##### 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 June 30, 2005
 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(State or Other Jurisdiction of
    
    72-1370314(I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 1811 Second Avenue, Jasper, Alabama 35502-1388
 (205) 221-4111
  þ o
   o þ




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CONTENTS
 PagePART I            FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Condensed Consolidated Statements of Financial Condition at June 30, 2005 and December 31, 2004.
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the three and six-months Ended June 30, 2005 and 2004.
    
    
    4Unaudited Condensed Consolidated Statements of Stockholders Equity for six months Ended June 30, 2005 and 2004.
    
    
    5Unaudited Condensed Consolidated Statements of Cash Flows for the six-months ended June 30, 2005 and 2004.
    
    
    6Notes to Unaudited Condensed Consolidated Financial Statements.
    
    
    7Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    10Item 3. Controls and Procedures
    
    
    15Part II            OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 4. Submission of Matters to a Vote of Security HoldersItem 6. Exhibits
    
    
    16Signatures
    
    
    17EX-31.1   SECTION 302 CERTIFICATION OF THE CEO AND CFOEX-32.1  SECTION 906 CERTIFICATION OF THE CEO AND CFO
  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
 June 30,
    
    December 31,2005
    
    2004ASSETS:Cash and cash equivalents
    
    $
    3,729,708
    
    
    $
    3,451,046Interest-bearing deposits in other banks
    
    
    1,484,860
    
    
    
    484,958Securities available-for-sale
    
    
    94,421,814
    
    
    
    89,025,401FHLB stock
    
    
    640,500
    
    
    
    417,000First National Bankers Bancshares, stock
    
    
    525,000
    
    
    
    0Loans held for sale
    
    
    1,579,842
    
    
    
    1,206,322Loans receivable, net of allowances for loan losses
of $1,313,567 and $1,167,263 respectively
    
    
    103,471,303
    
    
    
    99,599,999Real estate owned, net
    
    
    527,784
    
    
    
    598,642Premises and equipment
    
    
    5,633,970
    
    
    
    5,723,120Goodwill
    
    
    306,488
    
    
    
    306,488Bank owned life insurance
    
    
    4,946,958
    
    
    
    4,797,758Accrued interest receivable
    
    
    1,307,289
    
    
    
    1,254,307Other assets
    
    
    996,152
    
    
    
    967,308Total assets
    
    $
    219,571,668
    
    
    $
    207,832,349LIABILITIES AND STOCKHOLDERS EQUITY:Deposits
    
    $
    187,358,178
    
    
    $
    179,965,635Subordinated debt
    
    
    3,093,000
    
    
    
    3,093,000Borrowed funds
    
    
    6,475,000
    
    
    
    2,580,000Official checks outstanding
    
    
    1,180,388
    
    
    
    1,103,521Accrued interest payable
    
    
    664,712
    
    
    
    498,656Other liabilities
    
    
    729,623
    
    
    
    677,107Total liabilities
    
    
    199,500,901
    
    
    
    187,917,919STOCKHOLDERS EQUITY:Common stock, par value $.01 per share; 2,400,000 authorized; 1,827,813 and
1,821,780 issued at June 30, 2005 and December 31, 2004, respectively;
1,548,478 and 1,553,778 outstanding at June 30, 2005 and December 31, 2004,
respectively.
    
    
    18,278
    
    
    
    18,218Additional paid-in capital
    
    
    8,479,921
    
    
    
    8,418,897Treasury shares, at cost (279,335 shares and 268,002 shares at
June 30, 2005 and December 31, 2004, respectively)
    
    
    (3,386,586
    )
    
    
    (3,220,730
    )Retained earnings
    
    
    15,962,929
    
    
    
    15,571,155Accumulated other comprehensive loss, net of tax
    
    
    (1,003,775
    )
    
    
    (873,110
    )Total stockholders equity
    
    
    20,070,767
    
    
    
    19,914,430Total liabilities and stockholders equity
    
    $
    219,571,668
    
    
    $
    207,832,349
  3




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##### Table of Contents



PINNACLE BANCSHARES, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004INTEREST REVENUE:Interest on loans
    
    $
    1,845,037
    
    
    $
    1,847,269
    
    
    $
    3,605,315
    
    
    $
    3,703,575Interest and dividends on securities
    
    
    953,230
    
    
    
    840,562
    
    
    
    1,849,328
    
    
    
    1,590,939Other interest
    
    
    16,100
    
    
    
    4,793
    
    
    
    49,582
    
    
    
    15,4392,814,367
    
    
    
    2,692,624
    
    
    
    5,504,225
    
    
    
    5,309,953INTEREST EXPENSE:Interest on deposits
    
    
    1,011,299
    
    
    
    778,888
    
    
    
