##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-QSB

(Mark one)

(box with an x) Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the quarterly period ended September 30, 2001

(empty ballot box) 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.

---

(Exact Name of
Small Business Issuer as Specified in Its Charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 72-1370314                          
|                                                               |  |                                     
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer
Identification No.)

1811 Second Avenue, Jasper, Alabama 35502-1388

---

(Address of Principal Executive Offices)


(205) 221-4111

---

(Issuers Telephone Number, Including Area Code)




---

(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)


Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [    ]

State the number of shares outstanding of each of the issuers classes
of common equity, as of the latest practicable date: 1,775,384

Transitional Small Business Disclosure Format (check one):

Yes [X] No [    ]



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TABLE OF CONTENTS



|                                                                    |  |  |  |  |  |  |  | 
|------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|Item 1. Financial Statements                                       
|UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 
|UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL OPERATIONS
|UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS          
|NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS     
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION  
|SIGNATURES                                                         



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##### Table of Contents



PART I
FINANCIAL INFORMATION

|                                                                                                                                                                                                                                                                                           |  |      |    | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                                                                                                                                                                                                           |  | Page
|                                                                                                                                                                                                                                                                                           |  |     
|Item 1. Financial Statements                                                                                                                                                                                                                                                               |  |      |    | 
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|Condensed Consolidated Statements of Financial Condition at September 30, 2001
(Unaudited) and December 31, 2000                                                                                                                                                                           |  |      | 3  | 
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|Condensed Consolidated Statements of Financial Operations for the three months
ended September 30, 2001 and 2000 and for the nine months ended September 30,
2001 and 2000 (unaudited)                                                                                                     |  |      | 4  | 
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|Condensed Consolidated Statements of Stockholders Equity for the nine months
ended September 30, 2001 and 2000 (Unaudited)                                                                                                                                                                 |  |      | 5  | 
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2001 and 2000 (Unaudited)                                                                                                                                                                          |  |      | 6  | 
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|Notes to Unaudited Condensed Consolidated Financial Statements                                                                                                                                                                                                                             |  |      | 7  | 
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|The Condensed Consolidated Financial Statements furnished have not been audited
by independent certified public accountants, but reflect, in the opinion of
management, all adjustments necessary for a fair presentation of financial
condition and the results for the periods presented |  |      |    | 
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|Item 2. Managements Discussion and Analysis or Plan of Operation                                                                                                                                                                                                                          |  |      | 10 | 
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                          
|Signatures                                                                                                                                                                                                                                                                                 |  |      | 13 | 

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,
|                                      |                                                                                               |                   |                                            |             | 2001          |             | 2000        
|                                      |                                                                                               |                   |                                            |             |               |             |             
|ASSETS:                               |                                                                                               |                   |                                            |             |               |             |              |            
|                                     
|                                     
|                                     
|                                     
|                                      | Cash on hand and in banks                                                                     |                   | $                                          | 3,257,481   |               |             | $            | 3,480,036   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Interest-bearing deposits in other banks                                                      |                   |                                            | 8,823,884   |               |             |              | 1,135,957   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Securities available-for-sale                                                                 |                   |                                            | 50,380,076  |               |             |              | 61,068,531  |           
|                                     
|                                     
|                                     
|                                     
|                                      | Loans held for sale                                                                           |                   |                                            | 1,617,952   |               |             |              | 1,337,032   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Loans receivable, net of allowance for loan losses
of $1,652,903 and $1,338,631, respectively |                   |                                            | 138,131,459 |               |             |              | 152,020,585 |           
|                                     
|                                     
|                                     
|                                     
|                                      | Real estate owned, net                                                                        |                   |                                            | 1,917,216   |               |             |              | 1,420,143   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Premises and equipment, net                                                                   |                   |                                            | 6,117,561   |               |             |              | 6,463,478   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Goodwill                                                                                      |                   |                                            | 316,705     |               |             |              | 347,355     |           
|                                     
|                                     
|                                     
|                                     
|                                      | Bank owned life insurance                                                                     |                   |                                            | 3,883,472   |               |             |              | 0           |           
|                                     
|                                     
|                                     
|                                     
|                                      | Accrued interest receivable                                                                   |                   |                                            | 1,727,603   |               |             |              | 2,331,537   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Other assets                                                                                  |                   |                                            | 1,101,858   |               |             |              | 664,373     |           
|                                      |                                                                                               |                   |                                            |             |               |             |              |            
|                                      |                                                                                               |                   | Total assets                               |             | $             | 217,275,267 |              |             | $          | 230,269,027 | 
|                                      |                                                                                               |                   |                                            |             |               |             |              |            
|LIABILITIES AND STOCKHOLDERS EQUITY: |                                                                                               |                   |                                            |             |               |             |              |            
|                                     
|                                     
|                                     
|                                     
|                                      | Deposits                                                                                      |                   | $                                          | 190,710,237 |               |             | $            | 187,470,754 |           
|                                     
|                                     
|                                     
|                                     
|                                      | Borrowed funds                                                                                |                   |                                            | 3,100,000   |               |             |              | 20,500,000  |           
|                                     
|                                     
|                                     
|                                     
|                                      | Official checks outstanding                                                                   |                   |                                            | 1,317,220   |               |             |              | 964,038     |           
|                                     
|                                     
|                                     
|                                     
|                                      | Accrued interest payable                                                                      |                   |                                            | 1,223,319   |               |             |              | 1,431,604   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Other liabilities                                                                             |                   |                                            | 1,048,166   |               |             |              | 672,306     |           
|                                      |                                                                                               |                   |                                            |             |               |             |              |            
|                                      |                                                                                               |                   | 197,398,942                                |             |               |             | 211,038,702  |            
|                                      |                                                                                               |                   |                                            |             |               |             |              |            
|COMMITMENTS AND CONTINGENCIES         |                                                                                               |                   |                                            |             |               |             |              |            
|                                     
|                                     
|                                     
|                                     
|STOCKHOLDERS EQUITY:                 |                                                                                               |                   |                                            |             |               |             |              |            
|                                     
|                                     
|                                     
|                                     
|                                      | Preferred stock, par value $.01 per share, no shares issued,
100,000 authorized               |                   |                                            | 0           |               |             |              | 0           |           
|                                     
|                                     
|                                     
|                                     
|                                      | Common stock, par value $.01 per share, 1,792,086 shares issued,
2,400,000 shares authorized  |                   |                                            | 17,921      |               |             |              | 17,921      |           
|                                     
|                                     
|                                     
|                                     
|                                      | Additional paid-in capital                                                                    |                   |                                            | 8,131,746   |               |             |              | 8,131,746   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Treasury stock, at cost (16,702 shares at September 30, 2001 and December 31, 2000)           |                   |                                            | (128,075    | )             |             |              | (128,075    | )         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                               | Retained earnings |                                            |             | 11,508,128    |             |              |             | 11,440,810 |            
|                                     
|                                     
|                                     
|                                     
|                                      | Accumulated other comprehensive income (loss), net of tax                                     |                   |                                            | 346,605     |               |             |              | (232,077    | )         
|                                      |                                                                                               |                   |                                            |             |               |             |              |            
|                                      | Total stockholders equity                                                                    |                   |                                            | 19,876,325  |               |             |              | 19,230,325  |           
|                                      |                                                                                               |                   |                                            |             |               |             |              |            
|                                      |                                                                                               |                   | Total liabilities and stockholders equity |             | $             | 217,275,267 |              |             | $          | 230,269,027 | 
|                                      |                                                                                               |                   |                                            |             |               |             |              |            

