Pinnacle Bankshares Corporation Announces 2nd Quarter/Mid-Year 2023 Earnings

ALTAVISTA, Va., July 25, 2023 (GLOBE NEWSWIRE) -- Net income for Pinnacle Bankshares Corporation (OTCQX:PPBN), the one-bank holding company (the “Company” or “Pinnacle”) for First National Bank (the “Bank”), was $2,051,000, or $0.93 per basic and diluted share for the second quarter of 2023. Net income for the six months ended June 30, 2023, was $4,690,000, or $2.14 per basic and diluted share.   In comparison, net income was $1,892,000, or $0.87 per basic and diluted share, and $3,283,000, or $1.51 per basic and diluted share, respectively, for the same periods of 2022.   Consolidated results for the quarter and six-month periods are unaudited.

Net income generated during the second quarter of 2023 represents a $159,000, or 8%, increase as compared to the same time period of the prior year, while net income generated during the first half of 2023 represents a $1,407,000, or 43%, increase as compared to the same time period of the prior year. The increase in net income for both time periods was driven by higher net interest income due to increased volume of earning assets and yields.   

Profitability as measured by the Company’s return on average assets (“ROA”) increased to 0.96% for the six months ended June 30, 2023, as compared to 0.65% for the same time period of 2022. Correspondingly, return on average equity (“ROE”) increased to 15.65% for the six months ended June 30, 2023, as compared to 11.32% for the same time period of the prior year.  

“We are pleased with Pinnacle’s performance thus far in 2023 and our improvement as compared to last year,” stated Aubrey H. Hall, III, President and Chief Executive Officer for both the Company and the Bank. Mr. Hall further commented, “Second quarter net income declined compared to our record high first quarter due to increased cost of funds and net overhead, as expected.   Despite these increased costs, we remain optimistic regarding the second half of 2023 based on Pinnacle’s liquidity position and asset quality combined with the potential for higher asset yields.”

The Company generated $8,234,000 in net interest income for the second quarter of 2023, which represents a $912,000, or 12%, increase as compared to $7,322,000 for the second quarter of 2022. Interest income increased $2,746,000, or 36%, due to higher yield on earning assets, while interest expense increased $1,834,000, or 655%, due to higher volume of deposits and interest rates paid.

The Company generated $16,567,000 in net interest income for the first half of 2023, which represents a 23% increase as compared to the $13,446,000 for the same time period of 2022. Interest income increased $6,191,000, or 44%, as yield on earning assets increased 139 basis points to 4.34%. Interest expense increased $3,070,000, or 534%, due to higher volume of deposits and interest rates paid as cost to fund earning assets increased 66 basis points to 0.78%. Net interest margin increased to 3.56% for the first half of 2023 from 2.83% for the first half of 2022.  

The provision for credit losses was $62,000 for the first half of 2023 as compared to $36,000 for the same time period of the prior year, with only $1,000 incurred during the second quarter. Provision expense has been minimal thus far this year as a result of strong credit quality and a decline in loan volume.

The allowance for credit losses was $4,439,000 as of June 30, 2023, which represented 0.71% of total loans outstanding.   In comparison, the allowance for credit losses was $3,853,000 or 0.61% of total loans outstanding as of December 31, 2022. Non-performing loans to total loans decreased to 0.23% as of June 30, 2023, compared to 0.27% as of year-end 2022. Allowance coverage of non-performing loans was 314% as of June 30, 2023, compared to 227% as of year-end 2022.   The allowance for credit losses includes an initial current expected credit losses (CECL) adjustment of $559,000 incurred during the first quarter of 2023, which was a charge to capital. Management views the allowance balance as being sufficient to offset potential future losses in the loan portfolio.

Noninterest income for the second quarter of 2023 decreased $107,000, or 6%, to $1,558,000 as compared to $1,665,000 for the second quarter of 2022. The decline was mainly due to a $105,000 decrease in fees generated from sales of mortgage loans. Mortgage loan originations have been challenged over the past year by higher interest rates and housing inventory shortages.

Noninterest income for the first half of 2023 decreased $358,000, or 10%, to $3,300,000, as compared to $3,658,000 for the first half of 2022. The decrease was mainly due to a $260,000 decrease in fees generated from sales of mortgage loans, a $68,000 decrease in loan fee income, and a $66,000 decrease in income received from Bankers Insurance. These decreases were partially offset by a $37,000 increase in non-sufficient funds (NSF) fees and a $29,000 increase in merchant card fees.  

Noninterest expense for the second quarter of 2023 increased $608,000, or 9%, to $7,202,000 compared to $6,594,000 for the second quarter of 2022. The increase was mainly due to a $461,000 increase in salaries and benefits driven by employee pay improvement plans. The Bank also experienced a $54,000 increase in occupancy expense, due mainly to repairs, and a $35,000 increase in advertising expense.

