Pinnacle Bankshares Corporation Fourth Quarter and 2012 Earnings Report

Pinnacle Bankshares Corporation Fourth Quarter and 2012 Earnings Report

ALTAVISTA, Va.--(BUSINESS WIRE)-- Net income for Pinnacle Bankshares Corporation (OTCQB:PPBN), the one-bank holding company (the "Company") for First National Bank (the "Bank"), was $249,000 or $0.17 per basic and diluted share for the quarter ended December 31, 2012, and $1,338,000 or $0.89 per basic and diluted share for the year ended December 31, 2012. These results compare favorably to net income of $222,000 or $0.15 per basic and diluted share and net income of $1,063,000 or $0.71 per basic and diluted share, respectively, for the same periods of 2011. Quarterly and 2012 annual consolidated results are unaudited.

Profitability as measured by the Company's return on average assets ("ROA") was 0.39% for 2012, which is an 8 basis points increase over the 0.31% produced for 2011. Correspondingly, return on average equity ("ROE") improved 88 basis points in 2012 to 4.83%, compared to 3.95% for the prior year.

"We are pleased to report that 2012 was another year of improved earnings as net income rose approximately 26% compared to 2011. The combination of material improvement in our asset quality and a higher level of noninterest income more than offset an increase in noninterest expense and a lower net interest margin," stated Aubrey H. Hall, III, President and Chief Executive Officer for both the Company and the Bank.

The Company's net interest income was $11,601,000 for the year ended December 31, 2012 compared to $12,091,000 for the year ended December 31, 2011. For the three months ended December 31, 2012, net interest income was $2,873,000 compared to $3,081,000 for the same period in 2011. The Company's net interest margin decreased to 3.55% for the year ended December 31, 2012, from 3.71% for the year ended December 31, 2011. On a quarterly basis, net interest margin decreased to 3.48% for the quarter ended December 31, 2012, from 3.77% for the quarter ended December 31, 2011. The decrease in net interest income and net interest margin were driven by lower loan and investment yields as a result of a continued low interest rate environment. The Company is expecting its cost of funds to decline during 2013 due to anticipated re-pricing of some longer term certificates of deposit during 2013.

The Company's provision for loan losses was $368,000 in the fourth quarter of 2012 compared to $536,000 in the fourth quarter of 2011. For the year ended December 31, 2012, provision for loan losses was $1,177,000 compared with $2,227,000 incurred during the prior year. This 47% year over year decrease in provision expense was mainly due to better loan quality and fewer charge-offs as the Bank worked aggressively to resolve problem loans throughout 2012.

Noninterest income for the year ended December 31, 2012 increased $190,000, or approximately 6%, to $3,443,000 from $3,253,000 for 2011. This increase was largely driven by fees generated from the sale of mortgage loans, which increased $177,000 or approximately 39%. For the three months ended December 31, 2012, noninterest income increased $13,000, or approximately 2%, as compared to the same period of 2011, primarily due to higher levels of fee income generated from the sale of mortgage loans and investment products.

Noninterest expense for the year ended December 31, 2012 increased $366,000, or approximately 3%, compared to 2011. For the three months ended December 31, 2012, noninterest expense decreased $14,000, or less than 1%, compared to the same period of 2011. The annual increase in noninterest expense is attributed primarily to increased expenses and losses associated with foreclosures that occurred in conjunction with the Bank's credit quality improvement strategy and increased advertising expenses as the Bank sought to expand visibility and brand recognition.

Total assets as of December 31, 2012 were $348,694,000, up approximately 2% from $342,484,000 as of December 31, 2011. The principal components of the Company's assets as of year end were $273,672,000 in net loans, $35,790,000 in cash and cash equivalents and $22,206,000 in securities. During 2012, net loans increased approximately 2.5% or $6,594,000 from $267,123,000 as of December 31, 2011, while securities decreased approximately 10% or $2,563,000 from $24,769,000.

Total liabilities as of December 31, 2012 were $320,605,000, up approximately 2% or $5,068,000 from $315,537,000 as of December 31, 2011, as a result of an increase in savings and NOW accounts of $8,666,000, or approximately 6.5%, and an increase in demand deposit accounts of $4,523,000 or approximately 13.5%. These increases were partially offset by a decrease in time deposits of $8,425,000, or approximately 6%. The decrease in time deposits was a result of the Bank's increased focus on attracting more core deposit relationships. This strategy has increased checking and savings deposits and has helped lower the Bank's cost of funds.

Total stockholders' equity as of December 31, 2012 was $28,089,000, and consisted primarily of $24,244,000 in retained earnings. As of December 31, 2011, total stockholders' equity was $26,947,000. The Company and the Bank continue to be considered "well capitalized" by all regulatory definitions and did not participate in the federal government's Troubled-Asset Relief Program (TARP).

The Bank's allowance for loan losses was $3,646,000 as of December 31, 2012, which represents 1.31% of total loans outstanding, compared to $4,015,000, or 1.48% of total loans outstanding, as of December 31, 2011. The decline in the allowance balance is a direct result of improved loan quality.