See accompanying notes to condensed consolidated financial statements

3



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##### Table of Contents



PINNACLE BANCSHARES, INC.




UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL OPERATIONS


|                                                           |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |            |  |         |  
|---------------------------------------------------------- | ----------------------------------------- | - | ------------------- | --------- | ------------------ | -------- | ----------------- | --------- | ---- | ------- | ---------- | --------- |  | -------- | ---------- | ---------- |  | ------- | -
|                                                           |                                           |   |                     |           | Three Months Ended |          | Nine Months Ended
|                                                           |                                           |   |                     |           | September 30,      |          | September 30,    
|                                                           |                                           |   |                     |           |                    |          |                  
|                                                           |                                           |   |                     |           | 2001               |          | 2000              |           | 2001 |         | 2000      
|                                                           |                                           |   |                     |           |                    |          |                   |           |      |         |           
|INTEREST REVENUES:                                         |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Interest on loans                         |   | $                   | 3,052,058 |                    |          | $                 | 3,576,154 |      |         | $          | 9,591,568 |  |          | $          | 10,283,048 | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Interest and dividends on securities      |   |                     | 787,737   |                    |          |                   | 950,962   |      |         |            | 2,418,741 |  |          |            | 2,865,821  | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Other interest                            |   |                     | 40,178    |                    |          |                   | 42,460    |      |         |            | 195,432   |  |          |            | 136,793    | 
|                                                           |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|                                                           |                                           |   | 3,879,973           |           |                    |          | 4,569,576         |           |      |         | 12,205,741 |           |  |          | 13,285,662 |           
|                                                          
|                                                          
|                                                          
|                                                          
|INTEREST EXPENSE:                                          |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Interest on deposits                      |   | 2,174,874           |           |                    |          | 2,386,270         |           |      |         | 6,910,730  |           |  |          | 6,834,768  |           
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Interest on borrowed funds                |   |                     | 50,505    |                    |          |                   | 345,244   |      |         |            | 343,531   |  |          |            | 1,006,209  | 
|                                                           |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|                                                           |                                           |   | 2,225,379           |           |                    |          | 2,731,514         |           |      |         | 7,254,261  |           |  |          | 7,840,977  |           
|                                                           |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSSES       |                                           |   | 1,654,594           |           |                    |          | 1,838,062         |           |      |         | 4,951,480  |           |  |          | 5,444,685  |           
|                                                          
|                                                          
|                                                          
|                                                          
|PROVISION FOR LOAN LOSSES                                  |                                           |   | 451,650             |           |                    |          | 170,000           |           |      |         | 1,241,650  |           |  |          | 410,000    |           
|                                                           |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES        |                                           |   | 1,202,944           |           |                    |          | 1,668,062         |           |      |         | 3,709,830  |           |  |          | 5,034,685  |           
|                                                           |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|NON-INTEREST INCOME:                                       |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Fees and service charges                  |   |                     | 221,972   |                    |          |                   | 186,203   |      |         |            | 618,289   |  |          |            | 544,330    | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Service fee income, net                   |   |                     | 38,892    |                    |          |                   | 42,361    |      |         |            | 119,761   |  |          |            | 130,128    | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Bank owned life insurance                 |   |                     | 60,143    |                    |          |                   | 0         |      |         |            | 65,300    |  |          |            | 0          |  |        
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Real estate operations, net               |   |                     | 29,870    |                    |          |                   | 21,985    |      |         |            | 99,350    |  |          |            | 46,221     | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Net gain (loss) on sale or write-down of: |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |            | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                           |   | Loans held for sale |           |                    | 132,829  |                   |           |      | 109,076 |            |           |  | 444,625  |            |            |  | 281,481 |  
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                           |   | Investments         |           |                    | 0        |                   |           |      | 0       |            |           |  | 60,313   |            |            |  | 0       |  
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                           |   | Assets              |           |                    | 0        |                   |           |      | 0       |            |           |  | 2,938    |            |            |  | 0       |  
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                           |   | Real estate owned   |           |                    | (142,933 | )                 |           |      | (13,069 | )          |           |  | (147,081 | )          |            |  | (18,621 | )
|                                                           |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|                                                           |                                           |   | 340,773             |           |                    |          | 346,556           |           |      |         | 1,263,495  |           |  |          | 983,539    |           
