##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-QSB
 (Mark one)
 þ
    
    Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 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
    
    72-1370314(State or Other Jurisdiction of
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)
 1811 Second Avenue, Jasper, Alabama 35502-1388
 (205) 221-4111
  þ o
  o þ
   þ o




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CONTENTS
 PagePART I FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Condensed Consolidated Statements of Financial Condition at September 30, 2005
and December 31, 2004.
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the three and nine-months
Ended September 30, 2005 and 2004.
    
    
    4Unaudited Condensed Consolidated Statements of Stockholders Equity for the nine months
Ended September 30, 2005 and 2004.
    
    
    5Unaudited Condensed Consolidated Statements of Cash Flows for the nine-months ended
September 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 6. Exhibits
    
    
    16Signatures
    
    
    17EX-31.1  SECTION 302 CERTIFICATION OF THE CEO & CFOEX-32.1  SECTION 906 CERTIFICATION OF THE CEO & 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
 September 30,
    
    
    December 31,2005
    
    
    2004ASSETS:Cash and cash equivalents
    
    $
    3,934,105
    
    
    $
    3,451,046Interest-bearing deposits in other banks
    
    
    1,740,797
    
    
    
    484,958Securities available-for-sale
    
    
    89,979,368
    
    
    
    89,025,401FHLB stock
    
    
    507,300
    
    
    
    417,000First National Bankers Bancshares, stock
    
    
    525,000
    
    
    
    0Loans held for sale
    
    
    1,737,477
    
    
    
    1,206,322Loans receivable, net of allowances for loan losses
of $1,296,700 and $1,167,263 respectively
    
    
    105,780,135
    
    
    
    99,599,999Real estate owned, net
    
    
    969,041
    
    
    
    598,642Premises and equipment
    
    
    5,627,771
    
    
    
    5,723,120Goodwill
    
    
    306,488
    
    
    
    306,488Bank owned life insurance
    
    
    5,021,557
    
    
    
    4,797,758Accrued interest receivable
    
    
    1,274,311
    
    
    
    1,254,307Other assets
    
    
    1,560,794
    
    
    
    967,308Total assets
    
    $
    218,964,144
    
    
    $
    207,832,349LIABILITIES AND STOCKHOLDERS EQUITY:Deposits
    
    $
    191,384,187
    
    
    $
    179,965,635Subordinated debt
    
    
    3,093,000
    
    
    
    3,093,000Borrowed funds
    
    
    2,375,000
    
    
    
    2,580,000Official checks outstanding
    
    
    1,125,544
    
    
    
    1,103,521Accrued interest payable
    
    
    678,132
    
    
    
    498,656Other liabilities
    
    
    858,418
    
    
    
    677,107Total liabilities
    
    
    199,514,281
    
    
    
    187,917,919STOCKHOLDERS EQUITY:Common stock, par value $.01 per share; 2,400,000 authorized; 1,827,813 and
1,821,780 issued at September 30, 2005 and December 31, 2004, respectively;
1,543,578 and 1,553,778 outstanding at September 30, 2005 and December 31,
2004, respectively
    
    
    18,278
    
    
    
    18,218Additional paid-in capital
    
    
    8,479,921
    
    
    
    8,418,897Treasury shares, at cost (284,235 shares and 268,002 shares at
September 30, 2005 and December 31, 2004, respectively)
    
    
    (3,453,228
    )
    
    
    (3,220,730
    )Retained earnings
    
    
    16,253,441
    
    
    
    15,571,155Accumulated other comprehensive loss, net of tax
    
    
    (1,848,549
    )
    
    
    (873,110
    )Total stockholders equity
    
    
    19,449,863
    
    
    
    19,914,430Total liabilities and stockholders equity
    
    $
    218,964,144
    
    
    $
    207,832,349
  3




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##### Table of Contents



PINNACLE BANCSHARES, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004INTEREST REVENUE:Interest on loans
    
    $
    2,019,364
    
    
    $
    1,809,241
    
    
    $
    5,624,679
    
    
    $
    5,512,816Interest and dividends on securities
    
    
    936,482
    
    
    
    845,160
    
    
    
    2,785,810
    
    
    
    2,436,099Other interest
    
    
    14,665
    
    
    
    8,749
    
    
    
    64,247
    
    
    
    24,1882,970,511
    
    
    
    2,663,150
    
    
    
    8,474,736
    
    
    
    7,973,103INTEREST EXPENSE:Interest on deposits
    
    
    1,134,499
    
    
    
    801,150
    
    
    
    3,068,598
    
    
    
    2,357,928Interest on borrowed funds
    
    
    51,473
    
    
    
    40,078
    
    
    
    141,916
    
    
    
    104,434Interest on subordinated debentures
    
    
    54,293
    
    
    
    35,674
    
    
    
    126,646
    
    
    
    134,8221,240,265
    
    
    
    876,902
    
    
    
    3,337,160
    
    
    
    2,597,184NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSSES
    
    
    1,730,246
    
    
    
    1,786,248
    
    
    
