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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark one)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1999
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _____________ to ________________
Commission file number 1-12707
Pinnacle Bancshares, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 72-1370314
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1811 Second Avenue, Jasper, Alabama 35502-1388
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(Address of Principal Executive Offices)
(205) 221-4111
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) 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
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State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 1,789,586
Transitional Small Business Disclosure Format (check one):
Yes No X
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PART I
FINANCIAL INFORMATION
PAGE
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Financial Condition at December 31, 1998
and March 31, 1999 (Unaudited). 2
Condensed Consolidated Statements of Financial Income (Unaudited) for the three
months ended March 31,1998 and 1999. 3
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months
ended March 31, 1998 and 1999. 4
Notes to Condensed Consolidated Financial Statements. 5
The Condensed Consolidated Financial Statements furnished have not been audited
by independent certified public accountants, but reflect, in the opinion of
management, all adjustments necessary for a fair presentation of financial
condition and the results for the periods presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 7
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Signatures 10
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PINNACLE BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, March 31,
1998 1999
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(unaudited)
ASSETS:
Cash $ 3,960,991 $ 3,785,110
Interest-bearing deposits in other banks 30,845,417 2,719,120
Securities available for sale 40,414,788 67,920,566
Accrued interest on securities and deposits 431,499 704,784
Loans receivable, net of allowance for loan losses
of ($1,200,586 and $1,224,096, respectively) 128,961,641 127,923,624
Loans held for sale, at lower of cost or market 2,985,698 3,350,956
Other real estate owned, net 2,174,956 2,149,884
Premises and equipment, net 6,648,317 6,755,091
Prepaid and other assets 1,662,207 1,668,241
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Total assets $218,085,514 $ 216,977,376
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits $194,687,494 $ 193,200,211
Borrowed funds 3,520,000 3,390,000
Official checks outstanding 1,140,849 1,522,877
Advance payments by borrowers for taxes and insurance 60,725 106,792
Other liabilities 1,064,339 1,033,558
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200,473,407 199,253,438
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share, no shares issued,
100,000 authorized 0 0
Common stock, par $.01 per share, 1,789,586 issued and 10,000,000
authorized 17,895 17,895
Additional paid-in capital 8,109,740 8,109,740
Retained earnings 9,453,693 9,661,011
Accumulated other comprehensive income, net of tax 30,779 (64,708)
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Total Stockholders' equity 17,612,107 17,723,938
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Total liabilities and stockholders' equity $218,085,514 $ 216,977,376
============ =============
See accompanying notes to consolidated financial statements
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PINNACLE BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL OPERATIONS
Three Months Ended
March 31,
1998 1999
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(unaudited)
INTEREST REVENUES:
Interest on loans $3,091,168 $2,864,726
Interest and dividends on securities 681,520 812,295
Other interest 160,558 219,630
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3,933,246 3,896,651
INTEREST EXPENSE:
Interest on deposits 2,182,018 2,254,401
Interest on borrowed funds 51,629 47,726
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2,233,647 2,302,127
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NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 1,699,599 1,594,524
PROVISION FOR LOAN LOSSES 141,000 127,000
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,558,599 1,467,524
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NONINTEREST INCOME:
Fees and service charges 160,142 174,016
Real estate operations, net (1,446) 32,207
Net gain (loss) on sale of:
Loans 184,207 187,413
Other real estate owned 0 (1,787)
Other income 56,561 49,127
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399,464 440,976
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NONINTEREST EXPENSE:
Compensation and benefits 656,243 716,629
Occupancy 256,045 292,464
Marketing and professional 38,193 34,714
Other 237,085 251,704
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1,187,566 1,295,511
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EARNINGS BEFORE INCOME TAX EXPENSE 770,497 612,989
INCOME TAX EXPENSE 267,404 226,720
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NET INCOME $ 503,093 $ 386,269
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BASIC EARNINGS PER SHARE $0.28 $0.22
DILUTED EARNINGS PER SHARE $0.28 $0.21
CASH DIVIDENDS PER SHARE $0.10 $0.10
WEIGHTED AVERAGE SHARES OUTSTANDING 1,787,049 1,789,586
WEIGHTED AVERAGE DILUTED SHARES 1,789,344 1,799,563
========== ==========
See accompanying notes to consolidated financial statements.
