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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

or

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 000-23909

 

 

PINNACLE BANKSHARES CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

VIRGINIA		54-1832714
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

622 Broad Street

Altavista, Virginia 24517

(Address of principal executive offices) (Zip Code)

(434) 369-3000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		¨		Accelerated filer		¨
Non-accelerated filer		¨  (Do not check if a smaller reporting company)		Smaller reporting company		x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

At November 10, 2011, 1,496,589 shares of Pinnacle Bankshares Corporation’s common stock, $3 par value, were outstanding.

 

 

 

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PINNACLE BANKSHARES CORPORATION

FORM 10-Q

September 30, 2011

INDEX

 

				Page Number
Part I. FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)
		Consolidated Balance Sheets			3
		Consolidated Statements of Income			4-5
		Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income			6
		Consolidated Statements of Cash Flows			7
		Notes to Consolidated Financial Statements			8-20
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			21-39
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			39
Item 4.		Controls and Procedures			39-40
Part II. OTHER INFORMATION
Item 1.		Legal Proceedings			40
Item 6.		Exhibits			40-42
SIGNATURES					43

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands of dollars, except for share amounts)

 

		September 30, 2011 (Unaudited)				December 31, 2010*
Assets
Cash and cash equivalents (note 2):
Cash and due from banks		$	43,252			$	32,533
Securities (note 3):
Available-for-sale, at fair value			18,180				22,048
Held-to-maturity, at amortized cost			5,998				4,469
Federal Reserve Bank stock, at cost			137				135
Federal Home Loan Bank stock, at cost			541				579
Loans, net (note 4)			264,843				265,030
Bank premises and equipment, net			6,661				6,932
Accrued interest receivable			942				1,077
Prepaid FDIC Insurance			1,061				1,376
Goodwill			539				539
Foreclosed Assets			743				474
Other assets			2,349				1,921
Total assets		$	345,246			$	337,113
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Demand		$	35,075			$	31,184
Savings and NOW accounts			131,737				117,944
Time			147,088				157,826
Total deposits			313,900				306,954
Note payable under line of credit			2,000				2,000
Accrued interest payable			412				500
Other liabilities			1,338				1,177
Total liabilities			317,650				310,631
Stockholders’ equity:
Common stock, $3 par value. Authorized 3,000,000 shares, issued and outstanding 1,496,589 shares at September 30, 2011 and 1,495,589 at December 31, 2010			4,471				4,462
Capital surplus			907				850
Retained earnings			22,759				21,918
Accumulated other comprehensive loss, net			(541	)			(748	)
Total stockholders’ equity			27,596				26,482
Total liabilities and stockholders’ equity		$	345,246			$	337,113

 

*	Derived from audited consolidated financial statements.

See accompanying notes to unaudited consolidated financial statements.

 

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PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Amounts in thousands of dollars, except for per share amounts)

 

		Three Months Ended September 30, 2011				Three Months Ended September 30, 2010
Interest income:
Interest and fees on loans		$	3,979			$	3,929
Interest on securities:
U.S. government corporations and agencies			107				112
States and political subdivisions (taxable)			29				36
States and political subdivisions (tax exempt)			41				25
Other			15				21
Interest on federal funds sold			1				1
Total interest income			4,172				4,124
Interest expense:
Interest on deposits:
Savings and NOW accounts			155				327
Time - under $100			571				764
Time - $100 and over			340				379
Total interest expense			1,066				1,470
Net interest income			3,106				2,654
Provision for loan losses			309				191
Net interest income after provision for loan losses			2,797				2,463
Noninterest income:
Service charges and fees on deposit accounts			372				391
Fees on originations of mortgage loans			160				206
Commissions and fees from investments and insurance sales			147				129
Other			179				129
Total noninterest income			858				855
Noninterest expense:
Salaries and employee benefits			1,459				1,523
Occupancy expense			184				186
Furniture and equipment			265				234
Office supplies and printing			53				61
Federal deposit insurance premiums			69				118
Capital stock tax			57				56
Advertising expense			26				31
Other			637				555
Total noninterest expense			2,750				2,764
Income before income tax expense			905				554
Income tax expense			297				180
Net income		$	608			$	374
Basic net income per share (note 5)		$	0.40			$	0.25
Diluted net income per share (note 5)		$	0.40			$	0.25

See accompanying notes to unaudited consolidated financial statements.

 

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PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Amounts in thousands of dollars, except for per share amounts)

 

		Nine Months Ended September 30, 2011				Nine Months Ended September 30, 2010
Interest income:
Interest and fees on loans		$	11,802			$	11,754
Interest on securities:
U.S. government corporations and agencies			336				303
Corporate			—				3
States and political subdivisions (taxable)			88				120
States and political subdivisions (tax exempt)			126				75
Other			56				58
Interest on federal funds sold			2				3
Total interest income			12,410				12,316
Interest expense:
Interest on deposits:
Savings and NOW accounts			584				996
Time - under $100			1,800				2,357
Time - $100 and over			1,016				1,142
Total interest expense			3,400				4,495
Net interest income			9,010				7,821
Provision for loan losses			1,691				963
Net interest income after provision for loan losses			7,319				6,858
Noninterest income:
Service charges and fees on deposit accounts			1,075				1,108
Fees on originations of mortgage loans			289				362
Commissions and fees from investments and insurance sales			574				366
Other			454				404
Total noninterest income			2,392				2,240
Noninterest expense:
Salaries and employee benefits			4,540				4,449
Occupancy expense			538				542
Furniture and equipment			785				737
Office supplies and printing			167				225
Federal deposit insurance premiums			338				374
Capital stock tax			172				169
Advertising expense			73				98
Other			1,880				1,590
Total noninterest expense			8,493				8,184
Income before income tax expense			1,218				914
Income tax expense			377				290
Net income		$	841			$	624
Basic net income per share (note 5)		$	0.56			$	0.42
Diluted net income per share (note 5)		$	0.56			$	0.42

See accompanying notes to unaudited consolidated financial statements.

 

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PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

Nine Months Ended September 30, 2011 and 2010

(Unaudited)

(Amounts in thousands of dollars, except for share amounts)

 

																		Accumulated
																		Other
		Common Stock								Capital Surplus				Retained Earnings				Comprehensive Income (Loss)				Total
		Shares				Par Value
Balances, December 31, 2009			1,485,089			$	4,455			$	787			$	21,306			$	(697	)		$	25,851
Net income			—				—				—				624				—				624
Change in net unrealized gains on available-for-sale securities, net of deferred income tax expense of $96			—				—				—				—				164				164
Restricted stock expense			10,500				5				10												15
Stock option expense											29												29
Balances, September 30, 2010			1,495,589			$	4,460			$	826			$	21,930			$	(533	)		$	26,683

 

																		Accumulated
																		Other
		Common Stock								Capital Surplus				Retained Earnings				Comprehensive Income (Loss)				Total
		Shares				Par Value
Balances, December 31, 2010			1,495,589			$	4,462			$	850			$	21,918			$	(748	)		$	26,482
Net income			—				—				—				841				—				841
Change in net unrealized gains on available-for-sale securities, net of deferred income tax expense of $107			—				—				—				—				207				207
Restricted stock expense			1,000				9				21												30
Stock option expense											36												36
Balances, September 30, 2011			1,496,589			$	4,471			$	907			$	22,759			$	(541	)		$	27,596

See accompanying notes to unaudited consolidated financial statements.

