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

FORM 10-QSB

|           |  |                                                                                  
|---------- |  | ---------------------------------------------------------------------------------
|(Mark one) |  |                                                                                  
|x          |  | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|           |  |                                                                                  
|           |  | For the quarterly period ended June 30, 2003                                     
|           |  |                                                                                  
|o          |  | Transition report under Section 13 or 15(d) of the Exchange Act                  
|           |  |                                                                                  
|           |  | For the transition period from ____________ to ____________                      

Commission file number 1-12707

Pinnacle Bancshares, Inc.(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 [  ]

The number of shares outstanding of each of the issuers classes of
common equity, as of August 14, 2003: 1,565,684 shares of common stock.

Transitional Small Business Disclosure Format (check one):

Yes [  ]     No [X]

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TABLE OF CONTENTS



|                                                                    |                             |  |  |  |  |  |  | 
|------------------------------------------------------------------- | --------------------------- |  |  |  |  |  |  | 
|UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 
|PART I  FINANCIAL INFORMATION                                     
|Item  1.  Financial Statements                                     
|UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF 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                     
|Item  3.  Controls and Procedures                                  
|                                                                    | PART II  OTHER INFORMATION
|ITEM  4.  Submission of Matters to a Vote of Security Holders      
|ITEM  6.  Exhibits and Reports on Form 8-K                         
|SIGNATURES                                                         
|EX-31.1 SECTION 302 CEO & CFO CERTIFICATION                        
|SECTION 906 CEO & CFO CERTIFICATION                                



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##### Table of Contents



CONTENTS

|                                                                                                                             |  |      |    | 
|---------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                             |  | Page
|                                                                                                                             |  |     
|PART I FINANCIAL INFORMATION                                                                                                 |  |      |    | 
|Item 1. Financial Statements                                                                                                 |  |      |    | 
|Unaudited Condensed Consolidated Statements of Financial Condition at June 30, 2003
and December 31, 2002                    |  |      | 3  | 
|Unaudited Condensed Consolidated Statements of Operations for the three and
six-months ended June 30, 2003 and 2002          |  |      | 4  | 
|Unaudited Condensed Consolidated Statements of Stockholders Equity for the six-months
ended June 30, 2003 and June 30, 2002 |  |      | 5  | 
|Unaudited Condensed Consolidated Statements of Cash Flows for the six-months ended
June 30, 2003 and June 30, 2002           |  |      | 6  | 
|Notes to Unaudited Condensed Consolidated Financial Statements                                                               |  |      | 7  | 
|Item 2. Managements Discussion and Analysis                                                                                 |  |      | 10 | 
|Item 3. Controls and Procedures                                                                                              |  |      | 13 | 
|Part II OTHER INFORMATION                                                                                                    |  |      |    | 
|Item 4. Submission of Matters to a Vote of Security Holders                                                                  |  |      | 14 | 
|Item 6. Exhibits and Reports on Form 8-K                                                                                     |  |      |    | 
|Signatures                                                                                                                   |  |      | 15 | 
|Certifications                                                                                                               |  |      | 16 | 

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##### Table of Contents









PART I  FINANCIAL INFORMATION




Item  1.  Financial Statements

PINNACLE BANCSHARES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

|                                      |                                                                                                                                                                           |                                            |              |             |             |             |              |             |             |             | 
|------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------ | ----------- | ----------- | ----------- | ------------ | ----------- | ----------- | ----------- | 
|                                      |                                                                                                                                                                           |                                            |              |             | June 30,    |             | December 31,
|                                      |                                                                                                                                                                           |                                            |              |             | 2003        |             | 2002        
|                                      |                                                                                                                                                                           |                                            |              |             |             |             |             
|ASSETS:                               |                                                                                                                                                                           |                                            |              |             |             |             |              |            
|                                      | Cash and cash equivalents                                                                                                                                                 |                                            | $            | 3,932,151   |             |             | $            | 3,862,956   |            
|                                      | Interest-bearing deposits in other banks                                                                                                                                  |                                            |              | 9,817,770   |             |             |              | 357,467     |            
|                                      | Securities available-for-sale                                                                                                                                             |                                            |              | 75,514,981  |             |             |              | 75,301,227  |            
|                                      | FHLB stock                                                                                                                                                                |                                            |              | 732,400     |             |             |              | 975,000     |            
|                                      | Loans held for sale                                                                                                                                                       |                                            |              | 3,653,732   |             |             |              | 4,968,715   |            
|                                      | Loans receivable, net of allowance for
loan losses of $1,442,226 and
$1,322,380, respectively                                                                             |                                            |              | 113,739,741 |             |             |              | 119,375,036 |            
|                                      | Real estate owned, net                                                                                                                                                    |                                            |              | 1,619,964   |             |             |              | 1,608,710   |            
|                                      | Premises and equipment, net                                                                                                                                               |                                            |              | 5,690,018   |             |             |              | 5,654,823   |            
