PPBN Pinnacle Bankshares Corporation (QX)

Pinnacle Bankshares Corporation (OTCQB:PPBN), the one-bank holding company (the “Company”) for First National Bank (the “Bank”), reported net income today of $544,000 or $0.36 per basic and $0.35 per diluted share for the quarter ended September 30, 2013, and $2,470,000 or $1.63 per basic and $1.62 per diluted share for the nine months ended September 30, 2013. Net income reported for both time periods represents an improvement over net income generated of $399,000 or $0.26 per basic and diluted share and $1,089,000 or $0.72 per basic and diluted share, respectively, for the same time periods of 2012. Consolidated results for the third quarter and first nine months of 2013 are unaudited.

Net income generated during the third quarter of 2013 represents a 36% increase as compared to the same time period of the prior year. The higher level of earnings was driven by increased net interest income and noninterest income combined with a decrease in the Company’s provision for loan losses.

Year to date net income through nine months of 2013 is up 127% compared to the first nine months of 2012, which is due in large part to insurance proceeds totaling $1,077,000 that were recognized as noninterest income during the second quarter. The proceeds were received in connection with the rebuild of the Vista Branch Office that was destroyed by fire. Exclusive of the insurance proceeds, “core” operating net income was $1,393,000 for the nine month period, which represents a 28% increase over the same time period of the prior year. Factors contributing to the increase include a material decline in the provision for loan losses, increased noninterest income and controlled operating expenses.

“We are pleased with the continuation of improvement in our Company’s financial performance,” stated Aubrey H. Hall, III, President and Chief Executive Officer for both the Company and the Bank. He further commented, “The declining trend of our loan loss provision and the recent expansion of our net interest margin lead us to be optimistic about the fourth quarter and our ability finish up 2013 on a strong note.”

Profitability as measured by the Company’s return on average assets (“ROA”) was 0.92% for the nine months ended September 30, 2013, which is an increase over the 0.43% generated during the first nine months of 2012. Correspondingly, return on average equity (“ROE”) for the nine months ended September 30, 2013 improved to 11.35% as compared to 5.27% generated for the same time period of the prior year. ROA and ROE, exclusive of the insurance proceeds, were 0.52% and 6.40%, respectively.

The company produced net interest income of $8,673,000 during the first nine months of 2013, which was lower than the $8,728,000 generated for the same time period of 2012. The decline was primarily caused by lower interest income, which decreased $456,000 or approximately 4% to $11,268,000 for the first nine months of 2013 as compared to the same time period of the prior year. Correspondingly, interest expense decreased $401,000 or approximately 13% to $2,595,000. The decreases in interest income and expense were attributable to lower interest rates on loans and deposits, as outstanding loan and deposit balances have increased $8,650,000 and $7,593,000, respectively, from September 30, 2012 to September 30, 2013.

Though net interest margin decreased thirteen basis points to 3.43% for the first nine months of 2013 compared to the first nine months of 2012, the Company did experience a ten basis point expansion in its margin during the third quarter of 2013 as compared to the second quarter of 2013 as longer term time deposits started to mature and re-price at significantly lower rates. This re-pricing will continue in the fourth quarter of 2013.

Material improvement in asset quality over the last year has lowered the Company’s provision for loan losses, which was $132,000 for the first nine months of 2013 as compared to $809,000 for the first nine months of 2012. This 84% decrease has been driven by a substantial decline in net charge-offs, which totaled $231,000 through September 30, 2013 versus $1,320,000 through the same point in time of the prior year.

The allowance for loan losses was $3,486,000 as of September 30, 2013, which represented 1.26% of total loans outstanding. In comparison, the allowance for loan losses was $3,646,000, or 1.31% of total loans outstanding, as of December 31, 2012. The decrease in the Company’s allowance to total loans ratio is reflective of continued improvement in the Company’s asset quality as referenced above. Nonperforming assets (including nonaccrual loans, accruing loans more than 90 days past due and foreclosed assets) declined to $4,393,000, or 1.24% of total assets, as of September 30, 2013, as compared to $5,407,000, or 1.55% of total assets, as of December 31, 2012. The allowance for loan loss was 114% of nonperforming loans as of September 30, 2013 versus 121% as of the prior year end, which management views as sufficient to offset potential future losses associated with problem loans.