 

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PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands of dollars)

 

		Nine Months Ended September 30, 2011				Nine Months Ended September 30, 2010
Cash flows from operating activities:
Net income		$	841			$	624
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of bank premises and equipment			407				385
Accretion of unearned fees, net			—				(20	)
Net amortization of premiums and discounts on securities			44				47
Provision for loan losses			1,691				949
Accrual of stock based compensation			66				29
Net decrease (increase) in:
Accrued interest receivable			135				58
Prepaid FDIC insurance			315				347
Other assets			(475	)			392
Net increase (decrease) in:
Accrued interest payable			(88	)			(71	)
Other liabilities			161				325
Net cash provided by operating activities			3,097				3,065
Cash flows from investing activities:
Purchases of available-for-sale securities			(8,770	)			(13,325	)
Purchases of held-to-maturity securities			(1,550	)			(4,342	)
Proceeds from maturities and calls of held-to-maturity securities			—				1,000
Proceeds from maturities and calls of available-for-sale securities			12,645				8,899
Proceeds from paydowns and maturities of available-for-sale mortgage-backed securities			286				233
Purchase of Federal Reserve Bank stock			(2	)			(30	)
Sale of Federal Home Loan Bank stock			38				—
Net decrease (increase) in loans made to customers			(1,835	)			4,092
Purchases of bank premises and equipment			(136	)			(67	)
Net cash provided by (used in) investing activities			676				(3,540	)
Cash flows from financing activities:
Net increase in demand, savings and NOW deposits			17,684				6,260
Net decrease in time deposits			(10,738	)			(4,862	)
Net cash provided by financing activities			6,946				1,398
Net increase in cash and cash equivalents			10,719				923
Cash and cash equivalents, beginning of period			32,533				32,060
Cash and cash equivalents, end of period		$	43,252			$	32,983
See accompanying notes to unaudited consolidated financial statements.
Supplemental disclosure of noncash activities
Net change in other assets acquired in settlement of loans		$	331			$	194

 

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PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2011 (Unaudited)

(Amounts in thousands of dollars, except share and per share data)

 

(1)

General

The consolidated financial statements include the accounts of Pinnacle Bankshares Corporation (“Bankshares”) and its wholly-owned subsidiary, First National Bank (the “Bank”), (collectively the “Company”). All material intercompany accounts and transactions have been eliminated. The unaudited consolidated financial statements conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and to general banking industry practices. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all adjustments of a normal recurring nature, necessary to present fairly the financial position as of September 30, 2011, the results of operations for the three months and nine months ended September 30, 2011 and 2010, and changes in stockholders’ equity and comprehensive income and cash flows for the nine months ended September 30, 2011 and 2010.

These interim period consolidated financial statements and financial information should be read in conjunction with the consolidated financial statements and notes thereto included in Bankshares’ 2010 Annual Report to Shareholders and additional information supplied in the 2010 Annual Report on Form 10-K.

The results of operations for the interim periods ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year ending December 31, 2011.

The Company has a single reportable segment for purposes of segment reporting.

 

(2)	Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing deposits, and federal funds sold. At September 30, 2011 and December 31, 2010, the Company had no federal funds sold.

 

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(3)	Securities

The amortized costs, gross unrealized gains, gross unrealized losses, and fair values for securities at September 30, 2011 and December 31, 2010, are shown in the table below. As of September 30, 2011, securities with amortized costs of $4,318 and fair values of $4,447 were pledged as collateral for public deposits and securities with amortized costs of $495 and fair values of $536 were pledged as collateral with the Federal Reserve Bank.

 

		September 30, 2011
Available-for-Sale:		Amortized Costs				Gross Unrealized Gains				Gross Unrealized Losses				Fair Values
Obligations of U.S. government corporations and agencies		$	13,558			$	203			$	—			$	13,761
Obligations of states and political subdivisions			3,173				135				—				3,308
Mortgage-backed securities- government			923				78				—				1,001
Other securities			110				—				—				110
Totals		$	17,764			$	416			$	—			$	18,180

 

Held-to-Maturity:		Amortized Costs				Gross Unrealized Gains				Gross Unrealized Losses				Fair Values
Obligations of states and political subdivisions		$	5,998			$	176			$	—			$	6,174

 

		December 31, 2010
Available-for-Sale:		Amortized Costs				Gross Unrealized Gains				Gross Unrealized Losses				Fair Values
Obligations of U.S. government corporations and agencies		$	17,247			$	168			$	(219	)		$	17,196
Obligations of states and political subdivisions			3,381				90				—				3,471
Mortgage-backed securities-government			1,211				60				—				1,271
Other securities			110				—				—				110
Totals		$	21,949			$	318			$	(219	)		$	22,048

 

 

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Held-to-Maturity:		Amortized Costs				Gross Unrealized Gains				Gross Unrealized Losses				Fair Values
Obligations of states and political subdivisions		$	4,469			$	34			$	103			$	4,400

The Company evaluates securities in a loss position for other-than-temporary impairment, considering such factors as the length of time and the extent to which the market value has been below cost, the credit standing of the issuer and the Company’s ability and intent to hold the security until its market value recovers. Activity related to the credit loss component of other-than-temporary impairment is recognized in earnings. For debt securities, the portion of other-than-temporary impairment related to all other factors is recognized in other comprehensive income. The primary cause of the temporary impairments in the Company’s investments in debt securities was fluctuations in interest rates. Because the Company intends to hold these investments to maturity and it is more likely than not that the Company will not be required to sell these investments before a recovery of unrealized losses, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2011 and no impairment has been recognized. The Company had no other-than-temporary impairments in its securities portfolios as of September 30, 2011.

The Company’s investment in Federal Home Loan Bank (“FHLB”) stock totaled $541 at September 30, 2011. FHLB stock is generally viewed as a long-term investment and as a restricted investment security, which is carried at cost, because there is no market for the stock, other than the FHLBs or member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.

FHLB and Federal Reserve stock are shown as separate line items on the balance sheet and are not part of the available for sale securities portfolio.

 

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(4)	Allowance for Loan Losses

Activity in the allowance for loan losses for the nine months ended September 30, 2011 and 2010, and for the year ended December 31, 2010 is as follows:

 

		September 30, 2011				December 31, 2010				September 30, 2010
Balance at January 1,		$	4,037			$	3,723			$	3,723
Provision for loan losses			1,691				1,878				964
Loans charged off			(1,832	)			(1,765	)			(1,061	)
Recoveries			176				201				127
Balance at end of period,		$	4,072			$	4,037			$	3,753

 

(5)	Net Income Per Share

Basic net income per share excludes dilution and is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the net income of the Company. For the nine months ended September 30, 2011 and 2010, there were no potentially dilutive securities or other contracts to issue common stock outstanding.

The following is a reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the periods indicated:

 

Three months Ended September 30, 2011		Net Income (Numerator)				Shares (Denominator)				Per Share Amount
Basic net income per share		$	608				1,496,589			$	0.40
Effect of dilutive stock options			—				—
Diluted net income per share		$	608				1,496,589			$	0.40
Three months Ended September 30, 2010
Basic net income per share		$	374				1,495,589			$	0.25
Effect of dilutive stock options			—				—
Diluted net income per share		$	374				1,495,589			$	0.25

 

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Nine months Ended September 30, 2011		Net Income (Numerator)				Shares (Denominator)				Per Share Amount
Basic net income per share		$	841				1,496,149			$	0.56
Effect of dilutive stock options			—				—
Diluted net income per share		$	841				1,496,149			$	0.56
Nine months Ended September 30, 2010
Basic net income per share		$	624				1,490,974			$	0.42
Effect of dilutive stock options			—				—
Diluted net income per share		$	624				1,490,974			$	0.42

 

(6)	Comprehensive Income

The following table presents comprehensive income for the interim periods indicated below:

 

		Three months Ended
		September 30, 2011				September 30, 2010
Net income		$	609			$	374
Change in net unrealized gains on available-for-sale securities, net of deferred income taxes			47				44
Total comprehensive income		$	656			$	418

 

		Nine months Ended
		September 30, 2011				September 30, 2010
Net income		$	841			$	624
Change in net unrealized gains on available-for-sale securities, net of deferred income taxes			207				164
Total comprehensive income		$	1,048			$	788

 

(7)	Fair Value Measurement

Effective January 1, 2008, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures. ASC 820, which was issued in September 2006, establishes a framework for using fair value. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

In accordance with ASC 820, the Company groups its financial assets and financial liabilities in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The most significant instruments that the Company measures at fair value

 

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include securities available-for-sale. At December 31, 2010 and September 30, 2011, all securities available-for-sale fall into Level 2 of the fair value hierarchy. Valuation methodologies for the fair value hierarchy are as follows:

Level 1 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange, are the quoted prices for identical assets and liabilities. The Company had no Level 1 assets or liabilities on September 30, 2011 or December 31, 2010.