Noninterest expense for the first half of 2023 increased $1,057,000, or 8%, to $13,979,000, compared to $12,922,000 for the first half 2022. The increase was mainly due to an $817,000 increase in salaries and employee benefits. The Bank also experienced a $113,000 increase in occupancy expenses, a $75,000 increase in core operating system expenses, and a $68,000 increase in audit and accounting fees.  

Total assets as of June 30, 2023, were $1,002,886,000, up 3% from $969,931,000 as of December 31, 2022. The principal components of the Company’s assets as of June 30, 2023, were $622,794,000 in total loans, $238,020,000 in securities, and $93,218,000 in cash and cash equivalents. During the first half of 2023, total loans decreased approximately $10,102,000, or 2%, from $632,896,000 as of December 31, 2022.   Securities decreased $13,094,000, or 5%, during the first half of 2023, while cash and cash equivalents increased $56,697,000, or 155%.  

The majority of the Company’s securities portfolio is relatively short-term in nature. Sixty percent (60%) of the Company’s securities portfolio is invested in U.S. Treasuries with an average maturity of 1.79 years with $66,000,000 maturing throughout 2023 and 2024. The Company’s entire security portfolio was classified as available for sale on June 30, 2023, which provides transparency regarding unrealized losses. Unrealized losses associated with the available for sale securities portfolio were $18,334,000 as of June 30, 2023, or seven percent (7%) of book value, an improvement from $19,892,000 as of December 31, 2022.  

The significant increase in cash and cash equivalents referenced is due to the decrease in loans and securities combined with an increase in deposits. The Company had a strong liquidity ratio of 39% as of June 30, 2023. The liquidity ratio excluding the available for sale securities portfolio was 11% providing the opportunity to sell excess funds at an attractive federal funds rate. The Company has access to multiple liquidity lines of credit through its correspondent banking relationships and the Federal Home Loan Bank, if needed. Additionally, the Company now has access to the Federal Reserve’s term funding program for contingency purposes.

Total liabilities as of June 30, 2023, were $941,210,000, up $28,287,000, or 3%, from $912,923,000 as of December 31, 2022, as deposits increased $27,408,000, or 3%, to $926,646,000 during the first half of 2023. First National Bank’s number of deposit accounts increased 4.54% during the same time period as the Bank has benefitted from the closures of large national bank branches within markets served and its reputation of providing extraordinary customer service.

Total stockholders’ equity as of June 30, 2023, was $61,677,000 and consisted primarily of $57,867,000 in retained earnings. In comparison, as of December 31, 2022, total stockholders’ equity was $57,008,000. The increase in stockholders’ equity is due mainly to 2023 year-to-date profitability and an increase in the market value of the securities portfolio and pension assets.   Both the Company and Bank remain “well capitalized” per all regulatory definitions.

Pinnacle Bankshares Corporation is a locally managed community banking organization based in Central and Southern Virginia. The one-bank holding company of First National Bank serves market areas consisting primarily of all or portions of the Counties of Amherst, Bedford, Campbell and Pittsylvania, and the Cities of Charlottesville, Danville and Lynchburg. The Company has a total of eighteen branches with one branch in Amherst County within the Town of Amherst, two branches in Bedford County; five branches in Campbell County, including two within the Town of Altavista, where the Bank was founded; one branch in the City of Charlottesville, three branches in the City of Danville; three branches in the City of Lynchburg; and three branches in Pittsylvania County, including one within the Town of Chatham. First National Bank is celebrating its 115th year of 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, including statements made in Mr. Hall’s quotes 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, our cost of funds, the maintenance of our net interest margin, future operating results and business performance and our growth initiatives.. 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: changes in consumer spending and saving habits that may occur, including increased inflation; changes in general business, economic and market conditions; attracting, hiring, training, motivating and retaining qualified employees; changes in fiscal and monetary policies, and laws and regulations; changes in interest rates, inflation rates, deposit flows, loan demand and real estate values; changes in the quality or composition of the Company’s loan portfolio and the value of the collateral securing loans; changes in macroeconomic trends and uncertainty, including liquidity concerns at other financial institutions, and the potential for local and/or global economic recession; changes in demand for financial services in Pinnacle’s market areas; increased competition from both banks and non-banks in Pinnacle’s market areas; a deterioration in credit quality and/or a reduced demand for, or supply of, credit; increased information security risk, including cyber security risk, which may lead to potential business disruptions or financial losses; volatility in the securities markets generally, including in the value of securities in the Company’s securities portfolio or in the market price of Pinnacle common stock specifically; and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.   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.

CONTACT: Pinnacle Bankshares Corporation, Bryan M. Lemley, 434-477-5882 or bryanlemley@1stnatbk.com