Pinnacle Bankshares Corporation Fourth Quarter and 2018 Earnings Report


ALTAVISTA, Va., Feb. 04, 2019 (GLOBE NEWSWIRE) -- Net income for Pinnacle Bankshares Corporation (OTCQX: PPBN), the one-bank holding company (the “Company”) for First National Bank (the “Bank”), was $1,337,000 or $0.87 per basic and $0.86 per diluted share for the quarter ended December 31, 2018 and $4,160,000 or $2.71 per basic share and $2.68 per diluted share for the year ended December 31, 2018.  In comparison, net income was $328,000 or $0.22 per basic and $0.21 per diluted share and $2,748,000 or $1.80 per basic and $1.78 per diluted share, respectively, for the same periods of 2017.  Consolidated results for the quarter and year are unaudited.

Net income generated in the fourth quarter of 2018 was $1,337,000, which was significantly higher than the $636,000 generated in third quarter of 2018 and the $328,000 generated in the fourth quarter of 2017.  The improvement compared to the third quarter of 2018 was due mainly to a $471,000 decrease in provision for loan loss expense as asset quality improved.  Additionally, noninterest income increased $273,000 due to mainly to revenue received in conjunction with the Bank’s conversion to a new investments platform.  The fourth quarter net income was the highest quarterly core net income in the history of the company. 

For 2018, the Company generated a record high net income of $4,160,000, which represents a $1,412,000 or 51% increase as compared to 2017.  The increased net income was primarily driven by higher net interest income and lower income taxes, which were partially offset by higher provision for loan losses and noninterest expense.  The net interest income improvement was due to the growth of loans and investments in 2018 as well as higher interest rates that combined to increase the Company’s yield on earning assets.  The Company also benefitted from a lower corporate income tax rate as a result of the Tax Cuts and Jobs Act with its effective tax rate decreasing from 34% to 21% in 2018.  On a pre-tax basis, net income increased $732,000 or 17%.

Profitability as measured by the Company’s return on average assets (“ROA”) was 0.90% for 2018, which is a 28 basis points increase as compared to the 0.62% produced for 2017.  Correspondingly, return on average equity (“ROE”) also increased in 2018 to 10.33% compared to 7.25% for the prior year.

“We are pleased that Pinnacle increased its core net income during 2018 for the tenth straight year and earned the highest net income in the history of our Company,” stated Aubrey H. Hall, III, President & CEO of the both the Company and the Bank.  He further commented, “We experienced solid growth of loans and deposits throughout 2018 and are well positioned to continue increasing our market share base across the Lynchburg region.”

For the fourth quarter of 2018 net interest income increased to $4,392,000 as compared to $3,825,000 for the same period of 2017.  Interest income increased $656,000 due to higher loan and investments volume and improved yields, substantially offsetting an increase in interest expense of $89,000 due to deposit growth and slightly higher cost of funds.  As a result, net interest margin increased to 3.97% in the fourth quarter of 2018 compared to 3.72% in the fourth quarter of 2017.

On a year-over-year basis, the Company’s net interest income grew $1,532,000 or 10% to $16,382,000 for 2018 as interest income increased $1,759,000, while interest expense only increased $227,000.  Growth of outstanding loans and investments has been the catalyst for the net interest income improvement.  Net interest margin increased to 3.83% for the year ended December 31, 2018, from 3.63% for the year ended December 31, 2017 as yield on earning assets increased 24 basis points and cost to fund earnings assets increased 4 basis points. 

The Company’s provision for loan losses was $32,000 during the fourth quarter of 2018 and $607,000 for the year, which exceeded 2017’s provision expense of $260,000 due to higher loan volume and the downgrade of two commercial loan relationships that occurred in the third quarter of 2018.  The downgrades are expected to be short-term in nature with Management not anticipating any losses associated with the relationships.  The allowance for loan losses was $3,372,000 as of December 31, 2018, which represented 0.90% of total loans outstanding.  In comparison, the allowance for loan losses was $2,963,000 or 0.83% of total loans outstanding as of December 31, 2017. 

Nonperforming loans, comprised of loans in nonaccrual status or past due greater than ninety days, increased to $919,000 or 0.24% of total loans as of December 31, 2018 from $723,000 or 0.20% of total loans as of December 31, 2017.  Nonperforming assets (including nonaccrual loans, accruing loans more than 90 days past due, and foreclosed assets) increased to $1,546,000 or 0.33% of total assets as of December 31, 2018, as compared to $946,000 or 0.21% of total assets as of December 31, 2017.  The allowance balance was 367% of nonperforming loans as of December 31, 2018 compared to 410% as of the end of 2017.  This level of allowance is viewed as being sufficient to cushion the Bank from potential losses associated with problem loans.

