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 $1,530,000 or $1.02 per basic and diluted share for the quarter ended June 30, 2013, and $1,927,000 or $1.28 per basic and diluted share for the six months ended June 30, 2013. Net income reported for the referenced time periods represents an improvement over net income generated of $212,000 or $0.14 per basic and diluted share and $690,000 or $0.46 per basic and diluted share, respectively, for the same time periods of 2012. Consolidated results for the second quarter and first six months of 2013 are unaudited.

A major component of the substantial increase in net income was insurance proceeds of $1,077,000 received in connection with the fire that destroyed the Vista Branch Office and the subsequent rebuild of that facility, which re-opened on May 6, 2013. The proceeds were recognized as noninterest income in the second quarter of 2013, while the new building and equipment have been booked as fixed assets and will be depreciated over their useful life.

Exclusive of the insurance proceeds, “core” operating net income was $453,000 for the quarter ended June 30, 2013 and $850,000 for the six months ended June 30, 2013. As compared to the same time periods of the prior year, these results represent an increase of 114% for the quarter and 23% for the six months. Factors contributing to the increase included a lower provision for loan losses, increased noninterest income and controlled operating expenses.

Profitability as measured by the Company’s return on average assets (“ROA”) was 1.08% for the six months ended June 30, 2013, which is an increase over the 0.40% generated during the first six months of 2012. Correspondingly, return on average equity (“ROE”) for the six months ended June 30, 2013 improved to 13.37% as compared to 5.04% generated for the same time period of the prior year. ROA and ROE, exclusive of the insurance proceeds, were 0.57% and 7.08%, respectively.

“There is no denying the fact that our second quarter net income was boosted by the accounting treatment of the insurance proceeds,” stated Aubrey H. Hall, III, President and Chief Executive Officer for both the Company and the Bank. He further commented, “We are hopeful that once investors discount the insurance proceeds as a non-recurring event that there will still be recognition of the fact that our core operating income has experienced a material improvement.”

The company produced net interest income of $5,697,000 during the first six months of 2013, which was below the $5,848,000 generated for the same time period of 2012. The decline was primarily caused by lower interest income, which decreased $296,000 or approximately 4% to $7,551,000 for the first six months of 2013 as compared to the same time period of the prior year. Correspondingly, interest expense decreased only $145,000 or approximately 7% to $1,854,000. 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 $5,316,000 and $16,783,000, respectively, from June 30, 2012 to June 30, 2013. As a result, net interest margin decreased nineteen basis points to 3.41% for the first half of 2013 compared to the first half of 2012. The Company did experience a three basis point expansion in its margin during the second quarter of 2013 as compared to the first 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 second half of 2013.

A material improvement in asset quality over the last year has lowered the Company’s provision for loan losses, which was $131,000 for the first six months of 2013 as compared to $635,000 for the first six months of 2012. Year to date net charge-offs as of June 30, 2013 totaled $167,000 versus $637,000 for the same time period of the prior year.

Noninterest income increased $1,124,000 or approximately 66% to $2,836,000 during the first half of 2013 as compared to $1,712,000 for the same time period of 2012. As referenced earlier, the increase in noninterest income was primarily driven by insurance proceeds of $1,077,000 related to the Vista Branch fire that were recognized as income 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 service charges on deposit accounts, fees generated from sales of mortgage loans and commissions and fees derived from sales of investment products.

Noninterest expense increased $190,000 or approximately 3% to $6,092,000 for the first half of 2013 compared to $5,902,000 for the same time period of 2012. This increase is primarily attributed to higher compensation and employee benefits expense, which is mainly due to increased commissions associated with mortgage and investment sales.

Total assets as of June 30, 2013 were $360,186,000, up approximately 3% or $11,492,000 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 $273,624,000 in net loans, $38,744,000 in cash and cash equivalents and $31,036,000 in securities. During the first half of 2013, net loans experienced a slight decrease of $48,000 as compared to $273,672,000 as of December 31, 2012. Cash and cash equivalents increased approximately 8% or $2,954,000 from $35,790,000 as of December 31, 2012, and investment securities increased approximately 40% or $8,830,000 from $22,206,000. Also, it should be noted that bank premises and equipment increased approximately 19% or $1,192,000 with the addition of the new Vista Branch facility.

Total liabilities as of June 30, 2013 were $330,650,000, up approximately 3% or $10,045,000 from $320,605,000 as of December 31, 2012. Higher levels of deposits drove the increase as demand deposits increased $4,916,000 or approximately 13% and savings and NOW accounts increased $10,932,000 or approximately 8%. The increases in demand deposits and savings and NOW accounts were partially offset by a decrease in time deposits, which declined $2,835,000 or approximately 2% 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 could potentially lead to higher noninterest income derived from cross-selling ancillary products.

Total stockholders’ equity as of June 30, 2013 was $29,536,000, including $26,020,000 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 three quarters. Both the Company and Bank are considered “well capitalized” per all regulatory definitions.