|                                                           |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|NON-INTEREST EXPENSE:                                      |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Compensation and benefits                 |   |                     | 719,770   |                    |          |                   | 722,587   |      |         |            | 2,208,604 |  |          |            | 2,133,970  | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Occupancy                                 |   |                     | 304,160   |                    |          |                   | 307,021   |      |         |            | 923,525   |  |          |            | 905,965    | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Marketing and professional                |   |                     | 50,588    |                    |          |                   | 46,046    |      |         |            | 131,620   |  |          |            | 118,343    | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Other                                     |   |                     | 223,403   |                    |          |                   | 204,195   |      |         |            | 673,317   |  |          |            | 669,531    | 
|                                                           |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|                                                           |                                           |   | 1,297,921           |           |                    |          | 1,279,849         |           |      |         | 3,937,066  |           |  |          | 3,827,809  |           
|                                                           |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|INCOME BEFORE TAXES AND EXTRAORDINARY ITEM                 |                                           |   | 245,796             |           |                    |          | 734,769           |           |      |         | 1,036,259  |           |  |          | 2,190,415  |           
|                                                          
|                                                          
|                                                          
|                                                          
|INCOME TAX PROVISION                                       |                                           |   | 81,662              |           |                    |          | 276,768           |           |      |         | 328,739    |           |  |          | 826,001    |           
|                                                           |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|INCOME BEFORE EXTRAORDINARY ITEM                           |                                           |   | 164,134             |           |                    |          | 458,001           |           |      |         | 707,520    |           |  |          | 1,364,414  |           
|                                                          
|                                                          
|                                                          
|                                                          
|EXTRAORDINARY ITEM, NET OF TAX BENEFIT
OF $62,903 (Note 2) |                                           |   | 0                   |           |                    |          | 0                 |           |      |         | 107,587    |           |  |          | 0          |           
|                                                           |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|NET INCOME                                                 |                                           | $ | 164,134             |           |                    | $        | 458,001           |           |      | $       | 599,933    |           |  | $        | 1,364,414  |           
|                                                           |                                           |   |                     |           |                    |          |                   |           |      |         |            |           |  |          |            |           
|BASIC EARNINGS PER SHARE BEFORE
EXTRAORDINARY ITEM         |                                           | $ | 0.09                |           |                    | $        | 0.26              |           |      | $       | 0.40       |           |  | $        | 0.76       |           
|                                                          
|                                                          
|                                                          
|                                                          
|BASIC EARNINGS PER SHARE-EXTRAORDINARY ITEM                |                                           |   | 0                   |           |                    |          | 0                 |           |      |         | ($0.06     | )         |  |          | 0          |           
|                                                          
|                                                          
|                                                          
|                                                          
|BASIC EARNINGS PER SHARE                                   |                                           | $ | 0.09                |           |                    | $        | 0.26              |           |      | $       | 0.34       |           |  | $        | 0.76       |           
|                                                          
|                                                          
|                                                          
|                                                          
|DILUTED EARNINGS PER SHARE BEFORE
EXTRAORDINARY ITEM       |                                           | $ | 0.09                |           |                    | $        | 0.26              |           |      | $       | 0.40       |           |  | $        | 0.76       |           
|                                                          
|                                                          
|                                                          
|                                                          
|DILUTED EARNINGS PER SHARE-EXTRAORDINARY ITEM              |                                           |   | 0                   |           |                    |          | 0                 |           |      |         | ($0.06     | )         |  |          | 0          |           
|                                                          
|                                                          
|                                                          
|                                                          
|DILUTED EARNINGS PER SHARE                                 |                                           | $ | 0.09                |           |                    | $        | 0.26              |           |      | $       | 0.34       |           |  | $        | 0.76       |           
|                                                          
|                                                          
|                                                          
|                                                          
|CASH DIVIDENDS PER SHARE                                   |                                           | $ | 0.10                |           |                    | $        | 0.10              |           |      | $       | 0.30       |           |  | $        | 0.30       |           
|                                                          
|                                                          
|                                                          
|                                                          
|WEIGHTED AVERAGE SHARES OUTSTANDING                        |                                           |   | 1,775,384           |           |                    |          | 1,792,034         |           |      |         | 1,775,384  |           |  |          | 1,792,068  |           
|                                                          
|                                                          
|                                                          
|                                                          
|WEIGHTED AVERAGE DILUTED SHARES                            |                                           |   | 1,775,384           |           |                    |          | 1,792,034         |           |      |         | 1,775,384  |           |  |          | 1,792,068  |           