    5,137,576
    
    
    
    5,375,919PROVISION FOR LOAN LOSSES
    
    
    137,500
    
    
    
    147,000
    
    
    
    440,500
    
    
    
    441,000NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES
    
    
    1,592,746
    
    
    
    1,639,248
    
    
    
    4,697,076
    
    
    
    4,934,919NONINTEREST INCOME:Fees and service charges on deposit accounts
    
    
    234,388
    
    
    
    231,363
    
    
    
    650,637
    
    
    
    720,604Service fee income, net
    
    
    36,588
    
    
    
    41,370
    
    
    
    114,210
    
    
    
    123,615Fees and charges on loans
    
    
    59,806
    
    
    
    41,857
    
    
    
    128,219
    
    
    
    156,893Bank owned life insurance
    
    
    74,600
    
    
    
    70,714
    
    
    
    223,800
    
    
    
    212,142Net gain (loss) on sale or write-down of:Loans held for sale
    
    
    130,605
    
    
    
    105,487
    
    
    
    337,752
    
    
    
    432,350Real estate owned
    
    
    24,935
    
    
    
    2,703
    
    
    
    26,559
    
    
    
    (14,703
    )Securities available-for-sale
    
    
    0
    
    
    
    (295,537
    )
    
    
    (3,750
    )
    
    
    (373,841
    )560,922
    
    
    
    197,957
    
    
    
    1,477,427
    
    
    
    1,257,060NONINTEREST EXPENSE:Compensation and benefits
    
    
    817,305
    
    
    
    833,455
    
    
    
    2,504,391
    
    
    
    2,554,261Occupancy
    
    
    274,990
    
    
    
    267,185
    
    
    
    820,351
    
    
    
    781,117Marketing and professional
    
    
    117,865
    
    
    
    55,661
    
    
    
    298,968
    
    
    
    173,052Other
    
    
    261,227
    
    
    
    226,613
    
    
    
    805,233
    
    
    
    760,4741,471,387
    
    
    
    1,382,914
    
    
    
    4,428,943
    
    
    
    4,268,904INCOME BEFORE INCOME TAXES
    
    
    682,281
    
    
    
    454,291
    
    
    
    1,745,560
    
    
    
    1,923,075INCOME TAX EXPENSE
    
    
    220,773
    
    
    
    144,933
    
    
    
    551,228
    
    
    
    641,917NET INCOME
    
    $
    461,508
    
    
    $
    309,358
    
    
    $
    1,194,332
    
    
    $
    1,281,158Basic earnings per share
    
    $
    0.30
    
    
    $
    0.20
    
    
    $
    0.77
    
    
    $
    0.82Diluted earnings per share
    
    $
    0.29
    
    
    $
    0.20
    
    
    $
    0.76
    
    
    $
    0.80Cash dividends per share
    
    $
    0.11
    
    
    $
    0.11
    
    
    $
    0.33
    
    
    $
    0.32Weighted average basic shares outstanding
    
    
    1,551,361
    
    
    
    1,549,678
    
    
    
    1,549,355
    
    
    
    1,560,079Weighted average diluted shares outstanding
    
    
    1,579,320
    
    
    
    1,585,223
    
    
    
    1,579,019
    
    
    
    1,599,711
  4




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##### Table of Contents



PINNACLE BANCSHARES, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 FOR THE NINE MONTHS ENDED SEPTEMBER 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
    
    
    
    1,281,158
    
    
    
    0
    
    
    
    1,281,158Change in fair value of securities available-
for-sale, net of tax
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    112,553
    
    
    
    112,553Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,393,711Exercise 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 ($.32 per share)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (498,837
    )
    
    
    0
    
    
    
    (498,837
    )BALANCE, September 30, 2004
    
    
    1,816,780
    
    
    $
    18,168
    
    
    $
    8,374,884
    
    
    $
    (3,207,162
    )
    
    $
    15,290,598
    
    
    $
    (459,232
    )
    
    $
    20,017,256BALANCE, 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
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    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
    
    
    
    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
    )
    
    $
    19,449,863
  5




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##### Table of Contents



PINNACLE BANCSHARES, INC,
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine Months EndedSeptember 30,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    1,194,332
    
    
    $
    1,281,158Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    369,339
    
    
    
    370,129Provision for loan losses
    
    
    440,500
    
    
    
    441,000Accretion, net
    
    
    (111,302
    )
    
    
    (384,879
    )Increase in cash surrender value of Bank owned life insurance
    
    
    (223,800
    )
    
    
    (212,142
    )Net (gain) loss on sale or write down of:Loans held for sale
    
    
    (337,752
    )
    
    
    (432,350
    )Securities available-for-sale
    
    
    3,750
    
    
    
    373,841Real estate owned and other assets
    
    
    (26,559
    )
    
    
    14,703Proceeds from sale of loans
    
    
    26,059,646
    
    
    
    31,356,725Loans originated for sale
    
    
    (26,253,049
    )
    