Level 2 – Valuations for assets and liabilities are obtained from readily available pricing sources via independent providers for market transactions involving similar assets or liabilities. The Company’s principal market for these securities is the secondary institutional markets and valuations are based on observable market data in those markets. Level 2 securities include U.S. government corporation and agency obligations, state and municipal bonds, mortgage-backed securities and corporate debt obligations.

Level 3 – Valuations for assets and liabilities are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and are not based on market exchange, dealer, or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining fair value assigned to such assets and liabilities. Level 3 assets consisted of goodwill on September 30, 2011 and December 31, 2010. The Company had no Level 3 liabilities on September 30, 2011 and December 31, 2010.

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Available-for-Sale Securities

Available-for-sale securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available, and would in such case be included as a Level 1 asset. The Company currently carries no Level 1 securities. If quoted prices are not available, valuations are obtained from readily available pricing sources from independent providers for market transactions involving similar assets or liabilities. The Company’s principal market for these securities is the secondary institutional markets, and valuations are based on observable market data in those markets. These would be classified as Level 2 assets. The Company’s entire available-for-sale securities portfolio is classified as Level 2 securities. The Company currently carries no Level 3 securities for which fair value would be determined using unobservable inputs.

 

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Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC 310, Receivables. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of a similar debt, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans at which fair value of the expected repayments or collateral exceed the recorded investments in such loans. At September 30, 2011 and December 31, 2010, substantially all of the impaired loans were evaluated based on the fair value of the collateral. In accordance with ASC 820, impaired loans for which an allowance is established based on the fair value of the collateral or those that are written-down to the fair value of the collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as a nonrecurring Level 2 asset. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as a nonrecurring Level 3 asset. Impaired loans totaled $5,440 at September 30, 2011, all of which were Level 3 assets.

Foreclosed Assets

Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value less estimated costs to sell. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on observable market price or a current appraised value, the Company records the foreclosed asset as a nonrecurring Level 2 asset. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as a nonrecurring Level 3 asset. Foreclosed assets totaled $743 at September 30, 2011, all of which were Level 3 assets.

 

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Below is a table that presents information about certain assets and liabilities measured at fair value:

Fair Value Measurements on September 30, 2011

 

Description		Total Carrying Amount in the Consolidated Balance Sheet 9/30/2011				Assets/Liabilities Measured at Fair Value 9/30/2011				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Available-for-sale securities		$	18,180			$	18,180				—			$	18,180				—
Impaired loans (nonrecurring)		$	5,440			$	5,440				—				—			$	5,440
Foreclosed assets (nonrecurring)		$	743			$	743				—				—			$	743

 

(8)	Fair Value of Financial Instruments

The methods and assumptions used by the Company in estimating fair values of financial instruments are disclosed in the Company’s 2010 Annual Report on Form 10-K. The carrying amounts and estimated fair values of the Company’s financial instruments as of September 30, 2011 and December 31, 2010 are as follows:

 

		September 30, 2011								December 31, 2010
		Carrying				Approximate				Carrying				Approximate
		amounts				fair values				amounts				fair values
Financial assets:
Cash and due from banks		$	43,252			$	43,252			$	32,533			$	32,533
Securities:
Available-for-sale			18,180				18,180				22,048				22,048
Held-to-maturity			5,998				6,174				4,469				4,400
Federal Reserve Bank stock			137				137				135				135
Federal Home Loan Bank stock			541				541				579				579
Loans, net of unearned income and fees			264,843				274,609				265,030				270,488
Accrued interest receivable			942				942				1,077				1,077
Total financial assets		$	333,893			$	343,835			$	325,871			$	331,260
Financial liabilities:
Deposits		$	313,900			$	319,740			$	306,954			$	312,863
Accrued interest payable			412				412				500				500
Line of credit			2,000				2,000				2,000				2,000
Total financial liabilities		$	316,312			$	322,152			$	309,454			$	315,363

 

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(9)	Stock-Based Compensation

The Company has two incentive stock-based plans. The 1997 Incentive Stock Plan (the “1997 Plan”), pursuant to which Bankshares’ Board of Directors could grant stock options to officers and key employees, became effective as of May 1, 1997. The 1997 Plan authorized grants of options to purchase up to 50,000 shares of the Company’s authorized but unissued common stock. Accordingly, 50,000 shares of authorized but unissued common stock were reserved for use in the 1997 Plan. All stock options were granted with an exercise price equal to the stock’s fair market value at the date of grant. At September 30, 2011, there were no additional shares available for grant under the 1997 Plan as the plan expired on May 1, 2007.

A summary of stock option activity under the 1997 Plan follows:

 

		Number of Shares				Range of Per Option Price		Weighted- Aggregate Per Share Price				Aggregate Option Price
Outstanding at December 31, 2010			17,000			$14.00-14.75		$	14.33			$	244
Outstanding at September 30, 2011			7,500			$14.00-14.00		$	14.00			$	105

The 2004 Incentive Stock Plan (the “2004 Plan”), pursuant to which Bankshares’ Board of Directors may grant stock options and other equity awards to officers and key employees, was approved by shareholders on April 13, 2004 and became effective as of May 1, 2004. On February 9, 2010, Bankshares’ Board of Directors amended the 2004 Plan to expand the types of awards that can be granted under the plan. As amended, the 2004 Plan authorizes the issuance of up to 100,000 shares of the Company’s authorized but unissued common stock through awards of stock options, restricted stock, restricted stock units, stock appreciation rights and stock awards.

Accordingly, 100,000 shares of authorized but unissued common stock have been reserved for use in the 2004 Plan. All stock options are granted with an exercise price equal to or greater than the stock’s fair market value at the date of grant. The options will expire ten years from the date of grant. At September 30, 2011, 11,500 shares of restricted stock and 37,500 incentive stock options with tandem stock appreciation rights had been granted under the 2004 Plan and 51,000 shares were available for grant under the 2004 Plan.

A summary of stock option activity under the 2004 Plan follows:

 

		Number of Shares				Range of Per Option Price		Weighted- Aggregate Per Share Price				Aggregate Option Price
Outstanding at December 31, 2010			37,500			$9.00–9.00		$	9.00			$	338
Outstanding at September 30, 2011			37,500			$9.00-9.00		$	9.00			$	338

 

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A summary of restricted stock activity under the 2004 Plan follows:

 

		Number of Shares				Weighted- Average Grant Date Fair Value
Outstanding at December 31, 2010			10,500			$	9.00
Outstanding at September 30, 2011			11,500			$	8.96

Effective January 1, 2006, the Company adopted ASC 718, Stock Compensation (formerly SFAS No. 123(R), Share-Based Payment), using the modified prospective method and, accordingly, did not restate the consolidated statements of operations for periods prior to January 1, 2006. Under ASC 718, the Company measures compensation cost for all stock-based awards at fair value on the date of grant and recognizes compensation expense in the consolidated statements of income over the service period for which the awards are expected to vest. The stock-based compensation expensed to salaries and employee benefits was $65 in the first nine months of 2011 and $18 in the third quarter of 2011.

 

(10)	Impact of Recently Issued and Adopted Accounting Standards

In July 2010, the Receivables topic of the ASC was amended by Accounting Standards Update (“ASU”) No. 2010-20 to require expanded disclosures related to a company’s allowance for credit losses and the credit quality of its financing receivables. The amendments require the allowance disclosures to be provided on a disaggregated basis. The Company is required to include these disclosures in its interim and annual financial statements. Disclosures about troubled debt restructurings (“TDRs”) required by ASU 2010-20 were deferred by the FASB in ASU 2011-01 issued in January 2011. In April 2011, the FASB issued ASU 2011-02 to assist creditors with their determination of when a restructuring is a TDR. The determination is based on whether the restructuring constitutes a concession and whether the debtor is experiencing financial difficulties as both events must be present. Disclosures related to TDRs under ASU 2010-20 are effective for reporting periods beginning after June 15, 2011. The Company does not expect the adoption of this ASU to have a material effect on its consolidated financial statements.