The Bank’s allowance for loan losses was $3,547,000 as of June 30, 2013, which represented 1.28% of total loans outstanding. In comparison, 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. Nonperforming assets (including nonaccrual loans, accruing loans more than 90 days past due and foreclosed assets) declined to $4,077,000, or 1.13% of total assets, as of June 30, 2013, as compared to $5,407,000, or 1.55% of total assets, as of December 31, 2012. The allowance balance was 132% of nonperforming loans as of June 30, 2013 versus 121% as of the prior year end, which management views as sufficient to offset potential future losses associated with problem loans.

Per Bryan M. Lemley, Chief Financial Officer for both the Company and the Bank, “We continue to be pleased with the improvement in our asset quality, which has led to lower provision expense, improved financial performance and the ability to provide returns in the form of cash dividends to our shareholders.”

As indicated, the Bank opened its new Vista Branch Office located in front of the Town & Country Shopping Center in Altavista on May 6, 2013, which replaced the one destroyed by fire last year. “We are appreciative of the patience demonstrated by our loyal customer base during the rebuild process and pleased to have a new state of the art facility available to serve their needs,” commented Aubrey Hall.

Finally, the Company would like to extend its sincere appreciation to Carroll E. Shelton for his forty years of faithful service and wish him the best during his well deserved retirement, which was effective July 3, 2013. Mr. Shelton most recently served as Senior Vice President and Chief Credit Officer of First National Bank as well as Vice President of Pinnacle Bankshares Corporation. He will continue to serve as a Director for both the Company and the Bank. As previously announced, William J. “Buck” Sydnor, Senior Vice President and the Bank’s prior Branch Administration Officer, has replaced Mr. Shelton as Chief Credit Officer while Vivian S. Brown will assume Mr. Sydnor’s prior role. Both Mr. Sydnor and Ms. Brown have extensive banking backgrounds and familiarity with the Central Virginia market.

Selected financial highlights are shown below.

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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 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 the Forest section of Bedford County. First National Bank is in its 105th year in 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.

 

 

Pinnacle Bankshares Corporation

  Selected Financial Highlights

(6/30/2013, 3/31/2013 and 6/30/2012 results unaudited)

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

6/30/2013

3/31/2013

6/30/2012

Interest Income $3,810 $3,741 $3,904 Interest Expense 910 944 998 Net Interest Income 2,900 2,797 2,906 Provision for Loan Losses 53 78 467 Noninterest Income 2,032 804 935 Noninterest Expense 3,145 2,947 3,063 Net Income 1,530 397 212 Earnings Per Share (Basic and Diluted) 1.02 0.26 0.14   6 Months Ended Year Ended 6 Months Ended Income Statement Highlights

6/30/2013

12/31/2012

6/30/2012

Interest Income

$7,551

$15,573

$7,847

Interest Expense

1,854

3,972

1,999

Net Interest Income

5,697

11,601

5,848

Provision for Loan Losses

131

1,177

635

Noninterest Income

2,836

3,443

1,712

Noninterest Expense

6,092

11,910

5,902

Net Income

1,927

1,338

690

Earnings Per Share (Basic and Diluted)

1.28

0.89

0.46

  Balance Sheet Highlights

6/30/2013

12/31/2012

6/30/2012

Cash and Cash Equivalents $38,744 $35,790 $36,411 Total Loans 277,171 277,318 271,855 Total Investments 31,036 22,206 25,505 Total Assets 360,186 348,694 343,924 Total Deposits 328,170 315,157 311,387 Total Liabilities 330,650 320,605 316,184 Stockholders' Equity 29,536 28,089 27,740 Shares Outstanding 1,515,007 1,507,589 1,507,589  

Ratios and Stock Price

6/30/2013

12/31/2012

6/30/2012

Gross Loan-to-Deposit Ratio 84.46% 87.99% 87.30% Net Interest Margin (Year-to-date) 3.41% 3.55% 3.60% Liquidity 18.61% 15.30% 16.60% Efficiency Ratio 71.28% 79.23% 78.12% Return on Average Assets (ROA) (Year-to-date) 1.08% 0.39% 0.40% Return on Average Equity (ROE) (Year-to-date) 13.37% 4.83% 5.04% Leverage Ratio (Bank) 9.01% 8.86% 8.83% Tier 1 Risk-based Capital Ratio (Bank) 11.13% 10.60% 10.69% Total Capital Ratio (Bank) 12.38% 11.85% 11.94% Stock Price $12.15 $8.31 $9.23 Book Value $19.50 $18.63 $18.40  

Asset Quality Highlights

6/30/2013

12/31/2012

6/30/2012

Nonaccruing Loans $2,599 $2,843 $5,407 Loans 90 Days or More Past Due and Accruing 88 171 13 Total Nonperforming Loans (Impaired Loans) 2,687 3,014 5,420 Other Real Estate Owned (OREO) (Foreclosed Assets) 1,390 2,393 2,291 Total Nonperforming Assets 4,077 5,407 7,711 Nonperforming Loans to Total Loans 0.97% 1.09% 1.99% Nonperforming Assets to Total Assets 1.13% 1.55% 2.24% Allowance for Loan Losses $3,547 $3,646 $4,013 Allowance for Loan Losses to Total Loans 1.28% 1.31% 1.48% Allowance for Loan Losses to Nonperforming Loans 132.01% 120.97% 74.04%  

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