##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-QSB
  þ
    
    Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2006
 o
    
    Transition report under Section 13 or 15(d) of the Exchange Act
 For the transition period from  to
 Commission file number 1-12707
 Pinnacle Bancshares, Inc.
  Delaware
    
    72-1370314(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 1811 Second Avenue, Jasper, Alabama 35502-1388
 (205) 221-4111
 þ o
 o þ
  o þ




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##### 



CONTENTS
 PagePART I FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Condensed Consolidated Statements of Financial Condition at September 30, 2006
and December 31, 2005.
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the three and nine-months
ended September 30, 2006, and 2005.
    
    
    4Unaudited Condensed Consolidated Statements of Stockholders Equity for the nine months
ended September 30, 2006, and 2005.
    
    
    5Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2006, and 2005.
    
    
    6Notes to Unaudited Condensed Consolidated Financial Statements.
    
    
    7Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    10Item 3. Controls and Procedures
    
    
    14Part II OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    15Item 6. Exhibits
    
    
    15Signatures
    
    
    16Ex-31.1 Section 302 CertificationEx-32.1 Section 906 Certification
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PINNACLE BANCSHARES, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 September 30,
    
    
    December 31,2006
    
    
    2005ASSETS:Cash and cash equivalents
    
    $
    3,377,474
    
    
    $
    3,784,867Interest-bearing deposits in other banks
    
    
    19,896,203
    
    
    
    13,368,882Securities available-for-sale
    
    
    78,994,370
    
    
    
    80,653,931FHLB stock
    
    
    532,100
    
    
    
    507,300First National Bankers Bancshares stock
    
    
    525,000
    
    
    
    525,000Loans held for sale
    
    
    1,187,995
    
    
    
    374,192Loans receivable, net of allowances for loan losses
of $1,489,138 and $1,383,410, respectively
    
    
    109,930,719
    
    
    
    106,255,517Real estate owned, net
    
    
    322,509
    
    
    
    381,229Premises and equipment, net
    
    
    7,170,456
    
    
    
    5,892,093Goodwill
    
    
    306,488
    
    
    
    306,488Bank owned life insuranceAccrued interest receivableOther assets
    
    
    5,333,967
    
    
    
    5,096,1571,355,190
    
    
    
    1,372,7331,682,849
    
    
    
    1,730,328Total assets
    
    $
    230,615,320
    
    
    $
    220,248,717LIABILITIES AND STOCKHOLDERS EQUITY:Deposits
    
    $
    205,789,073
    
    
    $
    192,551,915Subordinated debt
    
    
    3,093,000
    
    
    
    3,093,000Borrowed funds
    
    
    0
    
    
    
    2,375,000Official checks outstanding
    
    
    780,477
    
    
    
    1,088,302Accrued interest payable
    
    
    1,259,013
    
    
    
    786,133Other liabilities
    
    
    988,758
    
    
    
    944,393Total liabilities
    
    
    211,910,321
    
    
    
    200,838,743STOCKHOLDERS EQUITY:Common stock, par value $.01 per share; 2,400,000 authorized; 1,872,313 and
1,827,813 issued at September 30, 2006 and December 31, 2005, respectively;
1,464,538 and 1,541,178 outstanding at September 30, 2006 and December 31,
2005, respectively
    
    
    18,723
    
    
    
    18,278Additional paid-in capital
    
    
    8,923,223
    
    
    
    8,479,921Treasury shares, at cost (407,775 and 286,635 shares at September 30, 2006
and December 31, 2005, respectively)
    
    
    (5,285,739
    )
    
    
    (3,488,724
    )Retained earnings
    
    
    16,906,257
    
    
    
    16,405,863Accumulated other comprehensive loss, net of tax
    
    
    (1,857,465
    )
    
    
    (2,005,364
    )Total stockholders equity
    
    
    18,704,999
    
    
    
    19,409,974Total liabilities and stockholders equity
    
    $
    230,615,320
    
    
    $
    220,248,717
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PINNACLE BANCSHARES, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005INTEREST REVENUE:Interest on loans
    