    1,934,099
    
    
    
    1,556,778Interest on borrowed funds
    
    
    47,337
    
    
    
    53,096
    
    
    
    90,443
    
    
    
    94,744Interest on subordinated debentures
    
    
    36,117
    
    
    
    31,695
    
    
    
    72,353
    
    
    
    68,7601,094,753
    
    
    
    863,679
    
    
    
    2,096,895
    
    
    
    1,720,282NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSSES
    
    
    1,719,614
    
    
    
    1,828,945
    
    
    
    3,407,330
    
    
    
    3,589,671PROVISION FOR LOAN LOSSES
    
    
    147,000
    
    
    
    147,000
    
    
    
    303,000
    
    
    
    294,000NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES
    
    
    1,572,614
    
    
    
    1,681,945
    
    
    
    3,104,330
    
    
    
    3,295,671NONINTEREST INCOME:Fees and service charges on deposit accounts
    
    
    227,825
    
    
    
    260,297
    
    
    
    416,249
    
    
    
    489,241Service fee income, net
    
    
    38,074
    
    
    
    41,352
    
    
    
    77,622
    
    
    
    82,245Fees and charges on loans
    
    
    37,394
    
    
    
    61,658
    
    
    
    68,413
    
    
    
    115,036Bank owned life insurance
    
    
    74,600
    
    
    
    70,714
    
    
    
    149,200
    
    
    
    141,428Net gain (loss) on sale or write-down of:Loans held for sale
    
    
    93,290
    
    
    
    191,308
    
    
    
    207,147
    
    
    
    326,863Real estate owned
    
    
    (2,113
    )
    
    
    (7,571
    )
    
    
    1,624
    
    
    
    (17,406
    )Securities available-for-sale
    
    
    0
    
    
    
    0
    
    
    
    (3,750
    )
    
    
    (78,304
    )469,070
    
    
    
    617,758
    
    
    
    916,505
    
    
    
    1,059,103NONINTEREST EXPENSE:Compensation and benefits
    
    
    824,377
    
    
    
    864,361
    
    
    
    1,687,086
    
    
    
    1,720,806Occupancy
    
    
    270,042
    
    
    
    257,958
    
    
    
    545,361
    
    
    
    513,932Marketing and professional
    
    
    91,769
    
    
    
    59,313
    
    
    
    181,103
    
    
    
    117,391Other
    
    
    260,333
    
    
    
    276,905
    
    
    
    544,006
    
    
    
    533,8611,446,521
    
    
    
    1,458,537
    
    
    
    2,957,556
    
    
    
    2,885,990INCOME BEFORE INCOME TAXES
    
    
    595,163
    
    
    
    841,166
    
    
    
    1,063,279
    
    
    
    1,468,784INCOME TAX EXPENSE
    
    
    188,394
    
    
    
    288,045
    
    
    
    330,455
    
    
    
    496,984NET INCOME
    
    $
    406,769
    
    
    $
    553,121
    
    
    $
    732,824
    
    
    $
    971,800Basic earnings per share
    
    $
    0.26
    
    
    $
    0.35
    
    
    $
    0.47
    
    
    $
    0.62Diluted earnings per share
    
    $
    0.26
    
    
    $
    0.35
    
    
    $
    0.46
    
    
    $
    0.60Cash dividends per share
    
    $
    0.11
    
    
    $
    0.11
    
    
    $
    0.22
    
    
    $
    0.21Weighted average basic shares outstanding
    
    
    1,549,222
    
    
    
    1,564,744
    
    
    
    1,550,775
    
    
    
    1,565,336Weighted average diluted shares outstanding
    
    
    1,577,604
    
    
    
    1,601,848
    
    
    
    1,581,292
    
    
    
    1,607,012
  4




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PINNACLE BANCSHARES, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    Other
    
    TotalCommon Stock
    
    Paid-in
    
    Treasury
    
    Retained
    
    Comprehensive
    
    StockholdersShares
    
    Amount
    
    Capital
    
    Stock
    
    Earnings
    
    (Loss) Income
    
    EquityBALANCE, December 31, 2003
    
    
    1,800,813
    
    
    $
    18,008
    
    
    $
    8,219,941
    
    
    $
    (2,743,245
    )
    
    $
    14,508,277
    
    
    $
    (571,785
    )
    
    $
    19,431,196Comprehensive income:Net income
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    971,800
    
    
    
    0
    
    
    
    971,800Change in fair value of securities available-
for-sale, net of tax
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (1,238,573
    )
    
    
    (1,238,573
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (266,773
    )Exercise of stock options
    
    
    15,967
    
    
    
    160
    
    
    
    154,943
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    155,103Repurchase of common stock (28,900 shares at cost)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (463,917
    )
    