Nonperforming loans (including nonaccruing loans and accruing loans more than 90 days past due) totaled $3,014,000, or 1.09% of total loans, as of December 31, 2012, compared to $4,711,000, or 1.74% of total loans, as of December 31, 2011. Nonperforming loans decreased $1,561,000 in the fourth quarter of 2012. The decrease was due to execution of foreclosures and loan exit strategies in addition to the upgrade of some loans to performing status. Consequently, foreclosed assets increased from $645,000 as of the end of 2011 to $2,393,000 at the end of 2012. Total criticized and classified loans have declined $12,249,000 or 53% as compared to December 31, 2011.

"The Bank continued to see an improvement in its credit quality throughout 2012. Management remains proactive in its approach to collections and problem asset management as we recognize that continued improvement is a key factor to producing higher returns," stated Bryan M. Lemley, Chief Financial Officer of both the Company and the Bank.

As previously announced, the Company paid a cash dividend in the fourth quarter of 2012 based on improved credit quality, higher returns and the anticipated cost savings from the Company's deregistration of its common shares with the SEC.

The Company filed a Form 15 with the Securities and Exchange Commission and has deregistered the Company's common stock under section 12(g) of the Securities Exchange Act of 1934. The Company is obligated to file its 10-K for the year ending 2012 and will then cease its reporting obligations with the SEC reporting system. The Company expects the Section 12(g) deregistration and future elimination of reporting obligations will provide substantial cost savings. Despite the elimination of these reporting obligations, management remains committed to providing quarterly and annual updates on the Company's performance to its shareholders by mailing such information to shareholders and posting such information on the Bank's website at under the Investor Relations tab. Additionally, quarterly call reports will continue to be filed with the Bank's primary regulatory, the Office of the Comptroller of the Currency. Call reports are available for review on the Federal Deposit Insurance Corporation's website at

The Bank expects its new Vista Branch Office located in Altavista, which will replace the one destroyed by fire last year, to be completed and open for business in early May of 2013. A temporary location behind the office site in the Town and Country Shopping Plaza has been established for customer convenience during the rebuilding process.

Selected financial highlights are shown below.


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, two other branches in Campbell County, one branch in the Town of Amherst, one branch in the City of Lynchburg and one branch in Bedford County at Forest. First National Bank is in its 105th year in operation.

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.


Pinnacle Bankshares Corporation

Selected Financial Highlights

(12/31/2012 and quarterly results unaudited)

(In thousands, except ratios, share and per share data)
3 Months Ended3 Months Ended3 Months Ended
Income Statement Highlights




Interest Income$3,849$3,877$4,107
Interest Expense9769971,026
Net Interest Income2,8732,8803,081
Provision for Loan Losses368174536
Noninterest Income874857861
Noninterest Expense3,0372,9713,051
Net Income249399222
Earnings Per Share (Basic and Diluted)
Year EndedYear Ended

Year Ended

Income Statement Highlights




Interest Income$15,573$16,517$16,611
Interest Expense3,9724,4265,835
Net Interest Income11,60112,09110,776
Provision for Loan Losses1,1772,2271,878
Noninterest Income3,4433,2533,134
Noninterest Expense11,91011,54411,037
Net Income1,3381,063687
Earnings Per Share (Basic and Diluted)0.890.710.46
Balance Sheet Highlights




Cash and Cash Equivalents$35,790$37,547$32,533
Total Loans277,318271,138269,067
Total Securities22,20624,76920,517
Total Assets348,694342,484337,113
Total Deposits315,157310,393306,954
Total Liabilities320,605315,537310,631
Stockholders' Equity28,08926,94726,482
Shares Outstanding1,507,5891,496,5891,495,589

Ratios and Stock Price




Gross Loan-to-Deposit Ratio87.99%87.35%87.66%
Net Interest Margin (Year-to-date)3.55%3.71%3.37%
Efficiency Ratio79.23%75.17%79.36%
Return on Average Assets (ROA)0.39%0.31%0.21%
Return on Average Equity (ROE)4.83%3.95%2.62%
Leverage Ratio (Bank)8.86%8.56%8.36%
Tier 1 Risk-based Capital Ratio (Bank)10.60%10.53%10.10%
Total Capital Ratio (Bank)11.85%11.79%11.36%
Stock Price$8.31$8.16$8.80
Book Value$18.63$18.01$17.71

Asset Quality Highlights




Nonaccruing Loans$2,843$4,708$7,073
Loans 90 Days or More Past Due and Accruing1713770
Total Nonperforming Loans (Impaired Loans)3,0144,7117,843
Other Real Estate Owned (OREO) (Foreclosed Assets)2,393645474
Total Nonperforming Assets5,4075,3568,317
Nonperforming Loans to Total Loans1.09%1.74%2.91%
Nonperforming Assets to Total Assets1.55%1.56%2.47%
Allowance for Loan Losses$3,646$4,015$4,037
Allowance for Loan Losses to Total Loans1.31%1.48%1.50%
Allowance for Loan Losses to Nonperforming Loans120.97%85.23%51.47%

Pinnacle Bankshares Corporation
Bryan M. Lemley, 434-477-5882

KEYWORDS:   United States  North America  Virginia


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