    $
    2,318,758
    
    
    $
    2,019,364
    
    
    $
    6,542,560
    
    
    $
    5,624.679Interest and dividends on securities
    
    
    864,755
    
    
    
    936,482
    
    
    
    2,533,427
    
    
    
    2,785,810Other interest
    
    
    228,097
    
    
    
    14,665
    
    
    
    693,910
    
    
    
    64,2473,411,610
    
    
    
    2,970,511
    
    
    
    9,769,897
    
    
    
    8,474,736INTEREST EXPENSE:Interest on deposits
    
    
    1,667,211
    
    
    
    1,134,499
    
    
    
    4,640,032
    
    
    
    3,068,598Interest on subordinated debt
    
    
    66,555
    
    
    
    51,473
    
    
    
    187,070
    
    
    
    141,916Interest on borrowed funds
    
    
    0
    
    
    
    54,293
    
    
    
    14,694
    
    
    
    126.6461,733,766
    
    
    
    1,240,265
    
    
    
    4,841,796
    
    
    
    3,337,160NET INTEREST INCOME BEFORE PROVISION
FOR LOAN LOSSES
    
    
    1,677,844
    
    
    
    1,730,246
    
    
    
    4,928,101
    
    
    
    5,137,576PROVISION FOR LOAN LOSSES
    
    
    135,000
    
    
    
    137,500
    
    
    
    382,500
    
    
    
    440,500NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES
    
    
    1,542,844
    
    
    
    1,592,746
    
    
    
    4,545,601
    
    
    
    4,697,076NONINTEREST INCOME:Fees and service charges on deposit accounts
    
    
    221,645
    
    
    
    234,388
    
    
    
    643,583
    
    
    
    650,637Service fee income, net
    
    
    32,429
    
    
    
    36,588
    
    
    
    100,112
    
    
    
    114,210Fees and charges on loans
    
    
    26,403
    
    
    
    59,806
    
    
    
    99,608
    
    
    
    128,219Bank owned life insurance
    
    
    79,270
    
    
    
    74,600
    
    
    
    237,810
    
    
    
    223,800Net gain (loss) on sale or write-down of:Loans held for sale
    
    
    91,842
    
    
    
    130,605
    
    
    
    298,903
    
    
    
    337,752Real estate owned
    
    
    86,150
    
    
    
    24,935
    
    
    
    74,658
    
    
    
    26,559Securities available-for-sale
    
    
    0
    
    
    
    0
    
    
    
    60
    
    
    
    (3,750
    )Premises and equipment
    
    
    0
    
    
    
    0
    
    
    
    14,737
    
    
    
    0537,739
    
    
    
    560,922
    
    
    
    1,469,471
    
    
    
    1,477,427NONINTEREST EXPENSE:Compensation and benefits
    
    
    948,656
    
    
    
    817,305
    
    
    
    2,656,316
    
    
    
    2,504,391Occupancy
    
    
    292,356
    
    
    
    274,990
    
    
    
    846,716
    
    
    
    820,351Marketing and professional
    
    
    95,055
    
    
    
    117,865
    
    
    
    276,872
    
    
    
    298,968Other
    
    
    273,276
    
    
    
    261,227
    
    
    
    794,765
    
    
    
    805,2331,609,343
    
    
    
    1,471,387
    
    
    
    4,574,669
    
    
    
    4,428,943INCOME BEFORE INCOME TAXES
    
    
    471,240
    
    
    
    682,281
    
    
    
    1,440,403
    
    
    
    1,745,560INCOME TAX EXPENSE
    
    
    146,350
    
    
    
    220,773
    
    
    
    448,122
    
    
    
    551,228NET INCOME
    
    $
    324,890
    
    
    $
    461,508
    
    
    $
    992,281
    
    
    $
    1,194,332Basic earnings per share
    
    $
    0.22
    
    
    $
    0.30
    
    
    $
    0.66
    
    
    $
    0.77Diluted earnings per share
    
    $
    0.22
    
    
    $
    0.29
    
    
    $
    0.65
    
    
    $
    0.76Cash dividends per share
    
    $
    0.11
    
    
    $
    0.11
    
    
    $
    0.33
    
    
    $
    0.33Weighted average basic shares outstanding
    
    
    1,471,126
    
    
    