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PINNACLE BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1998 1999
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(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 503,093 $ 386,269
Adjustment to reconcile net income to net cash used in operating
activities:
Depreciation 115,213 137,957
Provision for losses on loans 141,000 127,000
Net (gain) loss on sale and write down of:
Loans held for sale (184,207) (187,413)
Real estate owned 0 1,787
Amortization, net (82,512) (92,718)
Proceeds from sale of loans 9,018,326 15,477,935
Loans originated for sale (10,403,559) (15,843,192)
Decrease (increase) in prepaid and other assets 21,417 (279,319)
Increase in other liabilities 393,152 21,489
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Net cash from operating activities (478,077) (250,205)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on loans and securities 25,759,397 30,653,584
Loans originated for portfolio (19,090,103) (28,511,261)
Net change in interest bearing deposits at other banks (11,770,476) 28,126,297
Purchase of securities available for sale 0 (31,920,911)
Proceeds from callable securities 0 2,119,700
Proceeds from maturing securities 4,000,000 1,000,000
Purchase of premises and equipment (191,846) (244,731)
Proceeds from other real estate owned, net 220,457 219,785
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Net cash from investing activities (1,072,571) 1,442,463
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net (increase) decrease in deposits 1,102,652 (1,076,973)
Proceeds from sales of time deposits 8,357,166 6,800,690
Payments from maturing time deposits (6,870,586) (7,211,000)
Payments on borrowed funds (120,000) (130,000)
Increase (decrease) in official checks and advance payments by borrowers
for taxes and insurance 173,794 428,095
Proceeds from stock options exercised 4,408 0
Payments of dividends (178,710) (178,951)
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Net cash from financing activities 2,468,724 (1,368,139)
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NET INCREASE (DECREASE) IN CASH 918,076 (175,881)
CASH AT BEGINNING OF PERIOD 2,747,482 3,960,991
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CASH AT END OF PERIOD $ 3,665,558 $ 3,785,110
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SUPPLEMENTAL DISCLOSURES:
Cash payments for interest on deposits and borrowed funds $ 1,989,731 $ 2,037,334
Cash payments for income taxes 322,207 400,474
Other real estate owned acquired through foreclosure 234,592 196,500
See accompanying notes to consolidated financial statements
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PINNACLE BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited interim condensed consolidated financial statements
include the accounts of Pinnacle Bancshares, Inc. (the "Company"), Pinnacle Bank
(the "Bank"), and the Bank's wholly owned subsidiary, First General Ventures.
All significant intercompany transactions and accounts have been eliminated in
consolidation.
In the opinion of management, all adjustments (none of which are other than
normal recurring accruals) necessary for a fair presentation of the results of
such interim periods have been included. The results of operations for the three
month period ended March 31, 1999, are not necessarily indicative of the results
of operations which may be expected for the entire year.
These condensed consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998. The
accounting policies followed by the Company are set forth in the summary of
Significant Accounting Policies in the Company's financial statements.
3. YEAR 2000 RISK ASSESSMENT AND ACTION PLAN:
The Company is aware of the current concerns throughout the business community
of reliance upon computer software that does not properly recognize the Year
2000 in date formats, often referred to as the "Year 2000 Problem." The Year
2000 Problem is the result of software being written using two digits rather
than four digits to define the applicable year (i.e., "98" rather than "1998").
A failure by a business to properly identify and correct a Year 2000 Problem in
its operations could result in system failures or miscalculations. In turn, this
could result in disruptions of operations, including among other things, a
temporary inability to process transactions, or otherwise engage in routine
business transactions on a day-to-day basis.
