Pinnacle Bankshares Corporation Fourth Quarter and 2014 Earnings Report

Altavista, Virginia, UNITED STATES

ALTAVISTA, Va., Feb. 5, 2015 (GLOBE NEWSWIRE) -- Net income for Pinnacle Bankshares Corporation (OTCQB:PPBN), the one-bank holding company (the "Company") for First National Bank (the "Bank"), was $467,000 or $0.31 per basic and $0.30 per diluted share for the quarter ended December 31, 2014 and $2,149,000 or $1.42 per basic share and $1.40 per diluted share for the year ended December 31, 2014. In comparison, net income was $547,000 or $0.36 per basic and diluted share and $2,651,000 or $1.75 per basic and $1.74 per diluted share, respectively, for the same periods of 2013. Consolidated results for the quarter and year are unaudited.

Results for 2013 are restated to properly recognize a $366,000 tax expense and deferred tax liability associated with insurance proceeds totaling $1,077,000 received in connection with the rebuild of the Vista Branch office that was destroyed by fire. The restatement does not change "core operating net income" for 2013 of $1,940,000, which has been referenced in previous reports for performance comparison purposes.

Net income generated during the fourth quarter of 2014 represents a 15% decrease as compared to the same time period of 2013. The decline was driven primarily by a higher provision for loan losses, which is attributed to fourth quarter loan growth.

On an annual basis, 2014 net income decreased 19% as compared to the prior year due mainly to the recognition of the referenced insurance proceeds net of the tax expense. Exclusive of those items, net income generated for 2014 increased 11% compared to 2013's core operating net income. Factors contributing to this increase include higher net interest income due to an expanded net interest margin, lower noninterest expense and a lower provision for loan losses for the year.  

Profitability as measured by the Company's return on average assets ("ROA") was 0.60% for 2014, which is a 15 basis points decrease as compared to the 0.75% produced for 2013. Correspondingly, return on average equity ("ROE") also decreased in 2014 to 6.59% compared to 8.96% for the prior year. The 2014 returns improved as compared to 2013's ROA and ROE exclusive of the insurance proceeds and related tax expense, which were 0.55% and 6.54%, respectively.       

"We are pleased to report increased core operating net income for the sixth straight year, which has been driven by strengthened asset quality and a decline 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, "Future improvement will largely hinge on modest growth and the successful execution of our Lynchburg Market Plan."

For the fourth quarter of 2014 net interest income fell slightly to $3,025,000 as compared to $3,036,000 for the same period in 2013. Interest income decreased $136,000 due to a drop in asset yields, which was slightly more than the decline in interest expense of $125,000 resulting from lower cost of funds. Correspondingly, net interest margin compressed to 3.54% from 3.59%. 

On a year over year basis, the Company's net interest income grew $347,000 to $12,056,000 for 2014 as interest expense decreased $1,211,000 or approximately 38%, which outpaced a decline in interest income of $864,000 or 6%. Growth of demand and other low cost deposits was the catalyst for the net interest income improvement, which was a direct result of the Bank's focus on the expansion of core banking relationships. Net interest margin increased to 3.60% for the year ended December 31, 2014, from 3.47% for the year ended December 31, 2013. As referenced, net interest margin declined in the fourth quarter of 2014 compared to the same period of the prior year evidencing the challenge associated with further expanding margin in this continued low interest rate environment. Future net interest income improvement will require growth of loans and core deposits absent an increase in interest rates.    

Strengthened asset quality over the prior year lowered the Company's provision for loan losses, which was $91,000 for 2014 as compared to $143,000 for 2013. The decrease was driven by a $458,000 or 18% decline in nonperforming loans (nonaccrual loans and accruing loans more than 90 days past due) and fewer past due loans (loans greater than 30 days and less than or equal to 90 days past due), which are approaching prerecession levels. 