|                                      | Goodwill                                                                                                                                                                  |                                            |              | 306,488     |             |             |              | 306,488     |            
|                                      | Bank owned life insurance                                                                                                                                                 |                                            |              | 4,372,091   |             |             |              | 4,229,280   |            
|                                      | Accrued interest receivable                                                                                                                                               |                                            |              | 1,241,476   |             |             |              | 1,318,060   |            
|                                      | Other assets                                                                                                                                                              |                                            |              | 294,788     |             |             |              | 332,439     |            
|                                      |                                                                                                                                                                           |                                            |              |             |             |             |              |            
|                                      |                                                                                                                                                                           |                                            | Total assets |             | $           | 220,915,600 |              |             | $           | 218,290,201 | 
|                                      |                                                                                                                                                                           |                                            |              |             |             |             |              |            
|LIABILITIES AND STOCKHOLDERS EQUITY: |                                                                                                                                                                           |                                            |              |             |             |             |              |            
|LIABILITIES:                          |                                                                                                                                                                           |                                            |              |             |             |             |              |            
|                                      | Deposits                                                                                                                                                                  |                                            | $            | 188,731,033 |             |             | $            | 188,954,730 |            
|                                      | Borrowed funds                                                                                                                                                            |                                            |              | 9,765,000   |             |             |              | 5,940,000   |            
|                                      | Official checks outstanding                                                                                                                                               |                                            |              | 681,418     |             |             |              | 1,504,293   |            
|                                      | Accrued interest payable                                                                                                                                                  |                                            |              | 641,279     |             |             |              | 614,320     |            
|                                      | Other liabilities                                                                                                                                                         |                                            |              | 1,248,311   |             |             |              | 1,321,380   |            
|                                      |                                                                                                                                                                           |                                            |              |             |             |             |              |            
|                                      |                                                                                                                                                                           |                                            | 201,067,041  |             |             |             | 198,334,723  |            
|                                      |                                                                                                                                                                           |                                            |              |             |             |             |              |            
|STOCKHOLDERS EQUITY:                 |                                                                                                                                                                           |                                            |              |             |             |             |              |            
|                                      | Preferred stock, par value $.01 per share,
no shares issued, 100,000 authorized                                                                                           |                                            |              | 0           |             |             |              | 0           |            
|                                      | Common stock, par value $.01 per share,
2,400,000 authorized; 1,792,086 issued,
1,565,684 and 1,652,684 outstanding, at
June 30, 2003 and December 31, 2002,
respectively |                                            |              | 17,921      |             |             |              | 17,921      |            
|                                      | Additional paid-in capital                                                                                                                                                |                                            |              | 8,131,746   |             |             |              | 8,131,746   |            
|                                      | Treasury stock, at cost (226,402 and 139,402
shares at June 30, 2003 and December 31, 2002)                                                                               |                                            |              | (2,568,716  | )           |             |              | (1,497,777  | )          
|                                      | Retained earnings                                                                                                                                                         |                                            |              | 13,693,746  |             |             |              | 12,716,579  |            
|                                      | Accumulated other comprehensive income, net of tax                                                                                                                        |                                            |              | 573,862     |             |             |              | 587,009     |            
|                                      |                                                                                                                                                                           |                                            |              |             |             |             |              |            
|                                      | Total stockholders equity                                                                                                                                                |                                            |              | 19,848,559  |             |             |              | 19,955,478  |            
|                                      |                                                                                                                                                                           |                                            |              |             |             |             |              |            
|                                      |                                                                                                                                                                           | Total liabilities and stockholders equity |              | $           | 220,915,600 |             |              | $           | 218,290,201 |            
|                                      |                                                                                                                                                                           |                                            |              |             |             |             |              |            