    1,551,361
    
    
    
    1,502,904
    
    
    
    1,549,355Weighted average diluted shares outstanding
    
    
    1,476,567
    
    
    
    1,579,320
    
    
    
    1,523,414
    
    
    
    1,579,019
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PINNACLE BANCSHARES, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Treasury
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Earnings
    
    
    (Loss) Income
    
    
    EquityBALANCE, December 31, 2004
    
    
    1,821,780
    
    
    $
    18,218
    
    
    $
    8,418,897
    
    
    $
    (3,220,730
    )
    
    $
    15,571,155
    
    
    $
    (873,110
    )
    
    $
    19,914,430Comprehensive income:Net income
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,194,332
    
    
    
    0
    
    
    
    1,194,332Change in fair value of securities available-
for-sale, net of tax
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (975,439
    )
    
    
    (975,439
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218,893Exercise of stock options
    
    
    6,033
    
    
    
    60
    
    
    
    61,024
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,084Repurchase of common stock (16,233 shares at cost)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (232,498
    )
    
    
    0
    
    
    
    0
    
    
    
    (232,498
    )Cash dividends declared ($.33 per share)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (512,046
    )
    
    
    0
    
    
    
    (512,046
    )BALANCE, September 30, 2005
    
    
    1,827,813
    
    
    $
    18,278
    
    
    $
    8,479,921
    
    
    $
    (3,453,228
    )
    
    $
    16,253,441
    
    
    $
    (1,848,549
    )
    
    $
    19,449,863BALANCE, December 31, 2005
    
    
    1,827,813
    
    
    $
    18,278
    
    
    $
    8,479,921
    
    
    $
    (3,488,724
    )
    
    $
    16,405,863
    
    
    $
    (2,005,364
    )
    
    $
    19,409,974Comprehensive loss:Net income
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    992,281
    
    
    
    0
    
    
    
    992,281Change in fair value of securities available-
for-sale, net of tax
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    147,899
    
    
    
    147,899Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,140,180Exercise of stock options, net of tax benefit
    
    
    44,500
    
    
    
    445
    
    
    
    443,302
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    443,747Repurchase of common stock (121,140 shares at cost)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (1,797,015
    )
    
    
    0
    
    
    
    0
    
    
    
    (1,797,015
    )Cash dividends declared ($.33 per share)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (491,887
    )
    
    
    0
    
    
    
    (491,887
    )BALANCE, September 30, 2006
    
    
    1,872,313
    
    
    $
    18,723
    
    
    $
    8,923,223
    
    
    $
    (5,285,739
    )
    
    $
    16,906,257
    
    
    $
    (1,857,465
    )
    
    $
    18,704,999
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PINNACLE BANCSHARES, INC,
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine Months EndedSeptember 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    992,281
    
    
    $
    1,194,332Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    375,935
    
    
    
    369,339Provision for loan losses
    
    
    382,500
    
    
    
    440,500Accretion, net
    
    
    (125,550
    )
    
    
    (111,302
    )Increase in cash surrender value of Bank owned life insurance
    
    
    (237,810
    )
    
    
    (223,800
    )Excess tax benefits on stock options
    
    
    (51,590
    )
    
    
    0Net (gain) loss on sale or write down of:Loans held for sale
    
    
    (298,903
    )
    
    
    (337,752
    )Securities available-for-sale
    
    
    (60
    )
    
    
    3,750Real estate owned
    
    
    (74,658
    )
    
    
    (26,559
    )Premises and equipment
    
    
    (14,737
    )
    
    
    0Proceeds from sale of loans
    
    
    20,301,457
    
    
    
    26,059,646Loans originated for sale
    
    
    (20,816,357
    )
    
    
    (26,253,049
    )Decrease (increase) in accrued interest receivable
    
    
    17,543
    
    
    