During the fourth quarter of 2018 the Company generated $1,211,000 in noninterest income, representing an increase of $296,000 or 32% as compared to the same period of 2017.  The Bank received $262,000 in revenue resulting from its conversion to a new investments platform, which was part of a complete restructuring of its Investments Division.  The Division has been expanded to four employees and is now doing business as First National Advisors.  For the year noninterest income was $4,202,000, an increase of $347,000 or approximately 9% as compared to the prior year.  In addition to the Investments Division revenue, the Bank benefitted from increased interchange and ATM fees, merchant card processing fees and Enterprise Grant Zone income received in connection with its new Odd Fellows Road facility.    

Noninterest expense for the fourth quarter of 2018 was $3,981,000, which increased $124,000 as compared to $3,857,000 for the fourth quarter of 2017. For 2018, noninterest expense was $14,928,000, an increase of $800,000 or 6% as compared to the prior year.  The increase was primarily due to higher employee compensation and benefits expense, including the earlier referenced Investments Division expansion, increased occupancy expenses associated with our new Odd Fellows Road facility and higher core processing fees due to increased transaction volume associated with growth.

Total assets as of December 31, 2018 were $470,611,000, up 6% from $443,925,000 as of December 31, 2017.  The principal components of the Company’s assets as of year-end 2018 were $376,066,000 in total loans, $15,717,000 in cash and cash equivalents and $49,826,000 in investments. During 2018, total loans increased approximately 5% or $18,066,000 from $358,000,000 as of December 31, 2017.  The loan growth occurred mainly in the third quarter of 2018 and was driven by strong performances from the Bank’s Dealer and Commercial Divisions.  The investment portfolio increased 13% or $5,609,000 from $44,217,000 as of December 31, 2017.  The $23,672,000 combined growth of the loan and investment portfolios enabled the Bank to successfully deploy the $23,593,000 or 6% growth in deposits that occurred in 2018.

Total liabilities as of December 31, 2018 were $428,500,000, up 6% or $23,370,000 from $405,130,000 as of December 31, 2017.  The principal component of the Company’s liabilities as of year-end 2018 was $425,278,000 in deposits, which increased $23,593,000 or 6% as compared to December 31, 2017.  Higher levels of demand deposits and savings and NOW balances drove the increase, which were partially offset by a decrease in time deposit account balances.  For 2018, demand deposits increased by $6,472,000 or 8%, savings and NOW accounts increased by $19,340,000 or 9% and time deposits decreased by $2,219,000 or 2%. 

Total stockholders’ equity as of December 31, 2018 was $42,111,000, and consisted primarily of $38,853,000 in retained earnings.  In comparison, as of December 31, 2017 total stockholders’ equity was $38,795,000.  The Company has continued to increase capital while also paying a cash dividend to shareholders in each of the last twenty-five quarters.  The capital position of both the Company and Bank are considered “well capitalized” per all regulatory definitions.

Pinnacle Bankshares Corporation is a locally managed community banking organization based in Central Virginia.  The one-bank holding company of First National Bank serves an area consisting primarily of all or portions of the Counties of Campbell, Pittsylvania, Bedford, Amherst and the City of Lynchburg.  The Company has a total of nine branches with two located in the Town of Altavista, where the Bank was founded.  Other branch locations include Village Highway in Rustburg, Wards Road near the Lynchburg Regional Airport, Timberlake Road in Campbell County, South Main Street in the Town of Amherst, Old Forest Road and Odd Fellows Road in the City of Lynchburg and Forest Road in Bedford County.  First National Bank is in its 111th year of operation.

Various securities laws regulate the use of financial measures that are not prepared in accordance with GAAP. We believe these non-GAAP measures provide important supplemental information to investors. We use these measures, together with GAAP measures, for internal managerial purposes and as a means to evaluate period-to-period comparisons. However, we do not, and you should not, rely on non-GAAP financial measures alone as measures of our performance. We believe that non-GAAP financial measures reflect an additional way of viewing aspects of our operations that - when taken together with GAAP results as presented in this press release- provide a more complete understanding of factors and trends affecting our business. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures, even if they have similar names.