See accompanying notes to condensed consolidated financial statements.

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, 2000 AND 2001

|                            |                                                                                |  |           |              |        |            |         |          |       |          |           |               |             |               |          |        |   |       |            |           |   |   |             |         |  |   |            |           |  
|--------------------------- | ------------------------------------------------------------------------------ |  | --------- | ------------ | ------ | ---------- | ------- | -------- | ----- | -------- | --------- | ------------- | ----------- | ------------- | -------- | ------ | - | ----- | ---------- | --------- | - | - | ----------- | ------- |  | - | ---------- | --------- | -
|                            |                                                                                |  |           |              |        |            |         |          |       |          |           |               |             |               |          |        |   |       |            |           |   |   | Accumulated |        
|                            |                                                                                |  |           | Common Stock |        | Additional |         |          |       |          |           |               |             |               |          | Other  |   | Total
|                            |                                                                                |  |           |              |        | Paid-in    |         | Treasury |       | Retained |           | Comprehensive |             | Stockholders'
|                            |                                                                                |  | Shares    |              | Amount |            | Capital |          | Stock |          | Earnings  |               | Gain (Loss) |               | Equity  
|                            |                                                                                |  |           |              |        |            |         |          |       |          |           |               |             |               |         
|BALANCE, December 31, 1999  |                                                                                |  | 1,792,086 |              |        | $          | 17,921  |          |       | $        | 8,131,746 |               |             | $             | 0        |        |   | $     | 10,414,858 |           |   | $ | (715,763    | )       |  | $ | 17,848,762 |          
|                            |                                                                                |  |           |              |        |            |         |          |       |          |           |               |             |               |          |        |   |       |            |           |   |   |             |         |  |   |            |          
|                            | Comprehensive Income:                                                          |  |           |              |        |            |         |          |       |          |           |               |             |               |          |        |   |       |            |           |   |   |             |         |  |   |            |           |  
|                           
|                           
|                           
|                           
|                            | Net income                                                                     |  |           | 0            |        |            |         | 0        |       |          |           | 0             |             |               |          |        |   |       |            | 1,364,414 |   |   |             | 0       |  |   |            | 1,364,414 |  
|                           
|                           
|                           
|                           
|                            | Change in unrealized gain (loss) on securities available-
for-sale, net of tax |  |           | 0            |        |            |         | 0        |       |          |           | 0             |             |               |          |        |   |       |            | 0         |   |   |             | 176,651 |  |   |            | 176,651   |  
|                            |                                                                                |  |           |              |        |            |         |          |       |          |           |               |             |               |          |        |   |       |            |           |   |   |             |         |  |   |            |          
|                           
|                           
|                           
|                           
|                            | Comprehensive Income                                                           |  |           |              |        |            |         |          |       |          |           |               |             |               |          |        |   |       |            |           |   |   |             |         |  |   |            | 1,541,065 |  
|                           
|                           
|                           
|                           
|                            | Repurchase of 402 shares of common stock                                       |  |           | (402         | )      |            |         |          |       |          |           |               |             |               |          | (3,403 | ) |       |            |           |   |   |             |         |  |   |            | (3,403    | )
|                           
|                           
|                           
|                           
|                            | Cash dividends declared ($.30 per share)                                       |  |           | 0            |        |            |         | 0        |       |          |           | 0             |             |               |          |        |   |       |            | (537,610  | ) |   |             | 0       |  |   |            | (537,610  | )
|                            |                                                                                |  |           |              |        |            |         |          |       |          |           |               |             |               |          |        |   |       |            |           |   |   |             |         |  |   |            |          
|BALANCE, September 30, 2000 |                                                                                |  | 1,791,684 |              |        | $          | 17,921  |          |       | $        | 8,131,746 |               |             | $             | (3,403   | )      |   | $     | 11,241,662 |           |   | $ | (539,112    | )       |  | $ | 18,848,814 |          
|                            |                                                                                |  |           |              |        |            |         |          |       |          |           |               |             |               |          |        |   |       |            |           |   |   |             |         |  |   |            |          
|BALANCE, December 31, 2000  |                                                                                |  | 1,775,384 |              |        | $          | 17,921  |          |       | $        | 8,131,746 |               |             | $             | (128,075 | )      |   | $     | 11,440,810 |           |   | $ | (232,077    | )       |  | $ | 19,230,325 |          
|                            |                                                                                |  |           |              |        |            |         |          |       |          |           |               |             |               |          |        |   |       |            |           |   |   |             |         |  |   |            |          
|                            | Comprehensive Income:                                                          |  |           |              |        |            |         |          |       |          |           |               |             |               |          |        |   |       |            |           |   |   |             |         |  |   |            |           |  
|                           
|                           
|                           
|                           
|                            | Net income                                                                     |  |           | 0            |        |            |         | 0        |       |          |           | 0             |             |               |          | 0      |   |       |            | 599,933   |   |   |             | 0       |  |   |            | 599,933   |  
|                           
|                           
|                           
|                           
|                            | Change in unrealized gain (loss) on securities available-
for-sale, net of tax |  |           | 0            |        |            |         | 0        |       |          |           | 0             |             |               |          | 0      |   |       |            | 0         |   |   |             | 578,682 |  |   |            | 578,682   |  
|                            |                                                                                |  |           |              |        |            |         |          |       |          |           |               |             |               |          |        |   |       |            |           |   |   |             |         |  |   |            |          
|                           
|                           
|                           
|                           
|                            | Comprehensive Income                                                           |  |           |              |        |            |         |          |       |          |           |               |             |               |          |        |   |       |            |           |   |   |             |         |  |   |            | 1,178,615 |  
|                           
|                           
|                           
|                           
|                            | Cash dividends declared ($.30 per share)                                       |  |           | 0            |        |            |         | 0        |       |          |           | 0             |             |               |          | 0      |   |       |            | (532,615  | ) |   |             | 0       |  |   |            | (532,615  | )
|                            |                                                                                |  |           |              |        |            |         |          |       |          |           |               |             |               |          |        |   |       |            |           |   |   |             |         |  |   |            |          
|BALANCE September 30, 2001  |                                                                                |  | 1,775,384 |              |        | $          | 17,921  |          |       | $        | 8,131,746 |               |             | $             | (128,075 | )      |   | $     | 11,508,128 |           |   | $ | 346,605     |         |  | $ | 19,876,325 |          
|                            |                                                                                |  |           |              |        |            |         |          |       |          |           |               |             |               |          |        |   |       |            |           |   |   |             |         |  |   |            |          

See accompanying notes to condensed consolidated financial statements.