    (20,004
    )Decrease (increase) in other assets
    
    
    (41,666
    )
    
    
    5,868Increase in accrued interest payable
    
    
    472,880
    
    
    
    179,476Increase in other liabilities
    
    
    95,955
    
    
    
    181,311Net cash provided by operating activities
    
    
    977,220
    
    
    
    1,461,756CASH FLOWS FROM INVESTING ACTIVITIES:Net loan originations
    
    
    (4,044,638
    )
    
    
    (7,117,974
    )Net change in interest bearing deposits in other banks
    
    
    (6,527,321
    )
    
    
    (1,255,839
    )Purchase of securities available-for-sale
    
    
    (5,654,191
    )
    
    
    (13,191,025
    )Proceeds from the sale of securities available-for-sale
    
    
    3,000,000
    
    
    
    4,000,000Proceeds from maturing, called and payments received on securities available-for-sale
    
    
    4,483,251
    
    
    
    6,558,289Proceeds from sale of Federal Home Loan Bank stock
    
    
    0
    
    
    
    222,000Purchase of Federal Home Loan Bank stock
    
    
    (24,800
    )
    
    
    (312,300
    )Purchase of First National Bankers Bancshares, Inc. stock
    
    
    0
    
    
    
    (525,000
    )Purchase of premises and equipment
    
    
    (1,656,497
    )
    
    
    (273,990
    )Proceeds from sales of assets
    
    
    16,936
    
    
    
    0Proceeds from sales of real estate owned
    
    
    313,469
    
    
    
    365,027Net cash used in investing activities
    
    
    (10,093,791
    )
    
    
    (11,530,812
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in passbook, NOW and money market deposit accounts
    
    
    2,766,170
    
    
    
    3,808,066Proceeds from sales of time deposits
    
    
    27,273,111
    
    
    
    21,978,814Payments on maturing time deposits
    
    
    (16,802,123
    )
    
    
    (14,368,328
    )Decrease in borrowed funds
    
    
    (2,375,000
    )
    
    
    (205,000
    )(Decrease) increase in official checks outstanding
    
    
    (307,825
    )
    
    
    22,023Proceeds from exercise of stock options
    
    
    392,157
    
    
    
    61,084Excess tax benefits on stock options
    
    
    51,590
    
    
    
    0Repurchase of common stock
    
    
    (1,797,015
    )
    
    
    (232,498
    )Payments of cash dividends
    
    
    (491,887
    )
    
    
    (512,046
    )Net cash provided by financing activities
    
    
    8,709,178
    
    
    
    10,552,115NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (407,393
    )
    
    
    483,059CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    3,784,867
    
    
    
    3,451,046CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    3,377,474
    
    
    $
    3,934,105SUPPLEMENTAL DISCLOSURES:Cash payments for interest on deposits, borrowed funds, and subordinated debentures
    
    $
    4,368,916
    
    
    $
    3,157,684Cash payments for income taxes
    
    
    616,870
    
    
    
    580,013Real estate acquired through foreclosure
    
    
    180,091
    
    
    
    708,867
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PINNACLE BANCSHARES, INC
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. BASIS OF PRESENTATION :
    7




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2. EARNINGS PER SHARE:
  PerShareFor The Three Months Ended
    
    Net Income
    
    
    Shares
    
    
    AmountSeptember 30, 2006Basic earnings per share
    
    $
    324,890
    
    
    
    1,471,126
    
    
    $
    0.22Dilutive securities
    
    
    
    
    
    
    5,441Diluted earnings per share
    
    $
    324,890
    
    
    
    1,476,567
    
    
    $
    0.22
 PerShareFor The Three Months Ended
    
    Net Income
    
    
    Shares
    
    
    AmountSeptember 30, 2005Basic earnings per share
    
    $
    461,508
    
    
    
    1,551,361
    
    
    $
    0.30Dilutive securities
    
    
    
    
    
    
    27,959Diluted earnings per share
    
    $
    461,508
    
    
    