Operations of the Company depend upon the successful operation on a daily basis
of its computer software programs. The Company relies upon software purchased
from third-party vendors rather than internally generated software. In its
analysis of the software, and based upon its ongoing discussions with these
vendors, a plan of action has been put in place by the Company to minimize its
risk exposure to the Year 2000 Problem.
As part of the plan, an oversight management committee has been set up to
monitor vendor compliance, and identify systems and equipment crucial to the
Company's operation. These systems are being tested to assure they will be able
to handle the Year 2000 event, thus minimizing risk to the Company.
The Bank has modified its credit risk assessment to include consideration of
incremental risk that may be faced by the inability of customers to access the
Year 2000 problem. The Company has developed policies and procedures to help
identify potential customers related risks, and to gain a better understanding
of how its customers are managing their own risk associated with the Year 2000
problem.
The Company has reevaluated its Year 2000 cost assessment and now estimates the
total Year 2000 cost to be approximately $65,000. The Company has already
expensed approximately $20,000 and expects to expense the remaining Year 2000
cost by June 30, 1999.
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4. EARNINGS PER SHARE:
Basic Earnings per share ("EPS") is computed by dividing net income by the
weighted average number of shares outstanding during the period. Diluted EPS is
computed in the same manner, except the number of weighted average shares
outstanding is adjusted for the number of additional common shares that would
have been outstanding if the potential common shares had been issued.
The following table represents the earnings per share calculations for the years
ended March 31, 1998 and 1999:
NET PER SHARE
FOR THE YEARS ENDED INCOME SHARES AMOUNT
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MARCH 31, 1998
Basic earnings per share $503,093 1,787,049 $0.28
Dilutive securities -- 2,295 --
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Diluted earnings per share $503,093 1,789,344 $0.28
======== ========= =====
MARCH 31, 1999
Basic earnings per share $386,269 1,789,586 $0.22
Dilutive securities -- 9,977 0.01
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Diluted earnings per share $386,269 1,799,563 $0.21
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5. COMPREHENSIVE INCOME:
The Company has classified the majority of its securities as available for sale
in accordance with Financial Accounting Standards Board Statement No 115.
Pursuant to Statement No. 115, any unrealized gain or loss activity of available
for sale securities is to be recorded as an adjustment to a separate component
of stockholders' equity, net of income tax effect.
Since comprehensive income is a measure of all changes in equity of an
enterprise that result from transactions and other economic events of the
period, this change in unrealized gain or loss serves to decrease or increase
comprehensive income. The following table represents comprehensive income for
the three month period ended March 31, 1998, and 1999:
For the three months ended 1998 1999
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Net income $503,093 $ 386,269
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on securities, net of tax 30,520 (95,487)
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Comprehensive income $533,613 $ 290,782
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5. MARKET RISK: The Company believes that there have been no material changes in
reported market risks since year end.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
PINNACLE BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INVESTMENTS: The Bank's investment portfolio increased from $40.4 million at
December 31, 1999 to $67.9 million at March 31, 1999. This increase was due
primarily to the purchasing of approximately $31.9 million in U. S. Agency
securities from the proceeds of interest bearing deposits. The company increased
its investment portfolio due to better interest rates.
RESULTS OF OPERATIONS: Net interest income after the provision for loan losses
decreased $91,075 or 5.8% for the three month period ended March 31, 1999 as
compared to the corresponding period in the previous year. This decrease was
primarily due to a decrease in interest on loans of $226,442 and an increase in
interest expense of $68,480, and was offset by an increase in interest on
securities and other interest income of $189,847 as well as a decrease in the
provision for loan losses of $14,000. Interest rates remained relatively steady
during the three month period ended March 31, 1999. However, if rates were to
rise rapidly, net income may be adversely affected.