    
    0
    
    
    
    0
    
    
    
    (463,917
    )Cash dividends declared ($.21 per share)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (328,372
    )
    
    
    0
    
    
    
    (328,372
    )BALANCE, June 30, 2004
    
    
    1,816,780
    
    
    $
    18,168
    
    
    $
    8,374,884
    
    
    $
    (3,207,162
    )
    
    $
    15,151,705
    
    
    $
    (1,810,358
    )
    
    $
    18,527,237BALANCE, 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
    
    
    
    732,824
    
    
    
    0
    
    
    
    732,824Change in fair value of securities available-
for-sale, net of tax
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (130,665
    )
    
    
    (130,665
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    602,159Exercise of stock options
    
    
    6,033
    
    
    
    60
    
    
    
    61,024
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,084Repurchase of common stock (11,333 shares at cost)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (165,856
    )
    
    
    0
    
    
    
    0
    
    
    
    (165,856
    )Cash dividends declared ($.22 per share)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (341,050
    )
    
    
    0
    
    
    
    (341,050
    )BALANCE, June 30, 2005
    
    
    1,827,813
    
    
    $
    18,278
    
    
    $
    8,479,921
    
    
    $
    (3,386,586
    )
    
    $
    15,962,929
    
    
    $
    (1,003,775
    )
    
    $
    20,070,767
  5




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##### Table of Contents



PINNACLE BANCSHARES, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Six Months EndedJune 30,2005
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    732,824
    
    
    $
    971,800Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    247,694
    
    
    
    244,428Provision for loan losses
    
    
    303,000
    
    
    
    294,000Accretion, net
    
    
    (57,971
    )
    
    
    (313,086
    )Increase in cash surrender value of Bank owned life insurance
    
    
    (149,200
    )
    
    
    (141,428
    )Net (gain) loss on sale or write down of:Loans held for sale
    
    
    (207,147
    )
    
    
    (326,863
    )Securities available-for-sale
    
    
    3,750
    
    
    
    78,304Real estate owned and other assets
    
    
    (1,624
    )
    
    
    17,406Proceeds from sale of loans
    
    
    15,641,546
    
    
    
    21,741,928Loans originated for sale
    
    
    (15,807,919
    )
    
    
    (20,954,572
    )(Increase) decrease in accrued interest receivable
    
    
    (52,982
    )
    
    
    36,145Increase in other assets
    
    
    (107,929
    )
    
    
    (779,858
    )Increase in accrued interest payable
    
    
    166,058
    
    
    
    75,360Increase in other liabilities
    
    
    52,516
    
    
    
    963,254Net cash provided by operating activities
    
    
    762,616
    
    
    
    1,906,818CASH FLOWS FROM INVESTING ACTIVITIES:Net loan (originations) repayments
    
    
    (4,225,273
    )
    
    
    1,383,900Net change in interest bearing deposits in other banks
    
    
    (999,902
    )
    
    
    (827,702
    )Purchase of securities available-for-sale
    
    
    (13,191,025
    )
    
    
    (53,670,854
    )Proceeds from the sale of securities available-for-sale
    
    
    4,000,000
    
    
    
    34,905,702Proceeds from payments received on securities available-for-sale
    
    
    3,667,677
    
    
    
    13,207,435Purchase of Federal Home Loan Bank stock
    
    
    (225,000
    )
    
    
    0Proceeds from sale of Federal Home Loan Bank stock
    
    
    1,500
    
    
    
    174,900Purchase of First National Bankers Bancshares, Inc. stock
    
    
    (525,000
    )
    
    
    0Purchase of premises and equipment
    
    
    (158,544
    )
    
    
    (301,666
    )Proceeds from sales of real estate owned
    
    
    253,025
    
    
    
    860,538Net cash used in investing activities
    
    
    (11,402,542
    )
    
    
    (4,267,747
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in passbook, NOW and money market deposit accounts
    
    
    1,336,000
    
    
    
    2,066,903Proceeds from sales of time deposits
    
    
    14,079,769
    
    
    
    10,619,777Payments on maturing time deposits
    
    
    (8,023,226
    )
    
    
    (10,852,396
    )Increase in borrowed funds
    
    
    3,895,000
    
    
    
    615,000Increase in official checks outstanding
    
    
    76,867
    
    
    
    100,735Proceeds from the exercise of stock options
    
    
    61,084
    
    
    
    155,103Repurchase of common stock
    
    
    (165,856
    )
    
    
    (463,917
    )Payments of cash dividends
    
    
    (341,050
    )
    
    
    (328,372
    )Net cash provided by financing activities
    
    
    10,918,588
    
    
    
    1,912,833NET (INCREASE) DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    278,662
    
    
    
    (448,096
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    3,451,046
    
    
    
