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 $459,000 or $0.30 per basic and diluted share for the quarter ended June 30, 2014, and $1,081,000 or $0.72 per basic share and $0.71 per diluted share for the six months ended June 30, 2014. Net income was $1,530,000 or $1.02 per basic and diluted share and $1,927,000 or $1.28 per basic and diluted share, respectively, for the same periods of 2013. Consolidated results for the quarter and six month periods are unaudited.

Net income for the referenced 2013 time periods includes the recognition of $1,077,000 in insurance proceeds received as a result of 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 were booked as fixed assets and are being depreciated over the useful life of the assets.

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. Current year net income for the same time periods has increased approximately 1% and 27% respectively.

Profitability as measured by the Company’s return on average assets (“ROA”) was 0.61% for the six months ended June 30, 2014, compared to the 1.08% generated during the first six months of 2013. Correspondingly, return on average equity (“ROE”) for the six months ended June 30, 2014 was 6.61% compared to 13.37% generated for the same time period of the prior year. ROA and ROE for the six month period of 2013 exclusive of the insurance proceeds were 0.57% and 7.08% respectively.

“We are pleased to report higher net income for both the second quarter and first half of 2014 as compared to the same time periods of 2013, exclusive of insurance proceeds,” stated Aubrey H. Hall, III, President and Chief Executive Officer for both the Company and the Bank. He further commented, “An expansion of our net interest margin and further strengthening of asset quality are the primary drivers of this improvement.”

The company produced net interest income of $6,039,000 for the first half of 2014, which represents a 6% increase as compared to the $5,697,000 generated for the same period of 2013. Year over year improvement for the time period was achieved through lower cost of funds as interest expense was down an estimated 45% or $833,000 to $1,021,000. This cost reduction was achieved through further lowering of interest rates paid on deposits and the continued growth of checking account balances in relation to savings and time deposits. The decrease in interest expense was offset to a degree by lower interest income, which decreased approximately 7% or $491,000 to $7,060,000 due to a decline in the yield on interest earning assets, which were primarily loans. The Company’s net interest margin increased 24 basis points to 3.65% for the first half of 2014 compared to the first half of 2013.

Continued improvement in asset quality over the last year has lowered the Company’s provision for loan losses, which was $(13,000) for the first half of 2014 as compared to $131,000 for the first six months of 2013. This decline has been driven by a $766,000 decline in nonperforming assets from June 30, 2013 to June 30, 2014.

The allowance for loan losses was $3,187,000 as of June 30, 2014, which represented 1.13% of total loans outstanding. In comparison, the allowance was $3,409,000, or 1.23% of total loans outstanding, as of December 31, 2013. The decrease in the allowance to total loans ratio is reflective of the Company’s strengthened asset quality position. Allowance coverage of problem loans continues to expand as the balance was 161% of nonperforming loans as of June 30, 2014 versus 132% as of December 31, 2013.

Noninterest income decreased $1,320,000 or approximately 47% to $1,516,000 for the first half of 2014 as compared to $2,836,000 for the same period of 2013. As referenced earlier, $1,077,000 in insurance proceeds related to the Vista Branch fire and rebuild were recognized as income in the second quarter of 2013. Net of the insurance proceeds, noninterest income still decreased $185,000 or approximately 14% year over year for the time period due to lower fees generated from sales of mortgage loans and commissions and fees derived from sales of investment products.

Noninterest expense decreased $101,000 or approximately 2% to $5,991,000 for the first half of 2014 compared to $6,092,000 for the same period of 2013. This decrease is primarily attributed to lower compensation and employee benefits expense due to lower commissions, lower retirement plan expenses and fewer losses from the sale of foreclosed real estate. These decreases were partially offset by one-time costs associated with outsourcing our core systems and a contract buyout to change electronic bill pay vendors. The Company expects to benefit from greater efficiency and more focus on client service and delivery channels as a result of these initiatives.

Total assets as of June 30, 2014 were $357,926,000, down less than 1% or $1,041,000 from $358,967,000 as of December 31, 2013. The principal components of the Company’s assets as of the end of the period were $280,916,000 in total loans, $29,288,000 in cash and cash equivalents and $27,696,000 in securities. During the first half of 2014, total loans increased 1% or $3,158,000 from $277,758,000 as of December 31, 2013 while securities decreased less than 1% or 1,429,000 from $29,125,000.

Total liabilities as of June 30, 2014 were $324,764,000, down less than 1% or $1,895,000 from $326,659,000 of December 31, 2013. Lower levels of time and savings deposits drove the decrease as time deposits decreased approximately 1% or $1,181,000 and savings deposits decreased approximately 1% or $1,575,000. The decreases were partially offset by an approximate 2%, or $1,066,000 increase in demand deposits.