5



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##### Table of Contents



PINNACLE BANCSHARES, INC,




UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                      |                                                                                  |                                   |                               |                                                     |           |                           |             |             |          |          |            |  
|------------------------------------- | -------------------------------------------------------------------------------- | --------------------------------- | ----------------------------- | --------------------------------------------------- | --------- | ------------------------- | ----------- | ----------- | -------- | -------- | ---------- | -
|                                      |                                                                                  |                                   |                               |                                                     |           | For The Nine Months Ended
|                                      |                                                                                  |                                   |                               |                                                     |           | September 30,            
|                                      |                                                                                  |                                   |                               |                                                     |           |                          
|                                      |                                                                                  |                                   |                               |                                                     |           | 2001                      |             | 2000       
|                                      |                                                                                  |                                   |                               |                                                     |           |                           |             |            
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                  |                                   |                               |                                                     |           |                           |             |            
|                                     
|                                     
|                                     
|                                     
|                                      | Net income                                                                       |                                   | $                             | 599,933                                             |           |                           | $           | 1,364,414   |         
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustment to reconcile net income to net cash provided by operating activities: |                                   |                               |                                                     |           |                           |             |             |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                  | Depreciation                      |                               |                                                     | 429,480   |                           |             |             | 444,784  |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                  | Provision for loan losses         |                               |                                                     | 1,241,650 |                           |             |             | 410,000  |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                  | Amortization, net                 |                               |                                                     | (245,623  | )                         |             |             | (303,194 | )       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                  | Gain on Bank owned life insurance |                               |                                                     | (65,300   | )                         |             |             | 0        |         
|                                     
|                                     
|                                     
|                                     
|                                      | Net (gain) loss on sale and write down of:                                       |                                   |                               |                                                     |           |                           |             |             |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                  |                                   | Loans held for sale           |                                                     |           | (444,625                  | )           |             |          | (281,481 | )         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                  |                                   | Securities available for sale |                                                     |           | (60,313                   | )           |             |          | 0        |           
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                  |                                   | Assets                        |                                                     |           | (2,938                    | )           |             |          | 0        |           
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                  |                                   | Real estate owned             |                                                     |           | 147,081                   |             |             |          | 18,621   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from sale of loans                                                      |                                   |                               | 39,402,932                                          |           |                           |             | 27,908,527  |         
|                                     
|                                     
|                                     
|                                     
|                                      | Loans originated for sale                                                        |                                   |                               | (39,239,227                                         | )         |                           |             | (27,635,431 | )       
|                                     
|                                     
|                                     
|                                     
|                                      | (Increase) decrease in accrued interest receivable                               |                                   |                               | 603,934                                             |           |                           |             | (103,543    | )       
|                                     
|                                     
|                                     
|                                     
|                                      | (Increase) decrease in other assets                                              |                                   |                               | (406,835                                            | )         |                           |             | 44,905      |         
|                                     
|                                     
|                                     
|                                     
|                                      | Increase (decrease) in other liabilities                                         |                                   |                               | (226,304                                            | )         |                           |             | 380,896     |         
|                                      |                                                                                  |                                   |                               |                                                     |           |                           |             |            
|                                      |                                                                                  |                                   |                               | Net cash provided by operating activities           |           |                           | 1,733,845   |             |          |          | 2,248,498  |  
|                                      |                                                                                  |                                   |                               |                                                     |           |                           |             |            
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                  |                                   |                               |                                                     |           |                           |             |            
|                                     
|                                     
|                                     
|                                     
|                                      | Principal collected on loans and securities                                      |                                   |                               | 69,184,021                                          |           |                           |             | 67,018,110  |         
|                                     
|                                     
|                                     
|                                     
|                                      | Loans originated for portfolio                                                   |                                   |                               | (56,088,784                                         | )         |                           |             | (71,927,691 | )       
|                                     
|                                     
|                                     
|                                     
|                                      | Net change in interest bearing deposits at other banks                           |                                   |                               | (7,687,927                                          | )         |                           |             | 341,370     |         
|                                     
|                                     
|                                     
|                                     
|                                      | Purchase of bank owned life insurance                                            |                                   |                               | (3,818,172                                          | )         |                           |             | 0           |         
|                                     
|                                     
|                                     
|                                     
|                                      | Purchase of securities available-for-sale                                        |                                   |                               | (46,040,000                                         | )         |                           |             | (50,000     | )       
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from maturing and callable securities                                   |                                   |                               | 52,000,000                                          |           |                           |             | 0           |         
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from the sale of securities available-for-sale                          |                                   |                               | 3,060,313                                           |           |                           |             | 12,017      |         
|                                     
|                                     
|                                     
|                                     
|                                      | Purchase of premises and equipment                                               |                                   |                               | (86,125                                             | )         |                           |             | (74,163     | )       
|                                     
|                                     
|                                     
|                                     
|                                      | Sales of premises and equipment                                                  |                                   |                               | 5,500                                               |           |                           |             | 19,454      |         
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from sales of real estate owned                                         |                                   |                               | 1,854,724                                           |           |                           |             | 1,438,410   |         
|                                      |                                                                                  |                                   |                               |                                                     |           |                           |             |            
|                                      |                                                                                  |                                   |                               | Net cash provided by (used In) investing activities |           |                           | 12,383,550  |             |          |          | (3,222,493 | )
|                                      |                                                                                  |                                   |                               |                                                     |           |                           |             |            
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                                  |                                   |                               |                                                     |           |                           |             |            
|                                     
|                                     
|                                     
|                                     
|                                      | Net increase (decrease) in passbook, NOW and money market deposit accounts       |                                   |                               | 3,294,235                                           |           |                           |             | (2,078,893  | )       
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from sales of time deposits                                             |                                   |                               | 17,105,590                                          |           |                           |             | 23,120,770  |         
|                                     
|                                     
|                                     
|                                     
|                                      | Payments on maturing time deposits                                               |                                   |                               | (17,160,342                                         | )         |                           |             | (20,094,716 | )       
|                                     
|                                     
|                                     
|                                     
|                                      | Payments on borrowed funds                                                       |                                   |                               | (32,700,000                                         | )         |                           |             | (31,040,000 | )       
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from borrowed funds                                                     |                                   |                               | 15,300,000                                          |           |                           |             | 29,900,000  |         
|                                     
|                                     
|                                     
|                                     
|                                      | Increase in official checks outstanding                                          |                                   |                               | 353,182                                             |           |                           |             | 104,660     |         
|                                     
|                                     
|                                     
|                                     
|                                      | Repurchase of shares of common stock                                             |                                   |                               | 0                                                   |           |                           |             | (3,403      | )       
|                                     
|                                     
|                                     
|                                     
|                                      | Payments of cash dividends                                                       |                                   |                               | (532,615                                            | )         |                           |             | (537,610    | )       
|                                      |                                                                                  |                                   |                               |                                                     |           |                           |             |            
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                  |                                   |                               | Net cash used in financing activities               |           |                           | (14,339,950 | )           |          |          | (629,192   | )
|                                      |                                                                                  |                                   |                               |                                                     |           |                           |             |            
|NET DECREASE IN CASH                  |                                                                                  |                                   | (222,555                      | )                                                   |           |                           | (1,603,187  | )          
|                                     
|                                     
|                                     
|                                     
|CASH AT BEGINNING OF PERIOD           |                                                                                  |                                   | 3,480,036                     |                                                     |           |                           | 5,289,619   |            
|                                      |                                                                                  |                                   |                               |                                                     |           |                           |             |            
|CASH AT END OF PERIOD                 |                                                                                  | $                                 | 3,257,481                     |                                                     |           | $                         | 3,686,432   |            
|                                      |                                                                                  |                                   |                               |                                                     |           |                           |             |            
|SUPPLEMENTAL DISCLOSURES:             |                                                                                  |                                   |                               |                                                     |           |                           |             |            
|                                     
|                                     
|                                     
|                                     
|                                      | Cash payments for interest on deposits and borrowed funds                        |                                   | $                             | 7,502,569                                           |           |                           | $           | 6,982,041   |         
|                                     
|                                     
|                                     
|                                     
|                                      | Cash payments for income taxes                                                   |                                   |                               | 531,281                                             |           |                           |             | 466,000     |         
|                                     
|                                     
|                                     
|                                     
|                                      | Real estate acquired through foreclosure                                         |                                   |                               | 2,496,848                                           |           |                           |             | 1,879,501   |         

See accompanying notes to condensed consolidated financial statements.