See accompanying notes to unaudited condensed consolidated financial statements.

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PINNACLE BANCSHARES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                     |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |         |  | 
|---------------------------------------------------- | -------------------------------------------- | ---------------------------------- | --------- | ------------------ | - | ---------------- | --------- | ------- | - | ---- | --------- | ------- | - | - | --------- | ------- |  | 
|                                                     |                                              |                                    |           | Three Months Ended |   | Six Months Ended
|                                                     |                                              |                                    |           | June 30,           |   | June 30,        
|                                                     |                                              |                                    |           |                    |   |                 
|                                                     |                                              |                                    |           | 2003               |   | 2002             |           | 2003    |   | 2002
|                                                     |                                              |                                    |           |                    |   |                  |           |         |   |     
|INTEREST REVENUES:                                   |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |        
|                                                     | Interest on loans                            | $                                  | 2,145,981 |                    |   | $                | 2,379,163 |         |   | $    | 4,351,026 |         |   | $ | 4,898,131 |        
|                                                     | Interest and dividends on securities         |                                    | 758,606   |                    |   |                  | 894,694   |         |   |      | 1,466,736 |         |   |   | 1,703,676 |        
|                                                     | Other interest                               |                                    | 5,381     |                    |   |                  | 28,509    |         |   |      | 15,636    |         |   |   | 56,767    |        
|                                                     |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |        
|                                                     |                                              |                                    | 2,909,968 |                    |   |                  | 3,302,366 |         |   |      | 5,833,398 |         |   |   | 6,658,574 |        
|INTEREST EXPENSE:                                    |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |        
|                                                     | Interest on deposits                         |                                    | 982,349   |                    |   |                  | 1,517,771 |         |   |      | 2,045,719 |         |   |   | 3,141,848 |        
|                                                     | Interest on borrowed funds                   |                                    | 49,606    |                    |   |                  | 42,841    |         |   |      | 99,288    |         |   |   | 85,946    |        
|                                                     |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |        
|                                                     |                                              |                                    | 1,031,955 |                    |   |                  | 1,560,612 |         |   |      | 2,145,007 |         |   |   | 3,227,794 |        
|                                                     |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |        
|NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSSES |                                              |                                    | 1,878,013 |                    |   |                  | 1,741,754 |         |   |      | 3,688,391 |         |   |   | 3,430,780 |        
|PROVISION FOR LOAN LOSSES                            |                                              |                                    | 267,500   |                    |   |                  | 138,000   |         |   |      | 535,000   |         |   |   | 296,300   |        
|                                                     |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |        
|NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES  |                                              |                                    | 1,610,513 |                    |   |                  | 1,603,754 |         |   |      | 3,153,391 |         |   |   | 3,134,480 |        
|                                                     |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |        
|NON-INTEREST INCOME:                                 |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |        
|                                                     | Fees and service charges on deposit accounts |                                    | 249,104   |                    |   |                  | 214,658   |         |   |      | 460,141   |         |   |   | 404,564   |        
|                                                     | Service fee income, net                      |                                    | 40,495    |                    |   |                  | 39,384    |         |   |      | 80,015    |         |   |   | 78,656    |        
|                                                     | Fees and service charges on loans            |                                    | 21,598    |                    |   |                  | 39,224    |         |   |      | 71,124    |         |   |   | 96,810    |        
|                                                     | Bank owned Life Insurance                    |                                    | 71,406    |                    |   |                  | 70,342    |         |   |      | 142,811   |         |   |   | 140,682   |        
|                                                     | Net gain (loss) on sale or write-down of:    |                                    |           |                    |   |                  |           |         |   |      |           |         |   |  
|                                                     |                                              | Loans held for sale                |           | 245,301            |   |                  |           | 140,039 |   |      |           | 493,044 |   |   |           | 254,109 | 
|                                                     |                                              | Securities available-for-sale      |           | 91,054             |   |                  |           | 20,156  |   |      |           | 376,240 |   |   |           | 20,156  | 
|                                                     |                                              | Real estate owned and other assets |           | (44,932            | ) |                  |           | (7,104  | ) |      |           | (50,738 | ) |   |           | 20,275  | 
|                                                     |                                              | Premises and equipment             |           | 13,500             |   |                  |           | 0       |   |      |           | 13,500  |   |   |           | 0       | 
|                                                     |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |        
|                                                     |                                              |                                    | 687,526   |                    |   |                  | 516,699   |         |   |      | 1,586,137 |         |   |   | 1,015,252 |        
|                                                     |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |        
|NON-INTEREST EXPENSE:                                |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |        
|                                                     | Compensation and benefits                    |                                    | 788,141   |                    |   |                  | 761,831   |         |   |      | 1,583,607 |         |   |   | 1,503,504 |        
|                                                     | Occupancy                                    |                                    | 268,468   |                    |   |                  | 287,647   |         |   |      | 521,668   |         |   |   | 594,983   |        
|                                                     | Marketing and professional                   |                                    | 56,073    |                    |   |                  | 54,244    |         |   |      | 109,199   |         |   |   | 104,007   |        
|                                                     | Other                                        |                                    | 279,163   |                    |   |                  | 236,982   |         |   |      | 540,790   |         |   |   | 505,875   |        
|                                                     |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |        
|                                                     |                                              |                                    | 1,391,845 |                    |   |                  | 1,340,704 |         |   |      | 2,755,264 |         |   |   | 2,708,369 |        
|                                                     |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |        
|INCOME BEFORE INCOME TAX EXPENSE                     |                                              |                                    | 906,194   |                    |   |                  | 779,749   |         |   |      | 1,984,264 |         |   |   | 1,441,363 |        
|INCOME TAX EXPENSE                                   |                                              |                                    | 310,867   |                    |   |                  | 263,999   |         |   |      | 685,260   |         |   |   | 483,822   |        
|                                                     |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |        
|NET INCOME                                           |                                              | $                                  | 595,327   |                    |   | $                | 515,750   |         |   | $    | 1,299,004 |         |   | $ | 957,541   |        
|                                                     |                                              |                                    |           |                    |   |                  |           |         |   |      |           |         |   |   |           |        
|Basic earnings per share                             |                                              | $                                  | 0.38      |                    |   | $                | 0.29      |         |   | $    | 0.81      |         |   | $ | 0.54      |        
|Diluted earnings per share                           |                                              | $                                  | 0.37      |                    |   | $                | 0.29      |         |   | $    | 0.80      |         |   | $ | 0.54      |        
|Cash dividends per share                             |                                              | $                                  | 0.10      |                    |   | $                | 0.10      |         |   | $    | 0.20      |         |   | $ | 0.20      |        
|Weighted average basic shares outstanding            |                                              |                                    | 1,575,838 |                    |   |                  | 1,775,384 |         |   |      | 1,608,126 |         |   |   | 1,775,384 |        
|Weighted average diluted shares outstanding          |                                              |                                    | 1,605,532 |                    |   |                  | 1,784,214 |         |   |      | 1,632,421 |         |   |   | 1,777,591 |        