The allowance for loan losses was $3,070,000 as of December 31, 2014, which represented 1.08% of total loans outstanding. In comparison, the allowance balance was $3,409,000 or 1.23% of total loans outstanding as of the prior year end. Despite the decrease in the Company's allowance to total loans ratio, allowance coverage of nonperforming loans grew to 144% as of December 31, 2014 compared to 132% as of the end of 2013, which management views as sufficient to offset potential future losses associated with problem loans. 

Nonperforming assets (nonperforming loans and real estate acquired through foreclosure) declined to $3,235,000 or 0.89% of total assets as of December 31, 2014, as compared to $3,883,000 or 1.08% of total assets as of December 31, 2013. The decline of this ratio below 1% is significant and compares favorably to peer community banks across Virginia. 

For the fourth quarter of 2014 noninterest income decreased $3,000 or less than 1% as compared to the same period of 2013. However, on an annual basis 2014's noninterest income of $3,162,000 represented a decline of $1,392,000 or approximately 31% as compared to the prior year. This decline was mainly driven by the insurance proceeds recognized as noninterest income in the second quarter of 2013. Net of the insurance proceeds, noninterest income decreased $315,000 or 9% due to lower commissions from investment and insurance sales and fees generated from the sale of mortgage loans. 

Noninterest expense for the fourth quarter of 2014 increased $14,000 or less than 1%, compared to the same period of 2013. For the year, noninterest expense decreased $220,000 or approximately 2%, as retirement plan expense was $609,000 lower in 2014 as compared to 2013 due to contributions and improved market returns, which was offset by increases in salary expense due to new positions and fees paid to the Bank's core system provider for data processing, new platforms and applications. New positions and core system improvements have been part of the Company's on-going effort to develop appropriate infrastructure to support future growth.    

Total assets as of December 31, 2014 were $362,188,000, up approximately 1% from $358,601,000 as of December 31, 2013. The principal components of the Company's assets as of year-end 2014 were $283,519,000 in total loans, $29,451,000 in cash and cash equivalents and $29,277,000 in securities. During 2014 total loans increased approximately 2% or $5,761,000 from $277,758,000 as of December 31, 2013, while securities increased less than 1% or $152,000 from $29,125,000. The Company experienced significant loan growth of over $11,000,000 during the fourth quarter of 2014 and was able to reverse a year to date decline in the loan portfolio through the first nine months of the year. Management is encouraged by the activity, pleased with the quality of the assets booked and hopeful that the results are indicative of a sustained positive turn in the economy. 

Total liabilities as of December 31, 2014 were $329,534,000, up less than 1% or $2,875,000 from $326,659,000 as of December 31, 2013. Higher levels of deposits drove the increase, as demand deposits increased $3,295,000 or approximately 7% and savings and NOW accounts increased $6,383,000 or approximately 4%. These increases were partially offset by a decrease in time deposits, which declined $6,604,000 or approximately 5% as compared to the balance as of December 31, 2013. The increase in checking and savings deposits reflects continued focus on the expansion of core deposit relationships in 2014, which has helped lower the Company's cost of funds, decrease its dependency on time deposits and provide relationship expansion opportunities for the Bank.    

Total stockholders' equity as of December 31, 2014 was $32,654,000, and consisted primarily of $28,219,000 in retained earnings. In comparison, as of December 31, 2013 total stockholders' equity was $31,942,000. The Company has continued to increase capital while also paying a cash dividend to shareholders in each of the last nine quarters. Improved profitability and controlled growth over the last few years have strengthened the capital position of both the Company and Bank, which are considered "well capitalized" per all regulatory definitions.