6



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##### Table of Contents



PINNACLE BANCSHARES, INC.




NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.     BASIS OF PRESENTATION:

The accompanying unaudited interim condensed consolidated financial statements
include the accounts of Pinnacle Bancshares, Inc. (the Company) and Pinnacle
Bank (the Bank). All significant intercompany transactions and accounts have
been eliminated in consolidation.

In the opinion of management, all adjustments (none of which are other than
normal recurring accruals) necessary for a fair presentation of the results of
such interim periods have been included. The results of operations for the
nine-month period ended September 30, 2001, are not necessarily indicative of
the results of operations which may be expected for the entire year.

These condensed consolidated financial statements should be read in conjunction
with the audited financial statements and the notes thereto included in the
Companys Annual Report on Form 10-KSB for the year ended December 31, 2000. The
accounting policies followed by the Company are set forth in the summary of
Significant Accounting Policies in the Companys audited financial statements.

7



---



##### Table of Contents



2.     EXTRAORDINARY ITEM:

During the first quarter of 2001,the Bank incurred an extraordinary expense of
$107,587, net of tax benefit of $62,903 relating to prepayment penalties on
Federal Home Loan Bank Advances totaling $16,500,000. The Bank determined to use
a portion of its excess liquidity to prepay these advances, which would have
matured in July, November and December 2001. These penalties were not presented
as extraordinary items in the Companys Quarterly Reports on Form 10-QSB for the
fiscal quarters ended March 31, and June 30, 2001. The following tables present
the impact of this extraordinary item on the earnings per share calculations for
the three month period ended March 31, 2001, the six month period ended June 30,
2001, and the nine month period ended September 30, 2001.

|                                                     |  |            |          |        |  |        |           |  |  |           |       |  
|---------------------------------------------------- |  | ---------- | -------- | ------ |  | ------ | --------- |  |  | --------- | ----- | -
|                                                     |  |            |          |        |  |        |           |  |  | Per Share
|For The Three Month Period Ended March 31, 2001      |  | Net Income |          | Shares |  | Amount
|                                                     |  |            |          |        |  |       
|Basic earnings per share before extraordinary item   |  | $          | 437,582  |        |  |        | 1,775,384 |  |  | $         | 0.25  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Basic earnings per share extraordinary item          |  |            | (107,354 | )      |  |        | 0         |  |  |           | (0.06 | )
|                                                     |  |            |          |        |  |        |           |  |  |           |       |  
|Basic earnings per share                             |  |            | 330,228  |        |  |        | 1,775,384 |  |  |           | 0.19  |  
|                                                    
|Diluted earnings per share before extraordinary item |  |            | 437,582  |        |  |        | 1,775,384 |  |  |           | 0.25  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Diluted earnings per share extraordinary item        |  |            | (107,354 | )      |  |        | 0         |  |  |           | (0.06 | )
|                                                     |  |            |          |        |  |        |           |  |  |           |       |  
|                                                    
|                                                    
|                                                    
|                                                    
|Diluted earnings per share                           |  | $          | 330,228  |        |  |        | 1,775,384 |  |  | $         | 0.19  |  
|                                                     |  |            |          |        |  |        |           |  |  |           |       |  

|                                                     |  |            |          |        |  |        |           |  |  |           |       |  
|---------------------------------------------------- |  | ---------- | -------- | ------ |  | ------ | --------- |  |  | --------- | ----- | -
|                                                     |  |            |          |        |  |        |           |  |  | Per Share
|For The Six Month Period Ended June 30, 2001         |  | Net Income |          | Shares |  | Amount
|                                                     |  |            |          |        |  |       
|Basic earnings per share before extraordinary item   |  | $          | 543,386  |        |  |        | 1,775,384 |  |  | $         | 0.31  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Basic earnings per share extraordinary item          |  |            | (107,587 | )      |  |        | 0         |  |  |           | (0.06 | )
|                                                     |  |            |          |        |  |        |           |  |  |           |       |  
|Basic earnings per share                             |  |            | 435,799  |        |  |        | 1,775,384 |  |  |           | 0.25  |  
|                                                    
|Diluted earnings per share before extraordinary item |  |            | 543,386  |        |  |        | 1,775,384 |  |  |           | 0.31  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Diluted earnings per share extraordinary item        |  |            | (107,587 | )      |  |        | 0         |  |  |           | (0.06 | )
|                                                     |  |            |          |        |  |        |           |  |  |           |       |  
|                                                    
|                                                    
|                                                    
|                                                    
|Diluted earnings per share                           |  | $          | 435,799  |        |  |        | 1,775,384 |  |  | $         | 0.25  |  
|                                                     |  |            |          |        |  |        |           |  |  |           |       |  

|                                                     |  |            |          |        |  |        |           |  |  |           |       |  
|---------------------------------------------------- |  | ---------- | -------- | ------ |  | ------ | --------- |  |  | --------- | ----- | -
|                                                     |  |            |          |        |  |        |           |  |  | Per Share
|For The Nine Month Period Ended September 30, 2001   |  | Net Income |          | Shares |  | Amount
|                                                     |  |            |          |        |  |       
|Basic earnings per share before extraordinary item   |  | $          | 707,520  |        |  |        | 1,775,384 |  |  | $         | 0.40  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Basic earnings per share extraordinary item          |  |            | (107,587 | )      |  |        | 0         |  |  |           | (0.06 | )
|                                                     |  |            |          |        |  |        |           |  |  |           |       |  
|Basic earnings per share                             |  |            | 599,933  |        |  |        | 1,775,384 |  |  |           | 0.34  |  
|                                                    
|Diluted earnings per share before extraordinary item |  |            | 707,520  |        |  |        | 1,775,384 |  |  |           | 0.40  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Diluted earnings per share extraordinary item        |  |            | (107,587 | )      |  |        | 0         |  |  |           | (0.06 | )
|                                                     |  |            |          |        |  |        |           |  |  |           |       |  
|                                                    
|                                                    
|                                                    
|                                                    
|Diluted earnings per share                           |  | $          | 599,933  |        |  |        | 1,775,384 |  |  | $         | 0.34  |  
|                                                     |  |            |          |        |  |        |           |  |  |           |       |  

