PPBN Pinnacle Bankshares Corporation (QX)

Net income for Pinnacle Bankshares Corporation (OTCQB:PPBN), the one-bank holding company (the “Company”) for First National Bank (the “Bank”), was $547,000 or $0.36 per basic and diluted share for the quarter ended December 31, 2013, and $3,017,000 or $1.99 per basic share and $1.98 per diluted share for the year ended December 31, 2013. These results represent a marked improvement over net income of $249,000 or $0.17 per basic and diluted share and net income of $1,338,000 or $0.89 per basic and diluted share, respectively, for the same periods of 2012. Quarterly and 2013 annual consolidated results are unaudited.

Net income generated during the fourth quarter of 2013 represents a 120% increase as compared to the same time period of the prior year and was driven primarily by a significantly lower provision for loan losses and a decline in interest expense caused by the re-pricing of matured time deposits.

For 2013 net income increased 125% as compared to 2012, which was 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 $1,940,000 for 2013, which represents a 45% increase over the prior year. Factors contributing to the increase include a large decline in the provision for loan losses and interest expense, as well as increased noninterest income.

Profitability as measured by the Company’s return on average assets (“ROA”) was 0.85% for 2013, which is a 46 basis points increase over the 0.39% produced for 2012. Correspondingly, return on average equity (“ROE”) also improved in 2013 to 10.11%, compared to 4.83% for the prior year. ROA and ROE, exclusive of the insurance proceeds, were 0.55% and 6.54%, respectively.

“We are pleased with the positive trend of our core earnings, which has been powered by improvements in asset quality and a substantial decrease in our cost of funds,” stated Aubrey H. Hall, III, President and Chief Executive Officer for both the Company and the Bank. He further commented, “Our focus has now shifted to 2014 and our objective to increase shareholder value through further enhanced performance.”

The Company’s net interest income was $11,709,000 for the year ended December 31, 2013 compared to $11,601,000 for the year ended December 31, 2012 as interest expense decreased $782,000 or approximately 20%, which outpaced a decline in interest income of $674,000. For the three months ended December 31, 2013, net interest income was $3,036,000 compared to $2,873,000 for the same period in 2012 with interest expense decreasing $381,000 or approximately 39%. The Company’s net interest margin decreased to 3.47% for the year ended December 31, 2013, from 3.55% for the year ended December 31, 2012. On a quarterly basis, however, net interest margin increased to 3.59% for the fourth quarter of 2013 from 3.48% for the fourth quarter of 2012 as net interest margin continued its upward advance during the second half of 2013.

Material improvement in asset quality over the last year has lowered the Company’s provision for loan losses, which was $143,000 for 2013 as compared to $1,177,000 for 2012. This $1,034,000 decrease has been driven by a substantial decline in net charge-offs, which totaled only $317,000 in 2013 versus $1,546,000 in 2012.

The allowance for loan losses was $3,409,000 as of December 31, 2013, which represented 1.23% 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 previously referenced. Nonperforming assets (including nonaccrual loans, accruing loans more than 90 days past due, and foreclosed assets) declined to $3,883,000 or 1.08% of total assets as of December 31, 2013, as compared to $5,407,000 or 1.55% of total assets as of December 31, 2012. The allowance for loan loss was 132% of nonperforming loans as of December 31, 2013 versus 121% as of the prior year end, which management views as being sufficient to offset potential future losses associated with problem loans.

Noninterest income for the year ended December 31, 2013 increased $1,111,000 or approximately 32% to $4,554,000 from $3,443,000 for the year ended December 31, 2012. This increase was mainly driven by insurance proceeds recognized as noninterest income in the second quarter of 2013. Net of insurance proceeds, noninterest income increased 1% as the Company benefited from an increase in interchange fees associated with check card usage as well as an increase in overdraft fees. For the three months ended December 31, 2013, noninterest income decreased $44,000 or approximately 5%, as compared to the same period of 2012, primarily due to lower levels of fee income generated from the sale of investment products.

Noninterest expense for the year ended December 31, 2013 increased $318,000 or approximately 3%, compared to the same period of 2012. For the three months ended December 31, 2013, noninterest expense increased $35,000 or approximately 1%, compared to the same period of 2012. The increase in noninterest expense is primarily attributed to an increase in retirement plan expense, which is expected to decrease dramatically in 2014.

Total assets as of December 31, 2013 were $358,967,000, up approximately 3% from $348,694,000 as of December 31, 2012. The principal components of the Company’s assets as of year-end 2013 were $277,758,000 in total loans, $35,457,000 in cash and cash equivalents and $29,125,000 in securities. During 2013, total loans increased less than 1% or $440,000 from $277,318,000 as of December 31, 2012, while securities increased approximately 31% or $6,919,000 from $22,206,000.