In April 2011, the FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. The ASU is intended to improve financial reporting of repurchase agreements (“repos”) and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. In a typical repo transaction, an entity transfers financial assets to a counterparty in exchange for cash with an agreement for the counterparty to return the same or equivalent financial assets for a fixed price in

 

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the future. FASB ASC Topic 860, Transfers and Servicing, prescribes when an entity may or may not recognize a sale upon the transfer of financial assets subject to repo agreements. That determination is based, in part, on whether the entity has maintained effective control over the transferred financial assets. The amendments to the Codification in this ASU are intended to improve the accounting for these transactions by removing from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets. The guidance in the ASU is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The Company is currently in the process of evaluating the impact that this ASU may have on the consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB and the International Accounting Standards Board (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments to the FASB Accounting Standards Codification in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The Company is currently in the process of evaluating the impact that this ASU may have on the consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU amends the FASB Accounting Standards Codification to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other

 

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comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material effect on its consolidated financial statements other than the change in presentation of comprehensive income when this ASU is adopted.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The Company does not expect the adoption of this ASU to have a material effect on its consolidated financial statements.

The Company adopted the amendments in ASU No. 2011-02 during the current period ended September 30, 2011. As required, the Company reassessed all restructurings that occurred on or after the beginning of the current fiscal year (January 1, 2011) for identification as troubled debt restructurings. The Company identified as troubled debt restructurings certain receivables for which the allowance for credit losses had previously been measured under a general allowance for credit losses methodology (ASC 450-20). Upon identifying the reassessed receivables as troubled debt restructurings, the Company also identified them as impaired under the guidance in ASC 310-10-35. The amendments in ASU No. 2011-02 require prospective application of the impairment measurement guidance in Section 310-10-35 for those receivables newly identified as impaired. At the end of the first interim period of adoption for the Company (September 30, 2011), the recorded investment in receivables for which the allowance for credit losses was previously measured under a general allowance for credit losses methodology and

 

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are now impaired under Section 310-10-35 was $3,789 (310-40-65-1(b)), and the allowance for credit losses associated with those receivables, on the basis of a current evaluation of loss, was $172 (310-40-65-1(b)).

As of November 10, 2011, there are no other new accounting standards issued, but not yet adopted by the Company, which are expected to be applicable to the Company’s financial position, operating results or financial statement disclosures.

 

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Amounts in thousands of dollars, except as otherwise indicated)

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

The following discussion is qualified in its entirety by the more detailed information and the unaudited consolidated financial statements and accompanying notes appearing elsewhere in this Form 10-Q.

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, which are not statements of historical fact and are based on current assumptions and describe future plans, strategies, and expectations of management, are generally identifiable by use of words such as “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “may,” “will” or similar expressions. Forward-looking statements in this report include, without limitation, statements regarding asset quality, possible future actions to manage the credit quality of the loan portfolio, adequacy of the allowance for loan losses, adequacy of liquidity and capital levels, and expectations regarding the future economic and employment environment. Although we believe our plans, intentions and expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these plans, intentions, or expectations will be achieved. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain, and actual results, performance or achievements could differ materially from those contemplated in such statements. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in interest rates; declining collateral values, especially in the real estate market; general economic conditions, including continued deterioration in general business conditions and in the financial markets; unemployment levels; deterioration in the value of securities held in our investment securities portfolio; the legislative/regulatory climate, including the effect the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and regulations adopted thereunder may have on the Company; regulatory compliance costs; 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; the quality or composition of the loan and/or investment portfolios; the level of net loan charge-offs and adequacy of the allowance for loan losses; demand for loan products; deposit flows and funding costs; competition; demand for financial services in our market area; and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking

 

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statements contained herein. We base our forward-looking statements on management’s beliefs and assumptions based on information available as of the date of this report. You should not place undue reliance on such statements; forward-looking statements are not guarantees of future performance and a variety of factors could cause actual results to differ materially from the anticipated or expected results expressed in or suggested by these forward-looking statements. We undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.

In addition, we experienced increases in loan losses during the difficult economic climate from 2008 through 2011. Future difficulties in portions of the domestic and global financial markets could further impact our performance, both directly by affecting our revenues and the value of our assets and liabilities, and indirectly by affecting our counterparties and the economy generally. Dramatic declines in the residential and commercial real estate markets in recent years have resulted in significant write-downs of asset values by financial institutions in the United States. Concerns about the condition of the U.S. financial markets generally have reduced the availability of funding to certain financial institutions, leading to a tightening of credit, reduction of business activity, and increased market volatility. There can be no assurance that the actions taken by the federal government and regulatory agencies will alleviate the industry or economic factors that may adversely affect the Company’s business and financial performance. It also is not clear what effects the Dodd-Frank Act and related regulations or other future regulatory reforms may have on financial markets, the financial services industry and depositary institutions, and consequently on the Company’s business and financial performance.

THE COMPANY

Pinnacle Bankshares Corporation, a Virginia corporation (“Bankshares”), was organized in 1997 and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. Bankshares is headquartered in Altavista, Virginia, and conducts all of its business activities through the branch offices of its wholly-owned subsidiary bank, First National Bank (the “Bank”). Bankshares exists primarily for the purpose of holding the stock of its subsidiary, the Bank, and of such other subsidiaries as it may acquire or establish.

The following discussion supplements and provides information about the major components of the results of operations and financial condition, liquidity and capital resources of Bankshares and the Bank (collectively the “Company”). This discussion and analysis should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes.

 

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OVERVIEW AND RESULTS OF OPERATIONS

Total assets at September 30, 2011 were $345,246 up 2.41% from $337,113 at December 31, 2010. The principal components of the Company’s assets at the end of the period were $264,843 in net loans, $43,252 in cash and cash equivalents and $24,178 in securities. During the nine-month period ended September 30, 2011, net loans decreased 0.07% or $187 from $265,030 at December 31, 2010. Cash and cash equivalents increased 32.95% or $10,719 due mainly to an increase in deposits and maturities and calls of securities as securities decreased 8.82% or $2,339 from December 31, 2010.

Total liabilities at September 30, 2011 were $317,650, up 2.26% from $310,631 at December 31, 2010, primarily as a result of an increase in savings and NOW accounts of $13,793 or 11.69% and an increase in demand deposits of $3,891 or 12.48% partially offset by a decrease in time deposits of $10,738 or 6.80% from December 31, 2010. The decrease in time deposits was a result of management’s interest rate management strategy and a migration of certificate of deposit customers to our KaChing! interest checking account. The Company’s deposits are provided by individuals and businesses located within the communities the Company serves.

Total stockholders’ equity at September 30, 2011 was $27,596 including $22,759 in retained earnings and $541 of accumulated other comprehensive losses net of the related deferred tax asset, which represents net unrealized gains on available-for-sale securities and the funded status of the Company’s defined benefit postretirement plan. At December 31, 2010, total stockholders’ equity was $26,482.

The Company had net income of $841 for the nine months ended September 30, 2011, compared with net income of $624 for the nine months ended September 30, 2010. The Company had net income of $608 for the three months ended September 30, 2011, compared with net income of $374 for the three months ended September 30, 2010. The increase in net income for the nine months ended September 30, 2011 was primarily due to an increase in net interest income, stemming from an improvement in net interest margin, as well as an increase in noninterest income. These improvements were partially offset by increases in our provision for loan losses and noninterest expense.

Profitability as measured by the Company’s return on average assets (“ROA”) was 0.33% for the nine months ended September 30, 2011, up from 0.25% for the same period of 2010. Another key indicator of performance, the return on average equity (“ROE”), for the nine months ended September 30, 2011 was 4.17%, up from 3.17% for the nine months ended September 30, 2010.