    1,579,320
    
    
    $
    0.29
 PerShareFor The Nine Months Ended
    
    Net Income
    
    
    Shares
    
    
    AmountSeptember 30, 2006Basic earnings per share
    
    $
    992,281
    
    
    
    1,502,904
    
    
    $
    0.66Dilutive securities
    
    
    
    
    
    
    20,510Diluted earnings per share
    
    $
    992,281
    
    
    
    1,523,414
    
    
    $
    0.65
 PerShareFor The Nine Months Ended
    
    Net Income
    
    
    Shares
    
    
    AmountSeptember 30, 2005Basic earnings per share
    
    $
    1,194,332
    
    
    
    1,549,355
    
    
    $
    0.77Dilutive securities
    
    
    
    
    
    
    29,664Diluted earnings per share
    
    $
    1,194,332
    
    
    
    1,579,019
    
    
    $
    0.76
 3. RECENT ACCOUNTING PRONOUNCEMENTS:
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
 Accounting for Certain Hybrid Financial
Instruments  an amendment of FASB Statements No 133 and 140. Accounting for Derivatives and Hedging Activities Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
 8




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Accounting for Servicing of Financial Assets an
amendment of FASB Statement No. 140
 Accounting for Uncertainty in
Income Taxes  an interpretation of the FASB Statement No. 109.
 Fair Value Measurements.
 Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans.
  9




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Item 2. Managements Discussion and Analysis or Plan of Operation
 Forward-Looking Statements:
  Critical Accounting Policies:
     10




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Accounting for Sales of Real Estate.
 Comparison of Financial Condition as of December 31, 2005 and September 30, 2006:
       Results of Operations-Comparison of the Three and Nine-Months Ended September 30, 2006 and 2005:
 11




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. .
  12




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Asset/Liability Management .
 .
 Stock Repurchases:
 Total
    
    
    
    
    
    Total Number of
    
    Maximum NumberNumber
    
    Average Price
    
    Shares Purchased
    
    of Shares that Mayof Shares
    
    Paid per
    
    As Part of Publicly
    
    Yet Be PurchasedPeriod
    
    Purchased
    
    Share
    
    Announced Programs
    
    Under the ProgramsJanuary 1-31, 2006
    
    
    0
    
    
    $
    0
    
    
    
    0
    
    
    
    63,936February 1-28, 2006
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0March 1-31, 2006
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0April 1-30, 2006
    
    
    58,800
    
    
    
    14.87
    
    
    
    58,800
    
    
    
    5,136May 1-31, 2006
    
    
    4,300
    
    
    
    14.72
    
    
    
    4,300
    
    
    
    74,736June 1-30, 2006
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0July 1-31, 2006
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0August 1-31,2006
    
    
    58,040
    
    
    
    14.81
    
    
    
    58,040
    
    
    
    16,696September 1-30,
2006
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    16,696Total
    
    
    121,140
    
    
    $
    14.83
    
    
    
    121,140
    
    
    
    16,696
  13




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##### Table of Contents



Capital Resources:
 Asset Quality Ratios:
 September 30,
    
    December 31,2006
    
    2005Nonperforming loans as a percent of total loans
    
    
    0.17
    %
    
    
    0.22
    %Nonperforming assets as a percent of total assets
    
    
    0.22
    %
    
    
    0.28
    %Allowance for loan losses as a percent of total loans
    
    
    1.34
    %
    
    
    1.28
    %Allowance for loan losses as a percent of nonperforming loans
    
    
    767.53
    %
    
    
    586.02
    %
 New Branch Office
 
 Item 3. Controls and Procedures
     14




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 6. Exhibits
   15




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##### Table of Contents



SIGNATURES
  PINNACLE BANCSHARES, INCDATE: November 14, 2006
    
    BY:
    
    /s/ Robert B. Nolen Jr.Robert B. Nolen, Jr.President and ChiefExecutive Officer(Principal Executive Officer andPrincipal Financial Officer)/s/ Marie GuthrieMarie GuthrieTreasurer(Principal Accounting Officer)
 16