Noninterest income increased $1,155,000 or approximately 45% to $3,724,000 during the first nine months of 2013 as compared to the same time period of 2012. As referenced earlier, the increase was primarily driven by insurance proceeds recognized as noninterest in the second quarter of 2013. Net of the insurance proceeds, noninterest income still increased approximately 3% as the Company benefited from an increase in interchange fees associated with check card usage as well as increases in commissions and fees derived from the sale of mortgage loans and investment products.

Noninterest expense increased $283,000 or approximately 3% to $9,156,000 for the first nine months of 2013 compared to $8,873,000 for the same time period of 2012. This increase is primarily attributed to higher compensation and employee benefits expense, which is mainly due to an increase in retirement plan expense and commissions associated with mortgage and investment sales.

Total assets as of September 30, 2013 were $353,902,000, up approximately 1% or $5,208,000 from $348,694,000 as of December 31, 2012. The principal components of the Company’s assets as of the end of the time period were $274,191,000 in net loans, $32,558,000 in cash and cash equivalents and $30,594,000 in securities. During the first nine months of 2013, net loans experienced a slight increase of $519,000 as compared to $273,672,000 as of December 31, 2012. Cash and cash equivalents decreased approximately 9% or $3,232,000 from $35,790,000 as of December 31, 2012, and investment securities increased approximately 38% or $8,388,000 from $22,206,000. Also, it should be noted that bank premises and equipment increased approximately 17% or $1,096,000 with the addition of the new Vista Branch facility.

Total liabilities as of September 30, 2013 were $323,911,000, up approximately 1% or $3,306,000 from $320,605,000 as of December 31, 2012. Higher levels of deposits drove the increase as demand deposits increased $8,080,000 or approximately 21% and savings and NOW accounts increased $8,452,000 or approximately 6%. The increases in demand deposits and savings and NOW accounts were partially offset by a decrease in time deposits, which declined $10,349,000 or approximately 8% as compared to the balance as of December 31, 2012. The increase in checking and savings deposits reflects a continued focus on the expansion of core deposit relationships, which in turn has helped lower the Company’s cost of funds, decrease its dependency on time deposits and provide relationship expansion opportunities.

Total stockholders’ equity as of September 30, 2013 was $29,991,000, including $26,487,000 in retained earnings. In comparison, total stockholders’ equity as of December 31, 2012 was $28,089,000, including $24,244,000 in retained earnings. The Company has continued to improve its capital position while also paying a cash dividend to shareholders in each of the last four quarters. Improved profitability and controlled growth have further strengthened the capital position of both the Company and Bank, which are considered as “well capitalized” per all regulatory definitions.

Pinnacle Bankshares Corporation is a locally managed community banking organization based in Central Virginia. The one-bank holding company of First National Bank serves an area consisting primarily of all or portions of the Counties of Campbell, Pittsylvania, Bedford, Amherst and the City of Lynchburg. The Company operates two branches in the Town of Altavista, one branch in the Village of Rustburg, one branch on Wards Road and one branch on Timberlake Road, both of which are in Campbell County, one branch in the Town of Amherst, one branch in the City of Lynchburg and one branch in the Forest section of Bedford County. First National Bank is in its 105th year of operation.

Various securities laws regulate the use of financial measures that are not prepared in accordance with GAAP. We believe these non-GAAP measures provide important supplemental information to investors. We use these measures, together with GAAP measures, for internal managerial purposes and as a means to evaluate period-to-period comparisons. However, we do not, and you should not, rely on non-GAAP financial measures alone as measures of our performance. We believe that non-GAAP financial measures reflect an additional way of viewing aspects of our operations that - when taken together with GAAP results as presented in this press release- provide a more complete understanding of factors and trends affecting our business. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures, even if they have similar names.