 

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The results of operations for the three-month and nine-month periods ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year ending December 31, 2011.

NET INTEREST INCOME

Net interest income represents the principal source of earnings for the Company. Changes in the amounts and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, have a significant impact on the level of net interest income.

Net interest income was $9,010 for the nine months ended September 30, 2011 compared to $7,821 for the nine months ended September 30, 2010 and is attributable to interest income from loans and securities exceeding the cost associated with interest paid on deposits. Net interest income was $3,106 for the three months ended September 30, 2011 compared to $2,654 for the three months ended September 30, 2010.

The net interest margin increased to 3.73% for the nine months ended September 30, 2011, from 3.34% for the nine months ended September 30, 2010, and was 3.80% versus 3.34% for the third quarter of 2011 and 2010, respectively. Over the past twelve months, rates paid to fund earning assets have fallen at a faster pace than the yield received on earning assets, resulting in improved net interest margin and net interest income.

Interest income increased 0.76% and 1.16% for the nine and three months ended September 30, 2011, respectively, compared to the same periods of 2010 as total loans increased by $4,473 since September 30, 2010 while the yield on interest-earning assets decreased by 13 basis points in the same time period. The decrease in yield on interest earning assets is due mainly to the lower interest rate environment.

Interest and fees on loans was $11,802 for the nine-month period ended September 30, 2011, up from $11,754 for the same period in 2010. Interest and fees on loans was $3,979 for the three-month period ended September 30, 2011, up from $3,929 for the same period in 2010. The slight increases in interest and fees on loans for the nine months and three months ended September 30, 2011 were due to an increase in total loans over the past year. Interest from securities and federal funds sold was $608 for the nine months ended September 30, 2011, up from $562 for the nine months ended September 30,

 

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2010. Interest from securities and federal funds sold was $193 for the three months ended September 30, 2011, down from $195 for the three months ended September 30, 2010. Interest from securities and federal funds sold for the nine months ended September 30, 2011 increased largely due to the Company’s increased securities portfolio in 2011 compared to 2010.

Interest expense was $3,400 for the nine months ended September 30, 2011, down from $4,495 for the nine months ended September 30, 2010. Interest expense was $1,066 for the three months ended September 30, 2011, down from $1,470 for the three months ended September 30, 2010.

Interest expense decreased 24.36% for the nine months ended September 30, 2011 and decreased 27.48% for the three months ended September 30, 2011, compared to the same periods of 2010. Deposits have increased by $10,383 in the past twelve months; however, the rate paid for deposits has fallen by 51 basis points in the same time period. The decrease in cost of deposits is due mainly to deposit repricing strategies employed by management in the lower interest rate environment.

NONINTEREST INCOME

Noninterest income increased $152 or 6.79% for the nine months ended September 30, 2011 compared to the same period of 2010. Noninterest income increased $3 or 0.35% for the three months ended September 30, 2011 compared to the same period of 2010. The Company’s principal sources of noninterest income are service charges and fees on deposit accounts, particularly transaction accounts, mortgage loan fees, and commissions and fees on the sale of investment products. The increase from the nine-month period in 2010 was due mainly to 56.83% increase in commissions and fees from the sales of investment products.

NONINTEREST EXPENSE

Noninterest expense increased $309 or 3.78% for the nine months ended September 30, 2011 compared to the same period of 2010. Noninterest expense decreased $14 or 0.51% for the three months ended September 30, 2011 compared to the same period of 2010. The increase in noninterest expense for the nine-month period is attributed primarily to a $91 increase in salaries and employee benefits due to higher commissions paid in connection with investment product sales. Noninterest expense also increased due to increased debit card costs and an increase in losses associated with foreclosed properties. These increases in expenses were partially offset by decreases in FDIC premiums, office supplies and advertising expenses. The decrease in noninterest expenses for the three-month period is attributed primarily to lower salary and FDIC premium costs.

 

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ALLOWANCE AND PROVISION FOR LOAN LOSSES

The Company expensed a provision for loan losses of $1,691 in the first nine months of 2011 and $309 in the third quarter of 2011 in recognition of management’s estimate of losses inherent in the loan portfolio. Among other factors, management considers the Company’s historical loss experience, the size and composition of the loan portfolio, the value and adequacy of collateral and guarantors, nonperforming loans, and current and anticipated economic conditions in making its estimate of risk. There are additional risks of future loan losses that cannot be precisely quantified or attributed to particular loans or classes of loans. Since those risks include general economic trends as well as conditions affecting individual borrowers, the allowance for loan losses is an estimate. The allowance is also subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology used to calculate the allowance. The allowance for loan losses was $4,072 as of September 30, 2011, representing approximately 1.51% of total loans outstanding, compared to an allowance of $4,037 as of December 31, 2010, or 1.50% of total loans then outstanding, and $3,753 as of September 30, 2010, or 1.42% of total loans then outstanding. At September 30, 2011 the allowance for loan losses was equal to 74.85% of the Company’s nonperforming loans.

The allowance for loan losses has been adjusted as management recognized weaknesses in the loan portfolio due to the economic downturn, depressed collateral values and an increased risk to some customers’ ability to service their loans due to job losses. Management believes the allowance was adequate as of September 30, 2011 to provide for probable loan losses inherent in the Company’s loan portfolio. The allowance was calculated in adherence to regulatory guidelines. However, no assurance can be given that unforeseen adverse economic conditions or other circumstances will not result in increased provisions in the future. Additionally, regulatory examiners may require the Company to recognize additions to the allowance based upon their judgment about information available to them at the time of their examinations. The Company expects to continue to experience some weaknesses in its loan portfolio throughout 2011 and is working to minimize its losses from nonaccrual and past due loans. Management evaluates the reasonableness of the allowance for loan losses on a quarterly basis and adjusts the provision and allowance as deemed appropriate.

The following table presents charged off loans, provisions for loan losses, recoveries on loans previously charged off and the amount of the allowance for the periods indicated.

 

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ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

 

		Nine Months Ended 9/30/2011				Nine Months Ended 9/30/2010
Balance at beginning of period		$	4,037			$	3,723
Loan charge-offs:
Residential			(957	)			(470	)
Commercial real estate			(394	)			(275	)
Commercial			(81	)			(32	)
Consumer			(400	)			(284	)
Total loan charge-offs			(1,832	)			(1,061	)
Loan recoveries:
Residential			7				6
Commercial real estate			3				2
Commercial			31				4
Consumer			135				115
Total recoveries			176				127
Net loan charge-offs			(1,656	)			(934	)
Provision for loan losses			1,691				964
Balance at end of period		$	4,072			$	3,753

The following table presents information on the Company’s allowance for loan losses and evaluations for impairment:

Allowance for Loan Losses and Recorded Investment in Loans

For the Nine Months Ended September 30, 2011

 

		Commercial				Commercial Real Estate				Consumer				Residential				Total
Allowance for Loan Losses:
Beginning balance		$	258			$	1,126			$	424			$	2,229			$	4,037
Charge-offs			(81	)			(394	)			(400	)			(957	)			(1,832	)
Recoveries			31				3				135				7				176
Provision for loan losses			200				352				233				906				1,691
Ending Balance		$	408			$	1,087			$	392			$	2,185			$	4,072
Ending balance: individually evaluated for impairment			—				—				—				—				—
Ending balance: collectively evaluated for impairment			408				1,087				392				2,185				4,072
Loans:
Total loans ending balance		$	22,929			$	51,602			$	46,355			$	148,029			$	268,915
Ending balance: loans individually evaluated for impairment			80				170				51				5,139				5,440
Ending balance: loans collectively evaluated for impairment		$	22,849			$	51,432			$	46,304			$	142,890			$	263,475

 

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For the Year Ended December 31, 2010

 

		Commercial				Commercial Real Estate				Consumer				Residential				Total
Ending balance: individually evaluated for impairment			—				—				—				29				29
Ending balance: collectively evaluated for impairment			258				264				424				3,062				4,008
Loans:
Total loans ending balance		$	22,794			$	53,885			$	47,807			$	144,700			$	269,186
Ending balance: individually evaluated for impairment			13				292				52				6,716				7,073
Ending balance: collectively evaluated for impairment		$	22,781			$	53,593			$	47,755			$	137,984			$	262,113

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debts such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis is performed on a monthly basis. We use the following definitions for risk ratings:

Pass. Loans classified as pass may have some level of potential weakness in some instances but repayment prospects are good and the loan is not to the level of deterioration to warrant management’s special attention.