See accompanying notes to condensed consolidated financial statements.

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PINNACLE BANCSHARES, INC.




UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002

|                           |                                                                   |                      |           |              |  |            |        |          |  |          |           |               |  |               |            |            |   |       |            |           |   |   |          |             |   |   |            |            |           | 
|-------------------------- | ----------------------------------------------------------------- | -------------------- | --------- | ------------ |  | ---------- | ------ | -------- |  | -------- | --------- | ------------- |  | ------------- | ---------- | ---------- | - | ----- | ---------- | --------- | - | - | -------- | ----------- | - | - | ---------- | ---------- | --------- | 
|                           |                                                                   |                      |           |              |  |            |        |          |  |          |           |               |  |               |            |            |   |       |            |           |   |   |          | Accumulated |   |   |            |           
|                           |                                                                   |                      |           | Common Stock |  | Additional |        |          |  |          |           |               |  |               |            | Other      |   | Total
|                           |                                                                   |                      |           |              |  | Paid-in    |        | Treasury |  | Retained |           | Comprehensive |  | Stockholders'
|                           |                                                                   |                      |           | Shares       |  | Amount     |        | Capital  |  | Stock    |           | Earnings      |  | Income        |            | Equity    
|                           |                                                                   |                      |           |              |  |            |        |          |  |          |           |               |  |               |            |           
|BALANCE, December 31, 2001 |                                                                   |                      | 1,792,086 |              |  | $          | 17,921 |          |  | $        | 8,131,746 |               |  | $             | (128,075   | )          |   | $     | 11,413,945 |           |   | $ | (423,671 | )           |   | $ | 19,011,866 |           
|                           | Comprehensive income:                                             |                      |           |              |  |            |        |          |  |          |           |               |  |               |            |            |   |       |            |           |   |   |          |             |   |   |            |            |          
|                           | Net income                                                        |                      |           | 0            |  |            |        | 0        |  |          |           | 0             |  |               |            | 0          |   |       |            | 957,541   |   |   |          | 0           |   |   |            | 957,541    |          
|                           | Change in fair value of securities
available-for-sale, net of tax |                      |           | 0            |  |            |        | 0        |  |          |           | 0             |  |               |            | 0          |   |       |            | 0         |   |   |          | 617,968     |   |   |            | 617,968    |          
|                           |                                                                   |                      |           |              |  |            |        |          |  |          |           |               |  |               |            |            |   |       |            |           |   |   |          |             |   |   |            |           
|                           |                                                                   | Comprehensive income |           |              |  |            |        |          |  |          |           |               |  |               |            |            |   |       |            |           |   |   |          |             |   |   |            |            | 1,575,509 | 
|                           | Cash dividends declared
($.20 per share)                          |                      |           | 0            |  |            |        | 0        |  |          |           | 0             |  |               |            | 0          |   |       |            | (355,076  | ) |   |          |             |   |   |            | (355,076   | )        
|                           |                                                                   |                      |           |              |  |            |        |          |  |          |           |               |  |               |            |            |   |       |            |           |   |   |          |             |   |   |            |           
|BALANCE, June 30, 2002     |                                                                   |                      | 1,792,086 |              |  | $          | 17,921 |          |  | $        | 8,131,746 |               |  | $             | (128,075   | )          |   | $     | 12,016,410 |           |   | $ | 194,297  |             |   | $ | 20,232,299 |           
|                           |                                                                   |                      |           |              |  |            |        |          |  |          |           |               |  |               |            |            |   |       |            |           |   |   |          |             |   |   |            |           
|BALANCE, December 31, 2002 |                                                                   |                      | 1,792,086 |              |  | $          | 17,921 |          |  | $        | 8,131,746 |               |  | $             | (1,497,777 | )          |   | $     | 12,716,579 |           |   | $ | 587,009  |             |   | $ | 19,955,478 |           
|                           | Comprehensive income:                                             |                      |           |              |  |            |        |          |  |          |           |               |  |               |            |            |   |       |            |           |   |   |          |             |   |   |            |            |          
|                           | Net income                                                        |                      |           | 0            |  |            |        | 0        |  |          |           | 0             |  |               |            | 0          |   |       |            | 1,299,004 |   |   |          | 0           |   |   |            | 1,299,004  |          
|                           | Change in fair value of securities
available-for-sale, net of tax |                      |           | 0            |  |            |        | 0        |  |          |           | 0             |  |               |            | 0          |   |       |            | 0         |   |   |          | (13,147     | ) |   |            | (13,147    | )        
|                           |                                                                   |                      |           |              |  |            |        |          |  |          |           |               |  |               |            |            |   |       |            |           |   |   |          |             |   |   |            |           
|                           |                                                                   | Comprehensive income |           |              |  |            |        |          |  |          |           |               |  |               |            |            |   |       |            |           |   |   |          |             |   |   |            |            | 1,285,857 | 
|                           | Repurchase of common stock (87,000
shares at cost)                |                      |           | 0            |  |            |        | 0        |  |          |           | 0             |  |               |            | (1,070,939 | ) |       |            |           |   |   |          | 0           |   |   |            | (1,070,939 | )        
|                           | Cash dividends declared
($.20 per share)                          |                      |           | 0            |  |            |        | 0        |  |          |           | 0             |  |               |            | 0          |   |       |            | (321,837  | ) |   |          | 0           |   |   |            | (321,837   | )        
|                           |                                                                   |                      |           |              |  |            |        |          |  |          |           |               |  |               |            |            |   |       |            |           |   |   |          |             |   |   |            |           
|BALANCE, June 30, 2003     |                                                                   |                      | 1,792,086 |              |  | $          | 17,921 |          |  | $        | 8,131,746 |               |  | $             | (2,568,716 | )          |   | $     | 13,693,746 |           |   | $ | 573,862  |             |   | $ | 19,848,559 |           
|                           |                                                                   |                      |           |              |  |            |        |          |  |          |           |               |  |               |            |            |   |       |            |           |   |   |          |             |   |   |            |           

See accompanying notes to unaudited condensed consolidated financial statements.