    
    (30,370,667
    )(Increase) decrease in accrued interest receivable
    
    
    (20,004
    )
    
    
    183,405Decrease in other assets
    
    
    5,868
    
    
    
    194,555Increase in accrued interest payable
    
    
    179,476
    
    
    
    70,709Increase (decrease) in other liabilities
    
    
    181,311
    
    
    
    (34,907
    )Net cash provided by operating activities
    
    
    1,461,756
    
    
    
    2,851,280CASH FLOWS FROM INVESTING ACTIVITIES:Net loan (originations) repayments
    
    
    (7,117,974
    )
    
    
    2,419,536Net change in interest bearing deposits in other banks
    
    
    (1,255,839
    )
    
    
    (1,948,399
    )Purchase of securities available-for-sale
    
    
    (13,191,025
    )
    
    
    (63,731,524
    )Proceeds from the sale of securities available-for-sale
    
    
    4,000,000
    
    
    
    46,689,977Proceeds from maturing, called and payments received on securities available-for-sale
    
    
    6,558,289
    
    
    
    14,937,787Purchase of Federal Home Loan Bank stock
    
    
    (312,300
    )
    
    
    0Proceeds from sale of Federal Home Loan Bank stock
    
    
    222,000
    
    
    
    174,900Purchase of First National Bankers Bancshares, Inc. stock
    
    
    (525,000
    )
    
    
    0Purchase of premises and equipment
    
    
    (273,990
    )
    
    
    (391,595
    )Proceeds from sales of real estate owned
    
    
    365,027
    
    
    
    980,072Net cash used in investing activities
    
    
    (11,530,812
    )
    
    
    (869,246
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in passbook, NOW and money market deposit accounts
    
    
    3,808,066
    
    
    
    1,849,002Proceeds from sales of time deposits
    
    
    21,978,814
    
    
    
    14,279,725Payments on maturing time deposits
    
    
    (14,368,328
    )
    
    
    (15,902,192
    )Decrease in borrowed funds
    
    
    (205,000
    )
    
    
    (885,000
    )Increase (decrease) in official checks outstanding
    
    
    22,023
    
    
    
    (843,015
    )Proceeds from the exercise of stock options
    
    
    61,084
    
    
    
    155,103Repurchase of common stock
    
    
    (232,498
    )
    
    
    (463,917
    )Payments of cash dividends
    
    
    (512,046
    )
    
    
    (498,837
    )Net cash provided by financing activities
    
    
    10,552,115
    
    
    
    2,309,131NET (INCREASE) DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    483,059
    
    
    
    (327,097
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    3,451,046
    
    
    
    3,519,377CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    3,934,105
    
    
    $
    3,192,280SUPPLEMENTAL DISCLOSURES:Cash payments for interest on deposits, borrowed funds, and subordinated debentures
    
    $
    3,157,684
    
    
    $
    2,526,475Cash payments for income taxes
    
    
    580,013
    
    
    
    640,000Real estate acquired through foreclosure
    
    
    708,867
    
    
    
    424,304
  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
    
    
    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 Three Months Ended
    
    Net Income
    
    
    Shares
    
    
    AmountSeptember 30, 2004Basic earnings per share
    
    $
    309,358
    
    
    
    1,549,678
    
    
    $
    0.20Dilutive securities
    
    
    
    
    
    
    35,545Diluted earnings per share
    
    $
    309,358
    
    
    
    1,585,223
    
    
    $
    0.20
 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
 PerShareFor The Nine Months Ended
    
    Net Income
    
    
    Shares
    
    
    AmountSeptember 30, 2004Basic earnings per share
    
    $
    1,281,158
    
    
    
    1,560,079
    
    
    $
    0.82Dilutive securities
    
    
    
    
    
    
    39,632Diluted earnings per share
    
    $
    1,281,158
    
    
    
    1,599,711
    
    
    $
    0.80
 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 September 30, 2005:
      Results of Operations-Comparison of the Three and Nine-Months Ended September 30, 2005 and 2004:
 11




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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
    
    
    
    71,236July 1-31, 2005
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0August 1-31, 2005
    
    
    4,900
    
    
    $
    13.60
    
    
    
    4,900
    
    
    
    66,336September 1-30, 2005
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    
    16,233
    
    
    $
    14.32
    
    
    
    10,300
    
    
    
    66,636
 ,
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##### Table of Contents



Capital Resources:
 Asset Quality Ratios:
 September 30,
    
    December 31,2005
    
    2004Nonperforming loans as a percent of total loans
    
    
    0.13
    %
    
    
    0.72
    %Nonperforming assets as a percent of total assets
    
    
    0.51
    %
    
    
    0.64
    %Allowance for loan losses as a percent of total loans
    
    
    1.21
    %
    
    
    1.16
    %Allowance for loan losses as a percent of nonperforming loans
    
    
    946.72
    %
    
    
    160.74
    %
 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 6. Exhibits
   16




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##### Table of Contents



SIGNATURES
  PINNACLE BANCSHARES, INCDATE: November 14, 2005
    
    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)
 17