 

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Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of our credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values highly questionable and improbable.

Loss. Loans classified as loss are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean that loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Losses are taken in the period in which they surface as uncollectible.

The following tables illustrate the Company’s credit quality indicators:

Credit Quality Indicators

As of September 30, 2011

 

Credit Exposure		Commercial				Commercial Real Estate				Consumer				Residential				Total
Pass		$	19,809			$	43,277			$	46,176			$	134,630			$	243,892
Special Mention			2,714				5,924				—				2,892				11,530
Substandard			406				2,401				179				10,507				13,493
Doubtful			—				—				—				—				—
Total		$	22,929			$	51,602			$	46,355			$	148,029			$	268,915

 

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Credit Quality Indicators

As of December 31, 2010

 

Credit Exposure		Commercial				Commercial Real Estate				Consumer				Residential				Total
Pass		$	21,978			$	44,553			$	47,621			$	127,343			$	241,495
Special Mention			678				7,224				67				7,005				14,974
Substandard			138				2,108				119				9,969				12,334
Doubtful			—				—				—				383				383
Total		$	22,794			$	53,885			$	47,807			$	144,700			$	269,186

The Company had no loans included in the “Loss” category as of September 30, 2011 or December 31, 2010.

The following table presents information on the Company’s impaired loans and their related allowance, average recorded investment and interest income recognized:

Impaired Loans

As of and for the Nine Months Ended September 30, 2011

 

										Average				Interest
		Recorded				Related				Recorded				Income
		Investment				Allowance				Investment				Recognized
With no allowance recorded:
Commercial		$	80				—			$	95				—
Commercial real estate			170				—				115				—
Consumer			51				—				77				—
Residential			5,139				—				6,122				47
With allowance recorded:
Commercial			—				—				—				—
Commercial real estate			—				—				—				—
Consumer			—				—				—				—
Residential			—				—				74				—
Total:
Commercial			80				—				95				—
Commercial real estate			170				—				115				—
Consumer			51				—				77				—
Residential		$	5,139			$	—			$	6,196			$	47

 

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Impaired Loans

As of and for the Year Ended December 31, 2010

 

										Average				Interest
		Recorded				Related				Recorded				Income
		Investment				Allowance				Investment				Recognized
Commercial		$	13				—			$	14				—
Commercial real estate			292				—				298				—
Consumer			52				—				109				1
Residential			6,636				—				6,012				306
With allowance recorded:
Commercial			—				—				—				—
Commercial real estate			—				—				—				—
Consumer			—				—				—				—
Residential			80				29				80				—
Total:
Commercial			13				—				14				—
Commercial real estate			292				—				298				—
Consumer			52				—				109				1
Residential		$	6,716			$	29			$	6,092			$	306

NONPERFORMING ASSETS AND IMPAIRED LOANS

The economic downturn that started in late 2007 and the stagnant economy that followed has led a heightened level in the Company’s nonperforming assets although the Company’s nonperforming assets have decreased from December 31, 2010 to September 30, 2011. Some commercial borrowers have struggled to service their loans due to the increasingly difficult business climate, lower revenues, tightening of credit markets and challenges to their business operations. Some noncommercial borrowers have experienced job losses and other economic challenges, as well. The Company is continuing to monitor the situation and is taking steps necessary to mitigate losses in its loan portfolio, such as increased early monitoring of its portfolio to identify “problem” loans and continued counseling of customers to discuss options available to them. Nonperforming assets, which consist of nonaccrual loans, loans 90 days or more past due and foreclosed properties, were $6,183 at September 30, 2011 and $8,317 at December 31, 2010. Eleven foreclosed properties were held as of September 30, 2011 totaling $743 compared to five foreclosed properties held on December 31, 2010 totaling $474. Nonaccrual loans were $5,440 at September 30, 2011 and $7,073 at December 31, 2010. Nonaccrual loans at September 30, 2011 related to both large and small credit relationships, a majority of which were residential loans. Loans are generally placed in nonaccrual status when the collection of principal and interest is 90 days or more past due, unless the obligation is both well-secured and in the

 

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process of collection. A loan is considered an impaired loan when, based on then current information and facts, it is probable that the Company will not be able to collect all amounts when due according to the contractual terms of the loan agreement.

The following table summarizes the Company’s asset quality as of the dates indicated.

 

		September 30,				December 31,
		2011				2010
Asset Quality Highlights
Nonaccrual loans		$	5,440			$	7,073
Loans 90 days or more past due			—				770
Total nonperforming loans			5,440				7,843
Foreclosed assets			743				474
Total nonperforming assets			6,183				8,317
Nonperforming loans to total loans			2.02	%			2.91	%
Nonperforming assets to total assets			1.79	%			2.47	%
Allowance for loan losses		$	4,072			$	4,037
Allowance for loan losses to total loans			1.51	%			1.50	%
Allowance for loan losses to nonperforming loans			74.85	%			51.47	%

The following table represents an age analysis of the Company’s past due loans:

Age Analysis of Past Due Loans

As of September 30, 2011

 

		30-59 Days Past Due				60-89 Days Past Due				Greater Than 90 Days				Total Past Due				Current				Total Loans				Recorded Investment> 90 Days and Accruing
Commercial		$	56			$	—			$	80			$	136			$	22,793			$	22,929			$	—
Commercial real estate			—				—				170				170				51,432				51,602				—
Consumer			232				17				51				300				46,055				46,355				—
Residential			751				68				5,139				5,958				142,071				148,029				—
Total		$	1,039			$	85			$	5,440			$	6,564			$	262,351			$	268,915			$	—

 

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Age Analysis of Past Due Loans

As of December 31, 2010

 

		30-59 Days Past				60-89 Days Past				Greater Than				Total Past								Total				Recorded Investment> 90 Days and
		Due				Due				90 Days				Due				Current				Loans				Accruing
Commercial		$	96			$	51			$	13			$	160			$	22,634			$	22,794			$	—
Commercial real estate			—				377				292				669				53,216				53,885				—
Consumer			394				144				90				628				47,179				47,807				38
Residential			2,235				415				7,448				10,098				134,602				144,700				732
Total		$	2,725			$	987			$	7,843			$	11,555			$	257,631			$	269,186			$	770

The following table presents the balance of accruing loans 90 days or more past due by type as of the dates indicated.

 

		September 30, 2011				December 31, 2010
Loans 90 days or more past due by type:
Real estate loans		$	—			$	732
Loans to individuals			—				38
Commercial loans			—				—
Total accruing loans 90 days or more past due		$	—			$	770

The following presents information on the Company’s nonaccrual loans:

Loans in Nonaccrual Status

 

		September 30, 2011				December 31, 2010
Commercial		$	80			$	13
Commercial real estate			170				292
Consumer			51				52
Residential			5,139				6,716
Total		$	5,440			$	7,073

LOAN MODIFICATIONS AND TROUBLED DEBT RESTRUCTURINGS

The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories.

 

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Rate Modification with a modification in which the interest rate is changed.

Term Modification with a modification in which the maturity date, timing of payments, or frequency of payments is changed.

Interest Only Modification with a modification in which the loan is converted to interest only payments for a period of time.

Payment Modification with a modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

Combination Modification with any other type of modification, including the use of multiple categories above.

There were no available commitments for troubled debt restructurings outstanding as of September 30, 2011 or September 30, 2010.