    3,519,377CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    3,729,708
    
    
    $
    3,071,281SUPPLEMENTAL DISCLOSURES:Cash payments for interest on deposits, borrowed funds, and subordinated debentures
    
    $
    1,930,839
    
    
    $
    1,644,922Cash payments for income taxes
    
    
    380,013
    
    
    
    570,000Real estate acquired through foreclosure
    
    
    180,543
    
    
    
    361,104
  6




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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
    
    AmountJune 30, 2005Basic earnings per share
    
    $
    406,769
    
    
    
    1,549,222
    
    
    $
    0.26Dilutive securities
    
    
    
    
    
    
    28,382Diluted earnings per share
    
    $
    406,759
    
    
    
    1,577,604
    
    
    $
    0.26
 PerShareFor The Three Months Ended
    
    Net Income
    
    Shares
    
    AmountJune 30, 2004Basic earnings per share
    
    $
    553,121
    
    
    
    1,564,744
    
    
    $
    0.35Dilutive securities
    
    
    
    
    
    
    37,104Diluted earnings per share
    
    $
    553,121
    
    
    
    1,601,848
    
    
    $
    0.35
 PerShareFor The Six Months Ended
    
    Net Income
    
    Shares
    
    AmountJune 30, 2005Basic earnings per share
    
    $
    732,824
    
    
    
    1,550,775
    
    
    $
    0.47Dilutive securities
    
    
    
    
    
    
    30,517Diluted earnings per share
    
    $
    732,824
    
    
    
    1,581,292
    
    
    $
    0.46
 PerShareFor The Six Months Ended
    
    Net Income
    
    Shares
    
    AmountJune 30, 2004Basic earnings per share
    
    $
    971,800
    
    
    
    1,565,336
    
    
    $
    0.62Dilutive securities
    
    
    
    
    
    
    41,676Diluted earnings per share
    
    $
    971,800
    
    
    
    1,607,012
    
    
    $
    0.60
 3. STOCK BASED COMPENSATION:
  8




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4. RECENT ACCOUNTING PRONOUNCEMENTS:
 The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments
 Share-Based Payment Accounting for Stock-Based Compensation) Accounting for Stock Issued to Employees
  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, 2004 and June 30, 2005:
      Results of Operations-Comparison of the Three and Six-Months Ended June 30, 2005 and 2004:
 .
 11




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##### Table of Contents



Asset/Liability Management
 12




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##### Table of Contents



Stock Repurchases:
 Total Number of
    
    Maximum NumberTotal Number
    
    
    
    
    
    Shares Purchased
    
    of Shares that Mayof Shares
    
    Average Price
    
    As Part of Publicly
    
    Yet Be PurchasedPeriod
    
    Purchased
    
    Paid per Share
    
    Announced Programs
    
    Under the ProgramsJanuary
131, 2005
    
    
    3,000
    
    
    $
    15.47
    
    
    
    3,000
    
    
    
    79,569February
128, 2005
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0March 131, 2005
    
    
    1,000
    
    
    $
    15.19
    
    
    
    1,000
    
    
    
    78,569April 130, 2005
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0May 131, 2005
    
    
    2,400
    
    
    $
    14.27
    
    
    
    1,300
    
    
    
    76,169June 130, 2005
    
    
    4,933
    
    
    $
    14.31
    
    
    
    100
    
    
    
    71,236Total
    
    
    11,333
    
    
    $
    14.64
    
    
    
    5,400
    
    
    
    71,236
  Capital Resources:
 13




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14




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##### Table of Contents



Item 3. Controls and Procedures
      15




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 4. Submission of Matters to a Vote of Security Holders
  PROPOSAL
IELECTION OF DIRECTORS
 NOMINEES
    
    FOR
    
    WITHHELD
    
    TERMO. H. Brown
    
    
    1,254,298
    
    
    
    86,696
    
    
    
    2008Sam W. Murphy
    
    
    1,293,407
    
    
    
    47,587
    
    
    
    2008A1 H. Simmons
    
    
    1,306,537
    
    
    
    34,457
    
    
    
    2008
  PROPOSAL
IIRATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
  FOR
    
    AGAINST
    
    ABSTAIN1,328,857
    
    
    4,086
    
    
    
    8,051
  ITEM 5. Other Information
  
 ITEM 6. Exhibits
   16




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SIGNATURES
  PINNACLE BANCSHARES, INCDATE: August 15, 2005
    BY:
    
    /s/ Robert B. Nolen Jr.Robert B. Nolen, Jr.President and Chief
Executive Officer
(Principal Executive Officer and
Principal Financial Officer) /s/ Marie GuthrieMarie GuthrieTreasurer
(Principal Accounting Officer) 17