3. EARNINGS PER SHARE:

Options to purchase 48,500 shares of common stock at $10.125 per share and
options to purchase 54,560 shares of common stock at $8.8125 per share were
outstanding at September 30, 2001 and 2000, respectively. These options
represent the only options outstanding and were not included in the computations
of diluted EPS because the options exercise prices were greater than the
average market price of the common shares. These options will expire on August
28, 2006 and May 26, 2009, respectively.

8



---



##### Table of Contents



4. PENDING ACCOUNTING PRONOUNCEMENTS:

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 addresses the initial recognition and measurement of
intangible assets acquired outside of a business combination and the accounting
for goodwill and other intangible assets subsequent to their acquisition. SFAS
No. 142 provides that intangible assets with definite lives will be amortized and
that goodwill with indefinite lives will not be amortized, but rather will be
tested at least annually for impairment. The Company will adopt SFAS No. 142 for
its fiscal year beginning January 1, 2002. Upon adoption of SFAS No. 142, the
Company will stop the amortization of goodwill that resulted from business
combinations initiated prior to the adoption of SFAS 141, Business Combinations.
The Company will evaluate goodwill under SFAS 142 transitional impairment test
and determine whether or not there will be an impairment loss. Any transitional
impairment loss will be recognized as a change in accounting principle. The
Company is currently incurring goodwill amortization annually of approximately
$40,000, which would no longer be amortized pursuant to Statement 142.

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 144, Accounting for Impairment or
Disposal of Long Lived Assets. SFAS No. 144 addresses financial accounting and
reporting for the impairment of long-lived assets. This statement is effective
for fiscal years beginning after December 15, 2001. Management is assessing the
impact of this statement and believes such impact would be immaterial based on
the Companys current financial position and results of operations.

5. BANK OWNED LIFE INSURANCE:

During the second quarter of 2001, the Company purchased approximately $3.8
million of Bank Owned Life Insurance (BOLI) on certain key officers. The life
insurance policies were purchased to offset liabilities associated with certain
existing employee benefits. Income earned on the policies will offset the
corresponding benefit expenses on these employees as the Company is the
beneficiary of the insurance policies. Increases in the cash surrender value of
the policies, as well as insurance proceeds received, are recorded as a
component of non-interest income.

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Item 2. Managements Discussion And Analysis or Plan of Operation

PINNACLE BANCSHARES, INC. AND SUBSIDIARY

Managements Discussion and Analysis of Financial
Condition and Results of Operations

Forward-Looking Statements: This Quarterly Report on Form 10-QSB contains
forward-looking statements. Additional written or oral forward-looking
statements may be made by the Company from time to time in filings with the
Securities and Exchange Commission or otherwise. The words believe, expect,
seek and intend, and similar expressions identify forward-looking
statements, which speak only as of the date the statement is made. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements may include, but are not
limited to, projections of income or loss, expenditures, acquisitions, plans for
future operations, financing needs or plans relating to services of the Company,
as well as assumptions relating to the foregoing. Forward- looking statements
are inherently subject to risk and uncertainties, some of which cannot be
predicted or qualified. Future events and actual results could differ materially
from those set forth in, contemplated by or underlying the forward-looking
statements.

The Company does not undertake, and specifically disclaims, any obligation to
publicly release the results of revisions which may be made to forward-looking
statements to reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.

Comparison of Financial Condition as of September 30, 2001 and December 31,
2000. Total assets decreased $13.0 million, to $217.3 million at September 30,
2001, as compared to $230.3 million at December 31, 2000. Total loans
receivable, net decreased $13.9 million primarily due to refinancing activities
and principal repayments. Available-for-sale securities decreased $11.0 million
due to calls and sales exceeding purchases. During the nine-month period ended
September 30, 2001 the Bank had $52.0 million in agency securities called. The
Bank purchased $46.0 million in agency securities during the nine-month period
ended September 30, 2001. Also during the nine-month period ended September 30,
2001 the Bank sold $3.0 million in agency securities. Gross gains of $60,313
were realized on these sales. Total cash and interest bearing deposits increased
approximately $7.5 million during the nine-month period ended September 30,
2001.

At September 30, 2001, the Companys investment portfolio of $50.0 million
consisted primarily of U. S. agency securities and mortgage-backed-securities.
The entire investment portfolio is classified as available-for-sale, which is
marked-to-market with the unrealized gains/losses reflected directly in
stockholders equity.

During the nine-month period ended September 30, 2001, the Bank paid down $17.4
million of borrowed funds, net of additional borrowings and incurred a
prepayment penalty, net of tax benefit, of $108,000. See Note 2 of Notes to
Unaudited Consolidated Financial Statements.

During the nine-month period ended September 30, 2001 the Bank purchased $3.8
million in Bank Owned Life Insurance on certain key officers. See Note 5 of
Notes to Unaudited Consolidated Financial Statements.

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Total deposits increased $3.2 million, to $190.7 million at September 30, 2001
as compared to $187.5 million at December 31, 2000. This increase was primarily
due to an increase in passbook, NOW and money market deposit accounts as a
result of offering competitive rates.