This press release may contain “forward-looking statements” within the meaning of federal securities laws that involve significant risks and uncertainties. Any statements contained herein that are not historical facts are forward-looking and are based on current assumptions and analysis by the Company. These forward-looking statements may include, but are not limited to, statements regarding the credit quality of our asset portfolio in future periods, the expected losses of nonperforming loans in future periods, returns and capital accretion during future periods, the lowering of our cost of funds, the maintenance of our net interest margin, the continuation of improved returns, the cost savings related to the deregistration of our common stock, and future operating results and business performance. Although we believe our plans and expectations reflected in these forward-looking statements are reasonable, our ability to predict results or the actual effect of future plans or strategies is inherently uncertain, and we can give no assurance that these plans or expectations will be achieved. Factors that could cause actual results to differ materially from management's expectations include, but are not limited to, the effectiveness of management’s efforts to improve asset quality, returns, net interest margin and collections and control operating expenses, management’s efforts to minimize losses related to nonperforming loans, management’s efforts to lower our cost of funds, changes in: interest rates, general economic and business conditions, declining collateral values, especially real estate, the real estate market, the legislative/regulatory climate, including the effect that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and regulations adopted thereunder may have on us, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System and any policies or programs implemented pursuant to the Emergency Economic Stabilization Act of 2008, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows and funding costs, competition, demand for financial services in our market area, actual savings related to the deregistration of our common stock and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and you should not place undue reliance on such statements, which reflect our views as of the date of this release.

           

Selected financial highlights are shown below.

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      PINNACLE BANKSHARES CORPORATION Selected Financial Highlights (9/30/2013, 6/30/2013 and 9/30/2012 results unaudited) (In thousands, except ratios, share and per share data)     3 Months Ended 3 Months Ended 3 Months Ended Income Statement Highlights

9/30/2013

6/30/2013

9/30/2012

Interest Income $3,717 $3,810 $3,877 Interest Expense 741 910 997 Net Interest Income 2,976 2,900 2,880 Provision for Loan Losses 1 53 174 Noninterest Income 888 2,032 857 Noninterest Expense 3,064 3,145 2,971 Net Income 544 1,530 399 Earnings Per Share (Basic) 0.36 1.02 0.26     9 Months Ended Year Ended 9 Months Ended Income Statement Highlights

9/30/2013

12/31/2012

9/30/2012

Interest Income

$11,268

$15,573

$11,724

Interest Expense

2,595

3,972

2,996

Net Interest Income

8,673

11,601

8,728

Provision for Loan Losses

132

1,177

809

Noninterest Income

3,724

3,443

2,569

Noninterest Expense

9,156

11,910

8,873

Net Income

2,470

1,338

1,089

Earnings Per Share (Basic)

1.63

0.89

0.72

    Balance Sheet Highlights

9/30/2013

12/31/2012

9/30/2012

Cash and Cash Equivalents $32,558 $35,790 $41,770 Total Loans 277,677 277,318 269,027 Total Investments 30,594 22,206 25,812 Total Assets 353,902 348,694 346,884 Total Deposits 321,340 315,157 313,747 Total Liabilities 323,911 320,605 318,695 Stockholders' Equity 29,991 28,089 28,189 Shares Outstanding 1,515,007 1,507,589 1,507,589    

Ratios and Stock Price

9/30/2013

12/31/2012

9/30/2012

Gross Loan-to-Deposit Ratio 86.41% 87.99% 85.75% Net Interest Margin (Year-to-date) 3.43% 3.55% 3.56% Liquidity 17.16% 15.30% 18.18% Efficiency Ratio 73.79% 79.23% 78.58% Return on Average Assets (ROA) (Year-to-date) 0.92% 0.39% 0.43% Return on Average Equity (ROE) (Year-to-date) 11.35% 4.83% 5.27% Leverage Ratio (Bank) 9.25% 8.86% 8.93% Tier 1 Risk-based Capital Ratio (Bank) 11.29% 10.60% 10.90% Total Capital Ratio (Bank) 12.53% 11.85% 12.15% Stock Price $13.10 $8.31 $8.02 Book Value $19.80 $18.63 $18.70    

Asset Quality Highlights

9/30/2013

12/31/2012

9/30/2012

Nonaccruing Loans $2,749 $2,843 $4,392 Loans 90 Days or More Past Due and Accruing 299 171 183 Total Nonperforming Loans (Impaired Loans) 3,048 3,014 4,575 Other Real Estate Owned (OREO) (Foreclosed Assets) 1,345 2,393 1,927 Total Nonperforming Assets 4,393 5,407 6,502 Nonperforming Loans to Total Loans 1.10% 1.09% 1.70% Nonperforming Assets to Total Assets 1.24% 1.55% 1.87% Allowance for Loan Losses $3,486 $3,646 $3,503 Allowance for Loan Losses to Total Loans 1.26% 1.31% 1.30% Allowance for Loan Losses to Nonperforming Loans 114.37% 120.97% 76.57%  

Pinnacle Bankshares CorporationBryan M. Lemley, 434-477-5882bryanlemley@1stnatbk.com