The following tables present troubled debt restructurings as of September 30, 2011 and 2010:

 

		September 30, 2011
		Accrual				Non-Accrual				Total
		Status				Status				Modifications
Commercial		$	—			$	—			$	—
Commercial real estate			679				—				679
Consumer			—				—				—
Residential			557				2,553				3,110
Total		$	1,236			$	2,553			$	3,789

 

		December 31, 2010
		Accrual				Non-Accrual				Total
		Status				Status				Modifications
Commercial		$	—			$	—			$	—
Commercial real estate			687				—				687
Consumer			39				—				39
Residential			558				1,978				2,536
Total		$	1,284			$	1,978			$	3,262

The Company’s policy is that loans placed on non-accrual will typically remain on non-accrual status until all principal and interest payments are brought current and the prospect for future payment in accordance with the loan agreement appears relatively

 

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certain. The Company’s policy generally deems to six months of payment performance as sufficient to warrant a return to accrual status.

The following tables present newly restructured loans that occurred during the three and nine months ended September 30, 2011 and 2010, respectively:

 

Three months ended September 30, 2011

#

Rate Modifications

#

Term Modifications

#

Interest-Only Modifications

#

Payment Modifications

#

Combination Modifications

#

Total Modifications

Pre-Modification Outstanding Recorded Investment

Commercial

—

$

—

—

$

—

—

$

—

—

$

—

—

$

—

—

$

—

Commercial real estate

—

—

—

—

—

—

—

—

—

—

—

—

Consumer

—

—

—

—

—

—

—

—

—

—

—

—

Residential

—

—

—

—

—

—

—

—

—

—

—

—

Total

—

$

—

—

$

—

—

$

—

—

$

—

$

—

—

$

—

 

#

Rate Modifications

#

Term Modifications

#

Interest-Only Modifications

#

Payment Modifications

#

Combination Modifications

#

Total Modifications

Post-Modification Outstanding Recorded Investment

Commercial

—

$

—

—

$

—

—

$

—

—

$

—

—

$

—

—

$

—

Commercial real estate

—

—

—

—

—

—

—

—

—

—

—

—

Consumer

—

—

—

—

—

—

—

—

—

—

—

—

Residential

—

—

—

—

—

—

—

—

—

—

—

—

Total

—

$

—

—

$

—

—

$

—

—

$

—

$

—

—

$

—

 

		Three months ended September 30, 2010
		#				Rate Modifications				#				Term Modifications				#				Interest-Only Modifications				#				Payment Modifications				#				Combination Modifications				#				Total Modifications
Pre-Modification Outstanding Recorded Investment
Commercial			—			$	—				—			$	—				—			$	—				—			$	—				—			$	—				—			$	—
Commercial real estate			—				—				—				—				—				—				—				—				1				780				1				780
Consumer			—				—				—				—				—				—				—				—				1				40				1				40
Residential			—				—				—				—				—				—				—				—				2				2,407				2				2,407
Total			—			$	—				—			$	—				—			$	—				—			$	—				4			$	3,227				4			$	3,227

 

		#				Rate Modifications				#				Term Modifications				#				Interest-Only Modifications				#				Payment Modifications				#				Combination Modifications				#				Total Modifications
Post-Modification Outstanding Recorded Investment
Commercial			—			$	—				—			$	—				—			$	—				—			$	—				—			$	—				—			$	—
Commercial real estate			—				—				—				—				—				—				—				—				1				800				1				800
Consumer			—				—				—				—				—				—				—				—				1				40				1				40
Residential			—				—				—				—				—				—				—				—				2				2,682				2				2,682
Total			—			$	—				—			$	—				—			$	—				—			$	—				4			$	3,522				4			$	3,522

 

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		Nine months ended September 30, 2011
		#				Rate Modifications				#				Term Modifications				#				Interest-Only Modifications				#				Payment Modifications				#				Combination Modifications				#				Total Modifications
Pre-Modification Outstanding Recorded Investment
Commercial			—			$	—				—			$	—				—			$	—				—			$	—				—			$	—				—			$	—
Commercial real estate			—				—				—				—				—				—				—				—				—				—				—				—
Consumer			—				—				—				—				—				—				—				—				—				—				—				—
Residential			—				—				—				—				—				—				—				—				1				500				1				500
Total			—			$	—				—			$	—				—			$	—				—			$	—				1			$	500				1			$	500

 

		#				Rate Modifications				#				Term Modifications				#				Interest-Only Modifications				#				Payment Modifications				#				Combination Modifications				#				Total Modifications
Post-Modification Outstanding Recorded Investment
Commercial			—			$	—				—			$	—				—			$	—				—			$	—				—			$	—				—			$	—
Commercial real estate			—				—				—				—				—				—				—				—				—				—				—				—
Consumer			—				—				—				—				—				—				—				—				—				—				—				—
Residential			—				—				—				—				—				—				—				—				1				555				1				555
Total			—			$	—				—			$	—				—			$	—				—			$	—				1			$	555				1			$	555

 

		Nine months ended September 30, 2010
		#				Rate Modifications				#				Term Modifications				#				Interest-Only Modifications				#				Payment Modifications				#				Combination Modifications				#				Total Modifications
Pre-Modification Outstanding Recorded Investment
Commercial			—			$	—				—			$	—				—			$	—				—			$	—				—			$	—				—			$	—
Commercial real estate			—				—				—				—				—				—				—				—				1				780				1				780
Consumer			—				—				—				—				—				—				—				—				1				40				1				40
Residential			—				—				—				—				—				—				—				—				2				2,407				2				2,407
Total			—			$	—				—			$	—				—			$	—				—			$	—				4			$	3,227				4			$	3,227

 

		#				Rate Modifications				#				Term Modifications				#				Interest-Only Modifications				#				Payment Modifications				#				Combination Modifications				#				Total Modifications
Post-Modification Outstanding Recorded Investment
Commercial			—			$	—				—			$	—				—			$	—				—			$	—				—			$	—				—			$	—
Commercial real estate			—				—				—				—				—				—				—				—				1				800				1				800
Consumer			—				—				—				—				—				—				—				—				1				40				1				40
Residential			—				—				—				—				—				—				—				—				2				2,682				2				2,682
Total			—			$	—				—			$	—				—			$	—				—			$	—				4			$	3,522				4			$	3,522

 

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The following tables represent financing receivables modified as troubled debt restructurings and with a payment default, with the payment default occurring (i) within 12 months of the restructure date (ii) during the three and nine month periods ended September 30, 2011 and 2010, respectively:

 

		Three months ended
		September 30, 2011								September 30, 2010
		#								#
Commercial real estate			—			$	—				—			$	—
Consumer			—				—				—				—
Residential			—				—				—				—
Total			1				554				—				—
			1			$	554				—			$	—

 

		Nine months ended
		September 30, 2011								September 30, 2010
		#								#
Commercial real estate			—			$	—				—			$	—
Consumer			1				39				—				—
Residential			—				—				—				—
Total			1				554				—				—
			2			$	593				—			$	—

LIQUIDITY

Liquidity measures the ability of the Company to meet its maturing obligations and existing commitments, to withstand fluctuations in deposit levels, to fund its operations, and to provide for customers’ credit needs. Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds from alternative funding sources. The Company’s liquidity is provided by cash and due from banks, federal funds sold, investments available for sale, managing investment maturities, interest-earning deposits in other financial institutions and loan repayments. The Company’s ability to obtain deposits and purchase funds at favorable rates also affects its liquidity. As a result of the Company’s management of liquid assets and its ability to generate liquidity through alternative funding sources, management believes that the Bank maintains overall liquidity that is sufficient to satisfy its depositors’ requirements and to meet customers’ credit needs. The Company’s ratio of liquid assets to deposits and short-term borrowings was 18.60% as of September 30, 2011 and 16.96% as of December 31, 2010. Additional sources of liquidity available to the Company include its capacity to borrow additional funds through three correspondent banks and the Federal Home Loan Bank. The total amount available for borrowing to the Company for liquidity purposes was $65,740 on September 30,

 

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2011. The Company currently has no borrowings against these available lines. The Company also has a $5,000 holding company line of credit with a correspondent bank for bank capital purposes with an outstanding balance of $2,000 on September 30, 2011 and December 31, 2010. The Company had no borrowings with the Federal Home Loan Bank at September 30, 2011.