Results of Operations-Comparison of the Three and Nine Months Ended September
30, 2001 and 2000. Net interest income after the provision for loan losses
decreased $465,118 or 27.9% for the three-month period ended September 30, 2001,
as compared to the corresponding period in the previous year. This decrease was
primarily due to a decrease in interest on loans and securities and other
interest of $689,603 and an increase in the provision for loan losses of
$281,650 and was offset by a decrease in interest expense of $506,135. Net
interest income after the provision for loan losses decreased $1,324,855 or
26.3% for the nine-month period ended September 30, 2001, as compared to the
corresponding period in the previous year. This decrease was primarily due to a
decrease in interest on loans and securities and other interest of $1,079,921
and an increase in the provision for loan losses of $831,650 and was offset by a
decrease in interest expense of $586,716.

The Banks yield on interest-earning assets decreased from approximately 8.47%
in the three-month period ended September 30, 2000 to approximately 7.76% in the
current year period. This decrease was due to a decrease in interest rates as
well as a decrease in the average balance of interest-earning assets of
approximately $14.8 million. The Banks yield on interest-earning assets
decreased from approximately 8.24% in the nine-month period ended September 30,
2000 to approximately 7.90% in the current year period. This decrease was due to
a decrease in interest rates as well as a decrease in the average balance of
interest-earning assets of approximately $7.9 million. The Banks cost of funds
decreased from 5.24% in the three-month period ended September 30, 2000 to 4.59%
in the current year period. This decrease was due to a decrease in interest
rates as well as a decrease in the average balance of interest-bearing
liabilities of approximately $13.8 million. The Banks cost of funds decreased
from 5.00% in the nine-month period ended September 30, 2000 to 4.90% in the
current year period. This decrease was due to a decrease in interest rates as
well as a decrease in the average balance of interest-bearing liabilities of
approximately $10.4 million.

Non-interest income, which includes fees and service charges, real estate
operations, net gain (loss) on sale of loans and other income decreased $5,783
in the three-month period ended September 30, 2001, as compared to the
three-month period ended September 30, 2000. Non-interest income increased
$279,956 in the nine-month period ended September 30, 2001 as compared to the
corresponding prior year period. The decrease in the three-month period ended
September 30, 2001, was due primarily to a decrease in the loss on sale of real
estate owned of $129,864. This decrease was off-set by an increase in fees and
service charges of $32,300, an increase in the gain on sale of mortgage loans of
$23,753, and slight increases in all other non-interest income of $68,028. The
increase in the nine-month period ended September 30, 2001, was due primarily to
an increase in fees and service charges of $63,592, an increase in real estate
operations, net of $53,129, an increase in the gain on sale of mortgage loans of
$163,144, an increase in the gain on sale of securities available-for-sale of
$60,313 and slight increases in all other non-interest income of $68,238. These
increases were offset by a decrease in the loss on real estate owned by
$128,460.

Provisions for loan losses are made to maintain the allowance for loan losses at
an adequate level. The allowance for loan losses reflects managements
estimates, which take into account historical experience, the amount of
non-performing assets, and general economic conditions. The Bank determined an
additional $281,650 was required for the three-month period ended September 30,
2001 and an additional $831,650 was required for the nine-month period ended
September 30, 2001. The increases in the provision for the three and nine-month
periods ended September 30, 2001 were

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principally due to non-performing loan credits. Management has identified
certain non-performing loans aggregating approximately $2.2 million at September
30, 2001, which it has determined require special attention due to potential
weaknesses. It is managements opinion that the increase in the allowance for
loan losses at September 30, 2001 is adequate to absorb losses related to these
loans. Management will continue to analyze the Banks exposure to potential
losses and may increase the allowance for loan losses in the future if it deems
necessary.

Non-interest expense increased $18,072 and $109,257 in the three and nine-month
periods ended September 30, 2001, respectively, as compared to the corresponding
prior year periods. The increase in the three-month period ended September 30,
2001 was primarily due to an increase in marketing and professional expense of
$4,542 and slight increases in other non-interest expense of $19,208 and was
off-set by a decrease in compensation and occupancy expense of $5,678. The
increase in the nine-month period ended September 30, 2001 was primarily due to
an increase in compensation expense of $74,634, an increase in occupancy expense
of $17,560, an increase in marketing and professional expense of $13,277, and an
increase in other non-interest income of $3,786.

Net Income: The Company reported net income for the three-month period ended
September 30, 2001 of $164,134 or $0.09 per share, compared with net income of
$458,001 or $0.26 per share, for the three-month period ended September 30,
2000. The Company reported net income before extraordinary items for the
nine-month period ended September 30, 2001 of $707,520 or $0.40 per share,
compared with net income of $1.4 million or $0.76 per share, for the nine-month
period ended September 30, 2000. The decreases in the three and nine-month
periods ended September 30, 2001 were primarily attributable to an increase in
the provision for loan losses which was principally due to non-performing
construction credits discussed previously.

If rates were to rise rapidly, net income may be adversely affected. Under a
scenario simulating a hypothetical 100 basis point rate increase applied to all
fixed rate interest-earning assets and interest-bearing liabilities, the Company
would expect a net gain in the fair value of the underlying instruments of
approximately $460,000. This hypothetical gain is not a precise indicator of
future events. Instead, it is a reasonable estimate of the results anticipated
if the assumptions used in the modeling techniques were to occur.

Capital Resources: Historically, funds provided by operations, mortgage loan
principal repayments, savings deposits and short-term borrowings have been the
Banks principal sources of funds. In addition, the Bank has the ability to
obtain funds through the sale of mortgage loans, through borrowings from the
Federal Home Bank of Atlanta and other borrowing sources. At September 30, 2001,
the Banks total loan commitments, including construction loans in process and
unused lines of credit, were approximately $22.2 million. Management believes
that the Banks liquidity and other sources of funds are sufficient to fund all
commitments outstanding and other cash needs. The Company and the Bank are
required to maintain certain levels of regulatory capital. At September 30, 2001
the Company and the Bank exceeded all regulatory capital requirements.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

|                          |  |                                                                                                                                                          
|------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|                          |  | PINNACLE BANCSHARES, INC                                                                                                                                 
|                         
|DATE:   November 13, 2001 |  | BY:       /s/ Robert B. Nolen Jr.Robert B. Nolen, Jr.
President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
|                         
|                          |  | BY:       /s/ Marie GuthrieMarie Guthrie
Treasurer
(Principal Accounting Officer)                                                                        

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