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PINNACLE BANCSHARES, INC,
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                     |                                                                                   |                                                               |                                    |                                           |             |                          |            |             |             |          |            |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------- | ---------------------------------- | ----------------------------------------- | ----------- | ------------------------ | ---------- | ----------- | ----------- | -------- | ---------- | -
|                                                     |                                                                                   |                                                               |                                    |                                           |             | For the Six Months Ended
|                                                     |                                                                                   |                                                               |                                    |                                           |             | June 30,                
|                                                     |                                                                                   |                                                               |                                    |                                           |             |                         
|                                                     |                                                                                   |                                                               |                                    |                                           |             | 2003                     |            | 2002       
|                                                     |                                                                                   |                                                               |                                    |                                           |             |                          |            |            
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                                   |                                                               |                                    |                                           |             |                          |            |            
|                                                     | Net income                                                                        |                                                               | $                                  | 1,299,004                                 |             |                          | $          | 957,541     |            
|                                                     | Adjustments to reconcile net income to net cash provided
by operating activities: |                                                               |                                    |                                           |             |                          |            |             |            
|                                                     |                                                                                   | Depreciation                                                  |                                    |                                           | 229,571     |                          |            |             | 267,866     |         
|                                                     |                                                                                   | Provision for loan losses                                     |                                    |                                           | 535,000     |                          |            |             | 296,300     |         
|                                                     |                                                                                   | Amortization, net                                             |                                    |                                           | (98,213     | )                        |            |             | (217,354    | )       
|                                                     |                                                                                   | Increase in cash surrender value of Bank owned
life insurance |                                    |                                           | (142,811    | )                        |            |             | (140,682    | )       
|                                                     |                                                                                   | Net (gain) loss on sale or write down of:                     |                                    |                                           |             |                          |            |             |             |         
|                                                     |                                                                                   |                                                               | Loans held for sale                |                                           |             | (493,044                 | )          |             |             | (254,109 | )         
|                                                     |                                                                                   |                                                               | Securities available-for-sale      |                                           |             | (376,240                 | )          |             |             | (20,156  | )         
|                                                     |                                                                                   |                                                               | Real estate owned and other assets |                                           |             | 50,738                   |            |             |             | (20,275  | )         
|                                                     |                                                                                   |                                                               | Premises and equipment             |                                           |             | (13,500                  | )          |             |             | 0        |           
|                                                     |                                                                                   | Proceeds from sale of loans                                   |                                    |                                           | 41,416,304  |                          |            |             | 25,596,888  |         
|                                                     |                                                                                   | Loans originated for sale                                     |                                    |                                           | (39,608,277 | )                        |            |             | (22,683,729 | )       
|                                                     |                                                                                   | Decrease in accrued interest receivable                       |                                    |                                           | 76,584      |                          |            |             | 171,011     |         
|                                                     |                                                                                   | Decrease in other assets                                      |                                    |                                           | 37,651      |                          |            |             | 376,995     |         
|                                                     |                                                                                   | Increase (decrease) in accrued interest payable               |                                    |                                           | 26,959      |                          |            |             | (113,961    | )       
|                                                     |                                                                                   | Decrease in other liabilities                                 |                                    |                                           | (66,657     | )                        |            |             | (40,890     | )       
|                                                     |                                                                                   |                                                               |                                    |                                           |             |                          |            |            
|                                                     |                                                                                   |                                                               |                                    | Net cash provided by operating activities |             |                          | 2,873,069  |             |             |          | 4,175,445  |  
|                                                     |                                                                                   |                                                               |                                    |                                           |             |                          |            |            
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                                   |                                                               |                                    |                                           |             |                          |            |            
|                                                     | Net loan repayments                                                               |                                                               |                                    | 4,788,310                                 |             |                          |            | 7,364,189   |            
|                                                     | Proceeds from payments received on securities available-for-sale                  |                                                               |                                    | 2,917,953                                 |             |                          |            | 1,635,883   |            
|                                                     | Net change in interest bearing deposits at other banks                            |                                                               |                                    | (9,460,303                                | )           |                          |            | (16,953     | )          
|                                                     | Purchase of securities available-for-sale                                         |                                                               |                                    | (75,200,000                               | )           |                          |            | (31,163,622 | )          
|                                                     | Proceeds from maturing and called securities available-for-sale                   |                                                               |                                    | 34,990,000                                |             |                          |            | 9,000,000   |            
|                                                     | Proceeds from the sale of securities available-for-sale                           |                                                               |                                    | 37,617,840                                |             |                          |            | 3,020,156   |            
|                                                     | Purchase of premises and equipment                                                |                                                               |                                    | (277,476                                  | )           |                          |            | (43,532     | )          
|                                                     | Proceeds from sales of premises and equipments                                    |                                                               |                                    | 26,210                                    |             |                          |            | 0           |            
|                                                     | Proceeds from sales of real estate owned                                          |                                                               |                                    | 407,940                                   |             |                          |            | 1,473,523   |            
|                                                     |                                                                                   |                                                               |                                    |                                           |             |                          |            |            
|                                                     |                                                                                   |                                                               |                                    | Net cash used in investing activities     |             |                          | (4,189,526 | )           |             |          | (8,730,356 | )
|                                                     |                                                                                   |                                                               |                                    |                                           |             |                          |            |            
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                                   |                                                               |                                    |                                           |             |                          |            |            
|                                                     | Net decrease in passbook, NOW and money market deposit accounts                   |                                                               |                                    | 2,141,728                                 |             |                          |            | 868,549     |            
|                                                     | Proceeds from sales of time deposits                                              |                                                               |                                    | 12,620,932                                |             |                          |            | 11,843,231  |            
|                                                     | Payments on maturing time deposits                                                |                                                               |                                    | (14,986,357                               | )           |                          |            | (12,305,811 | )          
|                                                     | Payments on borrowed funds                                                        |                                                               |                                    | (49,875,000                               | )           |                          |            | (160,000    | )          
|                                                     | Proceeds from borrowed funds                                                      |                                                               |                                    | 53,700,000                                |             |                          |            | 4,400,000   |            
|                                                     | (Decrease) increase in official checks outstanding                                |                                                               |                                    | (822,875                                  | )           |                          |            | 262,380     |            
|                                                     | Repurchase of common stock                                                        |                                                               |                                    | (1,070,939                                | )           |                          |            | 0           |            
|                                                     | Payments of cash dividends                                                        |                                                               |                                    | (321,837                                  | )           |                          |            | (355,076    | )          
|                                                     |                                                                                   |                                                               |                                    |                                           |             |                          |            |            
|                                                     |                                                                                   |                                                               |                                    | Net cash provided by financing activities |             |                          | 1,385,652  |             |             |          | 4,553,273  |  
|                                                     |                                                                                   |                                                               |                                    |                                           |             |                          |            |            
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                   |                                                               | 69,195                             |                                           |             |                          | (1,638     | )          
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     |                                                                                   |                                                               | 3,862,956                          |                                           |             |                          | 3,342,141  |            
|                                                     |                                                                                   |                                                               |                                    |                                           |             |                          |            |            
|CASH AND CASH EQUIVALENTS AT END OF PERIOD           |                                                                                   | $                                                             | 3,932,151                          |                                           |             | $                        | 3,040,503  |            
|                                                     |                                                                                   |                                                               |                                    |                                           |             |                          |            |            
|SUPPLEMENTAL DISCLOSURES:                            |                                                                                   |                                                               |                                    |                                           |             |                          |            |            
|                                                     | Cash payments for interest on deposits and borrowed funds                         |                                                               | $                                  | 2,118,048                                 |             |                          |            | 3,341,755   |            
|                                                     | Cash payments for income taxes                                                    |                                                               |                                    | 587,921                                   |             |                          |            | 285,000     |            
|                                                     | Real estate acquired through foreclosure                                          |                                                               |                                    | 469,932                                   |             |                          |            | 651,722     |            

See accompanying notes to unaudited consolidated financial statements.

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PINNACLE BANCSHARES, INC.




NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION:

The accompanying unaudited condensed consolidated financial statements
include the accounts of Pinnacle Bancshares, Inc. (the Company) and
Pinnacle Bank (the Bank), the Companys wholly owned subsidiary. 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
three and six month periods ended June 30, 2003, are not necessarily
indicative of the results of operations which may be expected for the entire
year.

These unaudited 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, 2002. The accounting policies followed by the Company are set
forth in the summary of Significant Accounting Policies in the Companys
audited financial statements.