This press release may contain “forward-looking statements” within the meaning of federal securities laws that involve significant risks and uncertainties. Any statements contained herein that are not historical facts are forward-looking and are based on current assumptions and analysis by the Company.  These forward-looking statements may include, but are not limited to, statements regarding the credit quality of our asset portfolio in future periods, the expected losses of nonperforming loans in future periods, returns and capital accretion during future periods, our cost of funds, the maintenance of our net interest margin, the continuation of improved returns, and future operating results and business performance.  Although we believe our plans and expectations reflected in these forward-looking statements are reasonable, our ability to predict results or the actual effect of future plans or strategies is inherently uncertain, and we can give no assurance that these plans or expectations will be achieved.   Factors that could cause actual results to differ materially from management's expectations include, but are not limited to, the effectiveness of management’s efforts to improve asset quality, returns, net interest margin and collections and control operating expenses, management’s efforts to minimize losses related to nonperforming loans, management’s efforts to lower our cost of funds, changes in: interest rates, general economic and business conditions, declining collateral values, especially real estate, the real estate market, the legislative/regulatory climate, including the effect that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and regulations adopted thereunder may have on us, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System and any policies or programs implemented pursuant to the Emergency Economic Stabilization Act of 2008, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows and funding costs, competition, demand for financial services in our market area, actual savings related to the deregistration of our common stock and accounting principles, policies and guidelines.  These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and you should not place undue reliance on such statements, which reflect our views as of the date of this release.


 
Pinnacle Bankshares Corporation
Selected Financial Highlights
(12/31/2018 and quarterly results unaudited)
(In thousands, except ratios, share and per share data)
     
 3 Months Ended3 Months Ended3 Months Ended  
Income Statement Highlights12/31/201809/30/201812/31/2017 
Interest Income$4,902$4,655$4,246 
Interest Expense510490421 
Net Interest Income4,3924,1653,825 
Provision for Loan Losses32 50334 
Noninterest Income1,211938915 
Noninterest Expense3,9813,8333,857 
Net Income1,337636328 
Earnings Per Share (Basic)0.870.420.22 
Earnings Per Share (Diluted)0.860.410.21 
 Year EndedYear EndedYear Ended 
Income Statement Highlights12/31/201812/31/201712/31/2016 
Interest Income$18,270$16,511$15,153 
Interest Expense1,8881,6611,518 
Net Interest Income16,38214,85013,635 
Provision for Loan Losses60726087 
Noninterest Income4,2023,8553,896 
Noninterest Expense14,92814,12813,043 
Net Income4,1602,7483,004 
Earnings Per Share (Basic)2.711.801.97 
Earnings Per Share (Diluted)2.681.781.96 
     
Balance Sheet Highlights12/31/201812/31/201712/31/2016 
Cash and Cash Equivalents$15,717$12,575$48,174 
Total Loans376,066358,000341,482 
Total Securities49,82644,21727,569 
Total Assets470,611443,925440,104 
Total Deposits425,278401,685399,743 
Total Liabilities428,500405,130403,555 
Stockholders' Equity42,11138,79536,549 
Shares Outstanding1,540,0541,529,0331,522,351 
     
Ratios and Stock Price12/31/201812/31/201712/31/2016 
Gross Loan-to-Deposit Ratio88.38%89.07%85.39% 
Net Interest Margin (Year-to-date)3.83%3.63%3.70% 
Liquidity13.63%12.92%17.68% 
Efficiency Ratio72.56%75.51%74.66% 
Return on Average Assets (ROA)0.90%0.62%0.76% 
Return on Average Equity (ROE)10.33%7.25%8.36% 
Leverage Ratio (Bank)9.15%9.06%8.94% 
Tier 1 Risk-based Capital Ratio (Bank)11.14%10.77%10.81% 
Total Capital Ratio (Bank)12.04%11.59%11.67% 
Stock Price$27.45$29.50$28.88 
Book Value$27.34$25.37$24.01 
     
Asset Quality Highlights12/31/201812/31/201712/31/2016 
Nonaccruing Loans$839$723$769 
Loans 90 Days or More Past Due and Accruing8000 
Total Nonperforming Loans919723769 
Troubled Debt Restructures Accruing267541347 
Total Impaired Loans1,1861,2641,116 
Other Real Estate Owned (OREO) (Foreclosed Assets)627224642 
Total Nonperforming Assets1,5469461,411 
Nonperforming Loans to Total Loans0.24%0.20%0.23% 
Nonperforming Assets to Total Assets0.33%0.21%0.32% 
Allowance for Loan Losses$3,372$2,963$2,898 
Allowance for Loan Losses to Total Loans0.90%0.83%0.85% 
Allowance for Loan Losses to Nonperforming Loans366.87%409.90%376.85% 
     

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


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