As mentioned earlier, First National Bank has developed a Lynchburg Market Plan in an effort to increase its presence and visibility in Central Virginia. The plan includes renovation and expansion of the Bank's Timberlake Road branch, relocation of its Old Forest Road branch to a new facility on Old Forest Road and the construction of a new branch / Lynchburg headquarters building on Odd Fellows Road. Functions performed at First National Bank's Altavista Main Office will remain at that location. Per Mr. Hall, "First National has focused much of its attention over the past three years on infrastructure as it relates to systems and technology, people and positions and organizational structure.  All the while we have improved our financial performance and enhanced our capital position.  As we move forward we are now focusing on modest growth within the Central Virginia area, specifically Lynchburg.  The Timberlake Road, Old Forest Road and Odd Fellows Road projects will help us better serve our existing client base, expand those relationships and acquire new relationships consisting of deposits, loans and value added services." The Bank has engaged a local project manager and architectural firm and plans to work with local contractors to complete all three projects by the end of 2016.


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 108th 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
(12/31/2014 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 12/31/2014 9/30/2014 12/31/2013
Interest Income $3,495 $3,480 $3,631
Interest Expense 470 488 595
Net Interest Income 3,025 2,992 3,036
Provision for Loan Losses 99 6 11
Noninterest Income 827 820 830
Noninterest Expense 3,086 2,931 3,072
Net Income 467 601 547
Earnings Per Share (Basic) 0.31 0.40 0.36
Earnings Per Share (Diluted) 0.30 0.39 0.36
  Year Ended Year Ended Year Ended
Income Statement Highlights 12/31/2014 12/31/2013 12/31/2012
Interest Income $14,035 $14,899 $15,573
Interest Expense 1,979 3,190 3,972
Net Interest Income 12,056 11,709 11,601
Provision for Loan Losses 91 143 1,177
Noninterest Income 3,162 4,554 3,443
Noninterest Expense 12,008 12,228 11,910
Net Income 2,149 2,651 1,338
Earnings Per Share (Basic) 1.42 1.75 0.89
Earnings Per Share (Diluted) 1.40 1.74 0.89
Balance Sheet Highlights 12/31/2014 12/31/2013 12/31/2012
Cash and Cash Equivalents $29,451 $35,457 $35,790
Total Loans 283,519 277,758 277,318
Total Securities 29,277 29,125 22,206
Total Assets 362,188 358,601 348,694
Total Deposits 325,204 322,130 315,157
Total Liabilities 329,534 326,659 320,605
Stockholders' Equity 32,654 31,942 28,089
Shares Outstanding 1,511,970 1,515,007 1,507,589
Ratios and Stock Price 12/31/2014 12/31/2013 12/31/2012
Gross Loan-to-Deposit Ratio 87.18% 86.23% 87.99%
Net Interest Margin (Year-to-date) 3.60% 3.47% 3.55%
Liquidity 15.80% 17.74% 15.30%
Efficiency Ratio 78.80% 75.20% 79.23%
Return on Average Assets (ROA) 0.60% 0.75% 0.39%
Return on Average Equity (ROE) 6.59% 8.96% 4.83%
Leverage Ratio (Bank) 9.36% 9.55% 8.86%
Tier 1 Risk-based Capital Ratio (Bank) 11.09% 11.24% 10.60%
Total Capital Ratio (Bank) 12.12% 12.25% 11.85%
Stock Price $17.80 $15.10 $8.31
Book Value $21.60 $21.08 $18.63
Asset Quality Highlights 12/31/2014 12/31/2013 12/31/2012
Nonaccruing Loans $2,128 $2,586 $2,843
Loans 90 Days or More Past Due and Accruing 0 0 171
Total Nonperforming Loans (Impaired Loans) 2,128 2,586 3,014
Other Real Estate Owned (OREO) (Foreclosed Assets) 1,107 1,297 2,393
Total Nonperforming Assets 3,235 3,883 5,407
Nonperforming Loans to Total Loans 0.75% 0.93% 1.09%
Nonperforming Assets to Total Assets 0.89% 1.08% 1.55%
Allowance for Loan Losses $3,070 $3,409 $3,646
Allowance for Loan Losses to Total Loans 1.08% 1.23% 1.31%
Allowance for Loan Losses to Nonperforming Loans 144.27% 131.83% 120.97%


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