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2.  EARNINGS PER SHARE:

The following table represents the earnings per share calculations for
the three and six month periods ended June 30, 2003 and 2002:

|                           |                            |            |   |         |  |        |  |           |  |  |       |      | 
|-------------------------- | -------------------------- | ---------- | - | ------- |  | ------ |  | --------- |  |  | ----- | ---- | 
|                           |                            |            |   |         |  |        |  |           |  |  | Per  
|                           |                            |            |   |         |  |        |  |           |  |  | Share
|For The Three Months Ended |                            | Net Income |   | Shares  |  | Amount
|                           |                            |            |   |         |  |       
|June 30, 2003              |                            |            |   |         |  |        |  |           |  |  |       |     
|                           | Basic earnings per share   |            | $ | 595,327 |  |        |  | 1,575,838 |  |  | $     | 0.38 | 
|                           |                            |            |   |         |  |        |  |           |  |  |       |     
|                           | Dilutive securities        |            |   |         |  |        |  | 29,694    |  |  |       |      | 
|                           |                            |            |   |         |  |        |  |           |  |  |       |     
|                           | Diluted earnings per share |            | $ | 595,327 |  |        |  | 1,605,532 |  |  | $     | 0.37 | 
|                           |                            |            |   |         |  |        |  |           |  |  |       |     

|                           |                            |            |   |         |  |        |  |           |  |  |       |      | 
|-------------------------- | -------------------------- | ---------- | - | ------- |  | ------ |  | --------- |  |  | ----- | ---- | 
|                           |                            |            |   |         |  |        |  |           |  |  | Per  
|                           |                            |            |   |         |  |        |  |           |  |  | Share
|For The Three Months Ended |                            | Net Income |   | Shares  |  | Amount
|                           |                            |            |   |         |  |       
|June 30, 2002              |                            |            |   |         |  |        |  |           |  |  |       |     
|                           | Basic earnings per share   |            | $ | 515,750 |  |        |  | 1,775,384 |  |  | $     | 0.29 | 
|                           |                            |            |   |         |  |        |  |           |  |  |       |     
|                           | Dilutive securities        |            |   |         |  |        |  | 8,830     |  |  |       |      | 
|                           |                            |            |   |         |  |        |  |           |  |  |       |     
|                           | Diluted earnings per share |            | $ | 515,750 |  |        |  | 1,784,214 |  |  | $     | 0.29 | 
|                           |                            |            |   |         |  |        |  |           |  |  |       |     

|                           |                            |            |   |           |  |        |  |           |  |  |       |      | 
|-------------------------- | -------------------------- | ---------- | - | --------- |  | ------ |  | --------- |  |  | ----- | ---- | 
|                           |                            |            |   |           |  |        |  |           |  |  | Per  
|                           |                            |            |   |           |  |        |  |           |  |  | Share
|For The Three Months Ended |                            | Net Income |   | Shares    |  | Amount
|                           |                            |            |   |           |  |       
|June 30, 2003              |                            |            |   |           |  |        |  |           |  |  |       |     
|                           | Basic earnings per share   |            | $ | 1,299,004 |  |        |  | 1,608,126 |  |  | $     | 0.81 | 
|                           |                            |            |   |           |  |        |  |           |  |  |       |     
|                           | Dilutive securities        |            |   |           |  |        |  | 24,295    |  |  |       |      | 
|                           |                            |            |   |           |  |        |  |           |  |  |       |     
|                           | Diluted earnings per share |            | $ | 1,299,004 |  |        |  | 1,632,421 |  |  | $     | 0.80 | 
|                           |                            |            |   |           |  |        |  |           |  |  |       |     

|                           |                            |            |   |         |  |        |  |           |  |  |       |      | 
|-------------------------- | -------------------------- | ---------- | - | ------- |  | ------ |  | --------- |  |  | ----- | ---- | 
|                           |                            |            |   |         |  |        |  |           |  |  | Per  
|                           |                            |            |   |         |  |        |  |           |  |  | Share
|For The Three Months Ended |                            | Net Income |   | Shares  |  | Amount
|                           |                            |            |   |         |  |       
|June 30, 2002              |                            |            |   |         |  |        |  |           |  |  |       |     
|                           | Basic earnings per share   |            | $ | 957,541 |  |        |  | 1,775,384 |  |  | $     | 0.54 | 
|                           |                            |            |   |         |  |        |  |           |  |  |       |     
|                           | Dilutive securities        |            |   |         |  |        |  | 2,207     |  |  |       |      | 
|                           |                            |            |   |         |  |        |  |           |  |  |       |     
|                           | Diluted earnings per share |            | $ | 957,541 |  |        |  | 1,777,591 |  |  | $     | 0.54 | 
|                           |                            |            |   |         |  |        |  |           |  |  |       |     

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3.  STOCK BASED COMPENSATION:

In accordance with the provision of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, the Company has
elected to recognize compensation cost under Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and accordingly does
not recognize compensation cost due to the fact that all options granted were
priced at the fair market value of the underlying stock on the date of grant.
Had compensation cost been determined, consistent with SFAS No. 123, the
Companys net income would have reflected the following pro forma amounts:

|                                       |  |          |         |          |  |          |         |          |  |   |           |  |  |   |         |  
|-------------------------------------- |  | -------- | ------- | -------- |  | -------- | ------- | -------- |  | - | --------- |  |  | - | ------- | -
|                                       |  | Three    |         | Three    |  | Six      |         | Six     
|                                       |  | Months   |         | Months   |  | Months   |         | Months  
|                                       |  | Ended    |         | Ended    |  | Ended    |         | Ended   
|                                       |  | June 30, |         | June 30, |  | June 30, |         | June 30,
|                                       |  | 2003     |         | 2002     |  | 2003     |         | 2002    
|                                       |  |          |         |          |  |          |         |         
|Net Income as reported                |  | $        | 595,327 |          |  | $        | 515,750 |          |  | $ | 1,299,004 |  |  | $ | 957,451 |  
|Stock-based compensation expense       |  |          | 0       |          |  |          | (2,106  | )        |  |   | 0         |  |  |   | (4,211  | )
|                                       |  |          |         |          |  |          |         |          |  |   |           |  |  |   |         |  
|Net Income pro forma                  |  | $        | 595,327 |          |  | $        | 513,644 |          |  | $ | 1,299,004 |  |  | $ | 953,240 |  
|Basic earnings per shareas reported   |  | $        | 0.38    |          |  | $        | 0.29    |          |  |   | 0.81      |  |  | $ | 0.54    |  
|Basic earnings per sharepro forma     |  |          | 0.38    |          |  |          | 0.29    |          |  |   | 0.81      |  |  |   | 0.54    |  
|Diluted earnings per shareas Reported |  | $        | 0.37    |          |  | $        | 0.29    |          |  | $ | 0.80      |  |  | $ | 0.54    |  
|Diluted earnings per sharepro forma   |  |          | 0.37    |          |  |          | 0.29    |          |  |   | 0.80      |  |  |   | 0.54    |  