CAPITAL

The Company believes that its financial position at September 30, 2011 reflects liquidity and capital levels adequate to fund anticipated funding needs. Capital ratios are above required regulatory minimums for a well-capitalized institution. The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance, and changing competitive conditions and economic forces. The adequacy of the Company’s capital is reviewed by management on an ongoing basis. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and to absorb potential losses.

Stockholders’ equity totaled $27,596 at September 30, 2011 compared to $26,482 at December 31, 2010. At September 30, 2011, the Bank’s leverage ratio (Tier 1 capital divided by quarterly average assets) was 8.59% compared to 8.36% at December 31, 2010. The Bank’s risk-based Tier 1 capital ratio was 10.56% at September 30, 2011 compared to 10.10% at December 31, 2010 and the Bank’s risk-based total capital ratio was 11.81% at September 30, 2011 compared to 11.36% at December 31, 2010. The Company and the Bank are “well-capitalized” under the Office of the Comptroller of the Currency’s regulatory framework.

OFF-BALANCE SHEET ARRANGEMENTS

There were no material changes in the Company’s off-balance sheet arrangements and commitments from the information provided in Bankshares’ 2010 Annual Report to Shareholders. The Company, in the normal course of business, may at times be a party to financial instruments such as standby letters of credit. Standby letters of credit as of September 30, 2011 equaled $946. Other commitments include commitments to extend credit. Not all of these commitments will be acted upon; therefore, the cash requirements will likely be significantly less than the commitments themselves. As of September 30, 2011, the Company had unused loan commitments of $52,052, including $29,489 in unused commitments with an original maturity exceeding one year.

 

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CRITICAL ACCOUNTING POLICIES

Certain critical accounting policies represent the more significant judgments and estimates used in the preparation of the consolidated financial statements. The Company’s most critical accounting policy relates to the Company’s allowance for loan losses, which reflects the estimated losses resulting from the inability of the Company’s borrowers to make required loan payments. If the financial condition of the Company’s borrowers were to deteriorate, as has been the case in recent quarters with some of the Company’s borrowers, resulting in an impairment of their ability to make payments, the Company’s estimates would be updated, and additional provisions for loan losses could be required, as has been the case in recent quarters. Further information regarding the estimates used in determining the allowance for loan losses is contained in the discussions of “Allowance and Provision for Loan Losses” on pages 26 through 30 herein and “Loans and Allowance for Loan Losses” on page 32 of Bankshares’ 2010 Annual Report to Shareholders.

RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of recently adopted accounting pronouncements and recently issued pronouncements which are not yet effective and the impact, if any, on our financial statements, see Note 10, “Impact of Recently Issued and Adopted Accounting Standards” of the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

 

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

 

Item 4.

CONTROLS AND PROCEDURES

The Company’s management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management,

 

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including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Company’s disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company to disclose material information required to be set forth in the Company’s periodic reports.

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). There was no change in the Company’s internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

 

Item 1.

LEGAL PROCEEDINGS

In the normal course of business, the Company is involved in various legal proceedings. Management believes that the ultimate resolution of these proceedings will not have a material adverse effect on the Company’s financial position, liquidity or results of operations.

 

Item 6.

EXHIBITS

 

Exhibit Number		Description
3.1		Amended and Restated Articles of Incorporation, effective April 29, 1997 (incorporated by reference to Exhibit 3.1 to registrant’s quarterly report on Form 10-Q filed on November 13, 2008)
3.1(a)		Articles of Amendment to the Articles of Incorporation, effective May 1, 2009 (incorporated by reference to Exhibit 3.1(a) to registrant’s current report on Form 8-K filed on May 4, 2009)
3.2		Bylaws (incorporated by reference to Exhibit 3(ii) to registrant’s registration statement on Form S-4 (File No. 333-20399) filed on January 24, 1997)
10.1*		1997 Incentive Stock Plan (incorporated by reference to Exhibit 4.3 to registrant’s registration statement on Form S-8 filed on September 14, 1998)

 

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10.3*		VBA Directors’ Deferred Compensation Plan for Pinnacle Bankshares Corporation, effective December 1, 1997 (incorporated by reference to Exhibit 10.3 to registrant’s annual report on Form 10-KSB filed on March 25, 2003)
10.4*		Pinnacle Bankshares Corporation 2004 Incentive Stock Plan, as amended February 9, 2010 (incorporated by reference to Exhibit 10.4 to registrant’s current report on Form 8-K filed on February 16, 2010)
10.5*		Directors’ Annual Compensation (incorporated by reference to Exhibit 10.5 to registrant’s quarterly report on Form 10-Q filed on May 16, 2011)
10.6*		Base Salaries of Executive Officers of the Registrant (incorporated by reference to Exhibit 10.6 to registrant’s annual report on Form 10-K filed on March 28, 2011)
10.7*		Amended and Restated Change in Control Agreement between Pinnacle Bankshares Corporation and Bryan M. Lemley, dated December 31, 2008 (incorporated by reference to Exhibit 10.7 to registrant’s annual report on Form 10-K filed on March 27, 2009)
10.8*		Amended and Restated Change in Control Agreement between Pinnacle Bankshares Corporation and Carroll E. Shelton, dated December 31, 2008 (incorporated by reference to Exhibit 10.8 to registrant’s annual report on Form 10-K filed on March 27, 2009)
10.9		Pinnacle Bankshares Corporation Promissory Note, effective December 31, 2008, delivered to Community Bankers’ Bank (incorporated by reference to Exhibit 10.9 to registrant’s current report on Form 8-K filed on January 7, 2009)
10.10*		Form of Restricted Stock Agreement under Pinnacle Bankshares Corporation 2004 Incentive Stock Plan, as amended February 9, 2010 (incorporated by reference to Exhibit 10.10 to registrant’s current report on Form 8-K filed on April 19, 2010)
10.11*		Form of Restricted Stock Agreement (with non-competition and consulting provision) under Pinnacle Bankshares Corporation 2004 Incentive Stock Plan, as amended February 9, 2010 (incorporated by reference to Exhibit 10.11 to registrant’s current report on Form 8-K filed on April 19, 2010)

 

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10.12*		Form of Incentive Stock Option Agreement with Tandem Stock Appreciation Right under Pinnacle Bankshares Corporation 2004 Incentive Stock Plan, as amended February 9, 2010 (incorporated by reference to Exhibit 10.12 to registrant’s current report on Form 8-K filed on April 19, 2010)
10.13*		Change in Control Agreement between Pinnacle Bankshares Corporation and Aubrey H. Hall, III, effective July 1, 2011 (incorporated by reference to Exhibit 10.13 to registrant’s current report on Form 8-K filed on July 7, 2011)
31.1		CEO Certification Pursuant to Rule 13a-14(a)
31.2		CFO Certification Pursuant to Rule 13a-14(a)
32.1		CEO/CFO Certification Pursuant to § 906 of the Sarbanes- Oxley Act of 2002 (18 U.S.C. § 1350)
101		The following materials from Pinnacle Bankshares Corporation’s quarterly report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language), furnished herewith: (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Income, (iii) Unaudited Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income, (iv) Unaudited Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Consolidated Financial Statements

 

*	Denotes management contract

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

						PINNACLE BANKSHARES CORPORATION
						(Registrant)
NOVEMBER 10, 2011						/s/ Aubrey H. Hall, III
Date						Aubrey H. Hall, III, President and
						Chief Executive Officer
						(principal executive officer)
NOVEMBER 10, 2011						/s/ Bryan M. Lemley
Date						Bryan M. Lemley, Secretary,
						Treasurer and Chief Financial Officer
						(principal financial & accounting officer)

 

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