916
<INTEREST-DEPOSIT> 1,375
<INTEREST-EXPENSE> 1,387
<INTEREST-INCOME-NET> 1,529
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,082
<INCOME-PRETAX> 548
<INCOME-PRE-EXTRAORDINARY> 548
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 405
<EPS-BASIC> 0.56
<EPS-DILUTED> 0.56
<YIELD-ACTUAL> 4.48
<LOANS-NON> 84
<LOANS-PAST> 305
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 938
<CHARGE-OFFS> 76
<RECOVERIES> 33
<ALLOWANCE-CLOSE> 985
<ALLOWANCE-DOMESTIC> 985
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 416
</TABLE>