4.  RECENT ACCOUNTING PRONOUNCEMENTS:

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. The Statement amends and
clarifies accounting for derivative instruments, including certain derivatives
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
Statement is effective for contracts entered into or modified after June 30,
2003 and for hedging relationships designated after June 30, 2003. The
adoption of this Statement is not expected to have a material impact on the
Companys financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. This Statement is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of this Statement is not expected
to have a material impact on the Companys financial position or results of
operations.

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Item  2.  Managements Discussion and Analysis

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 (SEC) 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.

Critical Accounting Policies:The accounting principles followed by the
Company and the methods of applying these principles conform with United States
generally accepted accounting principles and with general practices within the
banking industry. The Companys critical accounting policies relate to the
allowance for loan losses and real estate owned. These policies require the use
of estimates, assumptions and judgments and are based on information available
as of the date of the financial statements. Accordingly, as this information
changes, the financial statements could reflect difference estimates,
assumptions and judgments. Certain policies inherently have a greater result on
the use of estimates, assumptions and judgments and as such have a greater
possibility of producing results that could be materially different than
originally reported. These policies require the use of subjective and complex
estimates, assumptions and judgments that are important to the portrayal of the
Companys financial condition and results.

The allowance for loan losses is maintained at a level which management
considers to be adequate to absorb losses inherent in the loan portfolio.
Managements estimation of the amount of the allowance is based on a continuing
evaluation of the loan portfolio and includes such factors as economic
conditions, analysis of individual loans, overall portfolio characteristics,
delinquencies and the balance of any impaired loans (generally considered to be
nonperforming loans, excluding residential mortgages and other homogeneous
loans).

Management reviews the adequacy of the allowance for loan losses on a
continuous basis by assessing the quality of the loan portfolio and adjusting
the allowance when appropriate. Managements evaluation of certain
specifically identified loans includes a review of the financial condition and
capacity of the borrower, the value of the collateral, current economic trends,
historical losses, workout and collection arrangements, and possible
concentrations of credit. The loan review process also includes a collective
evaluation of credit quality within the mortgage and installment loan
portfolios. In establishing the allowance, loss percentages are applied to
groups of loans with similar risk characteristics. These loss percentages are
determined by historical experience, portfolio mix, regulatory influence, and
other economic factors. Each quarter this review is quantified in a report to
management, which uses it to determine whether an appropriate allowance is
being maintained. This report is then submitted to the Board of Directors and
to the appropriate Board committee quarterly.

Changes in the allowance can result from changes in economic events, changes in
the creditworthiness of the borrowers, or changes in collateral values. The
effect of these changes is reflected when known. Though management believes
the allowance for loan losses to be adequate as of June 30, 2003, ultimate
losses may vary from estimations.

Real estate owned acquired through foreclosure is carried at the lower of cost
or fair value less expected selling costs. Any excess of the recorded
investment over fair value, less estimated costs of disposition of the
property, is charged to the allowance for loan losses at the time of
foreclosure. Subsequent to foreclosure, real estate owned is evaluated on an
individual basis for changes in fair value. Declines in fair value of the
asset, less costs of disposition below its carrying amount, require an increase
in the valuation allowance account. Future increases in fair value of the
asset, less cost of disposition, may cause a reduction in the valuation
allowance account, but not below zero. Increases or decreases in the valuation
allowance account are charged or credited to income. Costs relating to the
development and improvement of property are capitalized, whereas costs relating
to the holding of property are expensed.

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The recognition of gains and losses on the sale of real estate owned is
dependent upon whether the nature and terms of the sale and future involvement
of the Bank in the property meet certain requirements. If the transaction does
not meet these requirements, income recognition is deferred and recognized
under an alternative method in accordance with Statement of Financial
Accounting Standards (SFAS) No. 66, Accounting for Sales of Real Estate.

Comparison of Financial Condition as of June 30, 2003 and December 31, 2002.
Total assets were $221.0 million, at June 30, 2003, compared to $218.3 million
at December 31, 2002. Interest bearing deposits in other banks increased $9.5
million. This increase was primarily due to timing of purchases of securities
available for-sale and repayments of borrowed funds. Net loans receivable
decreased approximately $5.6 million from $119.4 million at December 31, 2002
to $113.7 million at June 30, 2003 primarily due to refinancing activities and
principal repayments. Total securities available-for-sale were $75.5 million
at June 30, 2003, compared to $75.3 million at December 31, 2002.

At June 30, 2003, the investment portfolio of $75.5 million consisted primarily
of U. S. agency securities and mortgage-backed securities. The entire
investment portfolio is classified as available-for-sale, which is carried at
fair value with the unrealized gains/losses reflected directly in stockholders
equity, net of taxes. During the six months ended June 30, 2003, the Bank had
$35.0 million in agency securities to be called. Also during the six month
period ended June 30, 2003, the Bank sold $37.6 million in agency securities in
order to reposition its investment portfolio. Gross gains of $376,241 were
realized on these sales. The proceeds from these calls, and sales of securities
available-for-sale, combined with the proceeds from loan principal repayments
and Federal Home Loan Bank (FHLB) of Atlanta advances, were used by the Bank
to purchase $75.2 million in agency securities.

Total deposits were $188.7 million at June 30, 2003 as compared to $189.0
million at December 31, 2002.