Total stockholders’ equity as of June 30, 2014 was $33,162,000 including $27,775,000 in retained earnings. As of December 31, 2013, total stockholders’ equity was $32,308,000 including $26,920,000 in retained earnings. The Company and Bank have continued to improve their capital positions while also paying a cash dividend to shareholders in each of the last seven quarters.

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, where the Bank was founded. Other branch locations include Village Highway in Rustburg, Wards Road near the Lynchburg Regional Airport, Timberlake Road in Campbell County, South Main Street in the Town of Amherst, Old Forest Road in the City of Lynchburg and Forest Road in Bedford County. First National Bank is in its 107th year of operation.

Selected financial highlights are shown below.

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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 (6/30/2014, 3/31/2014 and 6/30/2013 results unaudited) (In thousands, except ratios, share and per share data)       3 Months Ended

3 Months Ended

3 Months Ended

Income Statement Highlights

6/30/2014

3/31/2014

6/30/2013

Interest Income $3,534 $3,526 $3,810 Interest Expense 503 518 910 Net Interest Income 3,031 3,008 2,900 Provision for Loan Losses 9 (22) 53 Noninterest Income 766 750 2,032* Noninterest Expense 3,132 2,859 3,145 Net Income 459 622 1,530* Earnings Per Share (Basic) 0.30 0.41 1.02* Earnings Per Share (Diluted) 0.30 0.41 1.02*   6 Months Ended Year Ended 6 Months Ended Income Statement Highlights

6/30/2014

12/31/2013

6/30/2013

Interest Income

$7,060

$14,899

$7,551

Interest Expense

1,021

3,190

1,854

Net Interest Income

6,039

11,709

5,697

Provision for Loan Losses

(13)

143

131

Noninterest Income

1,516

3,477*

2,836*

Noninterest Expense

5,991

12,227

6,092

Net Income

1,081

3,017*

1,927*

Earnings Per Share (Basic)

0.72

1.99*

1.28*

Earnings Per Share (Diluted)

0.71

1.98*

1.28*

 

Balance Sheet Highlights

6/30/2014

12/31/2013

6/30/2013

Cash and Cash Equivalents $29,288 $35,457 $38,744 Total Loans 280,916 277,758 277,171 Total Securities 27,696 29,125 31,036 Total Assets 357,926 358,967 360,186 Total Deposits 320,440 322,130 328,170 Total Liabilities 324,764 326,659 330,650 Stockholders' Equity 33,162 32,308 29,536 Shares Outstanding 1,515,144 1,515,007 1,515,007  

Ratios and Stock Price

6/30/2014

12/31/2013

6/30/2013

Gross Loan-to-Deposit Ratio 87.67% 86.23% 84.46% Net Interest Margin (Year-to-date) 3.65% 3.47% 3.41% Liquidity 14.83% 17.74% 18.61% Efficiency Ratio 79.09% 80.53% 71.28% Return on Average Assets (ROA) 0.61% 0.55% 1.08% Return on Average Equity (ROE) 6.61% 6.54% 13.37% Leverage Ratio (Bank) 9.44% 9.25% 9.01% Tier 1 Risk-based Capital Ratio (Bank) 11.19% 11.25% 11.13% Total Capital Ratio (Bank) 12.27% 12.44% 12.38% Stock Price $18.20 $15.10 $12.15 Book Value $21.89 $21.32 $19.50  

Asset Quality Highlights

6/30/2014

12/31/2013

6/30/2013

Nonaccruing Loans $1,926 $2,586 $2,599 Loans 90 Days or More Past Due and Accruing 52 0 88 Total Nonperforming Loans (Impaired Loans) 1,978 2,586 2,687 Other Real Estate Owned (OREO) (Foreclosed Assets) 1,333 1,297 1,390 Total Nonperforming Assets 3,311 3,883 4,077 Nonperforming Loans to Total Loans 0.70% 0.93% 0.97% Nonperforming Assets to Total Assets 0.93% 1.08% 1.13% Allowance for Loan Losses $3,187 $3,409 $3,547 Allowance for Loan Losses to Total Loans 1.13% 1.23% 1.28% Allowance for Loan Losses to Nonperforming Loans 161.12% 131.83% 132.01%

* Includes $1,077 in insurance proceeds received as a result of the fire that destroyed the Vista Branch Office and the subsequent rebuild of that facility, which reopened on May 6, 2013

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