The Bank's yield on interest-bearing assets decreased from approximately 8.21%
in the three month period ended March 31, 1998, to approximately 7.59 % in the
current year period. This decrease was due in part to a decrease in interest
rates and was compounded by a decrease in the average balance of
interest-bearing assets outstanding of approximately $13.3 million. The Bank's
cost of funds decreased from 4.93% in the three month period ending March 31,
1998 to 4.70% in the current year period.
Non interest income, which includes fees and service charges, real estate
operations, net gain (loss) on sale of loans and other income increased
approximately $41,512 in the three month period ended March 31, 1999 compared to
the corresponding prior year period. This increase was due primarily to an
increase in fees and service charges of $13,874, an increase in real estate
operations of $33,653, and an increase in the gain on sale of mortgage loans of
$3,206 and was off-set by slight decreases in all other non interest income.
Non interest expense increased approximately $107,945 the month period ended
March 31, 1999 as compared to the corresponding prior year period. The increase
in the three month period ended March 31, 1999, was due primarily to an increase
in compensation expense of approximately $60,386, an increase in occupancy
expense of approximately $36,419, an increase in other non interest expense of
approximately $14,619. This increase was offset by a decrease in marketing and
professional expense of approximately $3,479.
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NET INCOME: The Company reported net income for the first quarter ended March
31, 1999 of $386,269 or $0.22 per share, compared with a net income of $503,083
or $0.28 per share, in the first quarter last year. The decrease in the first
quarter ended March 31, 1999 was primarily attributable to a decrease in the
average loan balance outstanding of approximately $7.4 million and a decrease of
approximately $227,000 in interest income on loans. The Bank's loan originations
increased approximately 50% during the three month period ending March 31, 1999
compared to the corresponding period in the previous year. However, due to the
increase in loan repayments and lower interest rates available, borrowers
paid-off adjustable rate loans in favor of long-term fixed rate mortgages, most
of which were sold by the Bank into the secondary market.
CAPITAL RESOURCES: Historically, funds provided by operations, mortgage loan
principal repayments, savings deposits and short-term borrowings have been the
Bank's principal sources of funds. In addition, the Bank has the ability to
obtain funds through the sale of mortgage loans, through borrowings from the
Federal Home Loan Bank of Atlanta and other borrowings sources. At March 31,
1999, the Bank's total loan commitments, including construction loans in process
and unused lines of credit were approximately $23.9 million. Management believes
that the Bank's liquidity and other sources of funds are sufficient to fund all
commitments outstanding and other cash needs. The Company and the Bank are
required to maintain certain levels of regulatory capital. At March 31, 1999,
the Company and the Bank exceeded all regulatory capital requirements.
YEAR 2000 RISK ASSESSMENT AND ACTION PLAN: See Note 3 of Notes to Condensed
Consolidated Financial Statements.
FORWARD-LOOKING STATEMENTS: This Quarterly Report on Form 10-QSB contains
forward-looking statements. Additional written or oral forward-looking
statements may be made by the Company from time to time in filings with the
Securities and Exchange Commission or otherwise. The words "believe," "expect,"
"seek" and "intend," and similar expressions identify forward-looking
statements, which speak only as of the date the statement is made. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements may include, but are not
limited to, projections of income or loss, expenditures, acquisitions, plans for
future operations, financing needs or plans relating to services of the Company,
as well as assumptions relating to the foregoing. Forward-looking statements
are inherently subject to risk and uncertainties, some of which cannot be
predicted or qualified. Future events and actual results could differ materially
from those set forth in, contemplated by or underlying the forward-looking
statements.
The Company does not undertake, and specifically disclaims, any obligation to
publicly release the results of revisions which may be made to forward-looking
statements to reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit 27 - Financial Data schedule (SEC use only)
(B) No reports on Form 8-K were filed.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PINNACLE BANCSHARES, INC
DATE: May 17, 1999 BY: /s/ Robert B. Nolen, Jr.
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Robert B. Nolen, Jr.
President and Chief
Executive Officer
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
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