Total liabilities as of December 31, 2013 were $326,659,000, up approximately 2% or $6,054,000 from $320,605,000 as of December 31, 2012. Higher levels of deposits drove the increase, as demand deposits increased $9,551,000 or approximately 25% and savings and NOW accounts increased $12,999,000 or approximately 9%. The increases in demand, savings and NOW accounts were partially offset by a decrease in time deposits, which declined $15,577,000 or approximately 11% as compared to the balance as of December 31, 2012. The increase in checking and savings deposits reflects the focus on the expansion of core deposit relationships in 2013, which has helped lower the Company’s cost of funds, decreased its dependency on time deposits and continues to provide relationship expansion opportunities for the Bank.

Total stockholders’ equity as of December 31, 2013 was $32,308,000, and consisted primarily of $26,920,000 in retained earnings. In comparison, as of December 31, 2012 total stockholders’ equity was $28,089,000. The Company has continued to improve its capital position while also paying a cash dividend to shareholders in each of the last five quarters. Improved profitability and controlled growth have further strengthened the capital position of both the Company and Bank, which are considered “well capitalized” per all regulatory definitions.

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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 has a total of eight branches with two located in the Town of Altavista, one located in Rustburg, one on Wards Road near the Lynchburg Regional Airport, one on Timberlake Road, one branch in the Town of Amherst, one on Old Forest Road in the City of Lynchburg and one in the Forest section of Bedford County. First National Bank is in its 106th 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.

  Pinnacle Bankshares Corporation Selected Financial Highlights (12/31/2013 and quarterly results unaudited) (In thousands, except ratios, share and per share data)             3 Months Ended 3 Months Ended

3 Months Ended

Income Statement Highlights

12/31/2013

9/30/2013

12/31/2012

Interest Income $3,631 $3,717

$3,849

Interest Expense 595 741

976

Net Interest Income 3,036 2,976 2,873 Provision for Loan Losses 11 1 368 Noninterest Income 830 888 874 Noninterest Expense 3,072 3,064 3,037 Net Income 547 544 249 Earnings Per Share (Basic) 0.36 0.36 0.17 Earnings Per Share (Diluted) 0.36 0.36 0.17  

 

Year Ended

Year Ended

Year Ended

Income Statement Highlights

12/31/2013

12/31/2012

12/31/2011

Interest Income $14,899 $15,573 $16,517 Interest Expense 3,190 3,972 4,426 Net Interest Income 11,709 11,601 12,091 Provision for Loan Losses 143 1,177 2,227 Noninterest Income 4,554 3,443 3,253 Noninterest Expense 12,228 11,910 11,544 Net Income 3,017 1,338 1,063 Earnings Per Share (Basic) 1.99 0.89 0.71 Earnings Per Share (Diluted) 1.98 0.89 0.71   Balance Sheet Highlights

12/31/2013

12/31/2012

12/31/2011

Cash and Cash Equivalents $35,457 $35,790 $37,547 Total Loans 277,758 277,318 271,138 Total Securities 29,125 22,206 24,769 Total Assets 358,967 348,694 342,484 Total Deposits 322,130 315,157 310,393 Total Liabilities 326,659 320,605 315,537 Stockholders' Equity 32,308 28,089 26,947 Shares Outstanding 1,515,007 1,507,589 1,496,589  

Ratios and Stock Price

12/31/2013

12/31/2012

12/31/2011

Gross Loan-to-Deposit Ratio 86.23% 87.99% 87.35% Net Interest Margin (Year-to-date) 3.47% 3.55% 3.71% Liquidity 17.74% 15.30% 17.33% Efficiency Ratio 75.20% 79.23% 75.17% Return on Average Assets (ROA) 0.85% 0.39% 0.31% Return on Average Equity (ROE) 10.11% 4.83% 3.95% Leverage Ratio (Bank) 9.25% 8.86% 8.56% Tier 1 Risk-based Capital Ratio (Bank) 11.25% 10.60% 10.53% Total Capital Ratio (Bank) 12.44% 11.85% 11.79% Stock Price $15.10 $8.31 $8.16 Book Value $21.31 $18.63 $18.01  

Asset Quality Highlights

12/31/2013

12/31/2012

12/31/2011

Nonaccruing Loans $2,586 $2,843

$4,708

Loans 90 Days or More Past Due and Accruing 0 171

3

Total Nonperforming Loans (Impaired Loans) 2,586 3,014

4,711

Other Real Estate Owned (OREO) (Foreclosed Assets) 1,297 2,393 645 Total Nonperforming Assets 3,883 5,407 5,356 Nonperforming Loans to Total Loans 0.93% 1.09% 1.74% Nonperforming Assets to Total Assets 1.08% 1.55% 1.56% Allowance for Loan Losses $3,409 $3,646 $4,015 Allowance for Loan Losses to Total Loans 1.23% 1.31% 1.48% Allowance for Loan Losses to Nonperforming Loans 131.83% 120.97%

85.23%

 

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