During the six-month period ended June 30, 2003, the Bank periodically borrowed
funds on a short term basis from the FHLB of Atlanta. The proceeds from
borrowed funds were used to purchase agency securities due to favorable
spreads. The maximum amount outstanding during the three months period ending
June 30, 2003 was $11.7 million.

Results of Operations-Comparison of the Three and Six-Months Ended June 30,
2003 and 2002. For the three-months ended June 30. 2003, net income was
$595,327 compared with net income of $515,750 for the three-months ended June
30, 2002. For the six-months ended June 30, 2003, net income was $1,299,004
compared with net income of $957,541 for the six-months ended June 30, 2002.
Net interest income after the provision for loan losses for the three-months
ended June 30, 2003, was $1,611,000, compared with $1,604,000 for the
three-months ended June 30, 2002. Net interest income after the provision for
loan losses for the six-months ended June 30, 2003, was $3,153,000, compared
with $3,134,000 for the three-months ended June 30, 2002. A significant portion
of the higher net income was related to non-interest income which increased
from $1,015,000 for the six-months ended June 30, 2002 to $1,586,000 for the
six months ended June 30, 2003. This increase was primarily attributable to
increases in net gain on the sale of loans held for sale and available-for-sale
securities of $240,000 and $356,000, respectively.

The net interest margin increased to 3.69% and 3.65% for the three and six
months ended June 30, 2003, from 3.45% and 3.42% for the three and six-months
ended June 30, 2002. As market rates continued to stabilize at lower levels
during the three and six-month period ended June 30, 2003, the Companys cost
of funds decreased more rapidly than rates on loans and investments,
contributing to the improved margin. The yield on interest-earning assets
decreased from approximately 6.53% and 6.62% in the three and six-month period
ended June 30, 2002 to approximately 5.72% and 5.77% in the current year
period. This decrease was due to a decrease in market interest rates. The cost
of funds decreased from approximately 3.00% at June 30, 2002 to approximately
2.00% at June 30, 2003, due to decreases in market deposit rates.

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 loans, collateral values and general economic conditions. The
provision for loan losses was $267,500 and $535,000 for the three and
six-months ended June 30, 2003, compared to $138,000 and $296,300 for the three
and six-months ended June 30, 2002. The increase in the provision for loan
losses for the three and six-month period ended June 30, 2003 as compared to
the prior year period was the result of an increase in non-performing loans,
from $935,000 at June 30, 2002 to $1,269,000 in the current year. It is
managements opinion that the allowance for loan losses at June 30, 2003 was
adequate to absorb losses related to the portfolio of loans. Management will
continue to analyze the Banks exposure to losses. Although management
believes that is uses the best information available to make such
determinations, future adjustments to allowances may be necessary, and net
earnings could be significantly affected if circumstances differ substantially
from the assumptions used in making the initial determinations.

Non-interest income, which includes fees and service charges, income from real
estate operations, the sale of loans, bank owned life insurance and other
income increased $171,000 in the three-month period ended June 30, 2003, as
compared to the three-month period ended June 30, 2002. The increase was due
primarily to an increase in net gain on sale of loans held for sale of
$105,000, an increase in the net gain on sale of securities available-for-sale
of $71,000, and an increase in all other non-interest income of $33,000. This
increase was offset by an increase in losses on sale of real estate owned of
$38,000. Non-interest income increased $571,000 in the six-month period ended
June 30, 2003, as compared to the six-month period ended June 30, 2002. The
increase was due primarily to an increase in net gain on sale of securities
available for sale of $356,000, an increase in the net gain on sale of loans
held for sale of $239,000 and an

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increase in all other non-interest income of $47,000. This increase was offset
by an increase in losses on sale of real estate owned of $71,000.

Non-interest expense increased $51,000 in the three-month period ended June
30, 2003 as compared to the corresponding prior year period. This was
primarily a result of an increase in compensation and benefits of $26,000 and
an increase in all other non-interest expense of $25,000. Non-interest
expense increased $47,000 in the six-month period ended June 30, 2003 as
compared to the corresponding prior year period. This was primarily a result
of an increase in compensation and benefits of $80,000. This increase was
offset by a decrease in all other non-interest expense of $33,000.

Asset Liability Management: The modeling techniques used by the Company
simulate net interest income and impact on fair values under various rate
scenarios. Important elements of these techniques include the mix of floating
versus fixed rate assets and liabilities, and the scheduled, as well as
expected, re-pricing and maturing volumes and rates of the existing balance
sheet. Under a scenario simulating a hypothetical 100, 200 and 300 basis point
rate increase applied to all fixed rate interest earning assets and
interest-bearing liabilities, the Company would expect a net loss in fair value
of the underlying instruments of approximately $490,000, $1,153,000, and
$1,862,000, respectively. Under a scenario simulating a hypothetical 100, 200
and 300 basis point rate decrease applied to all fixed rate interest earning
assets and interest-bearing liabilities, the Company would expect a net loss in
fair value of the underlying instruments of approximately $771,000, $1,624,000,
and $2,403,000, respectively. This hypothetical 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.

Stock Repurchase Program:In 2002, the Company announced a stock repurchase
program to acquire up to 178,000 shares of common stock, or approximately 5% of
the Companys currently outstanding shares. As of December 31, 2002 the Company
had repurchased 122,700 shares at an average price of $11.16 per share. As of
March 17, 2003 the Company had repurchased an additional 54,000 shares of
common stock at an average price of $11.58 per share, which completed this
stock repurchase program.

On April 25, 2003, the Company announced a supplemental stock repurchase
program to acquire up to an additional 5% of the Companys currently
outstanding shares. The repurchase program will be dependent upon market
conditions and other requirements, and there is no guarantee as to the exact
number of shares to be repurchased by the Company. As of June 30, 2003, the
Company had repurchased 33,000 shares at an average price of $13.50 per share.

Capital Resources:Historically, funds provided by operations, mortgage loan
principal repayments, 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 FHLB of
Atlanta and other borrowing sources. At June 30, 2003, the Banks total loan
commitments, including construction loans in process, unused lines of credit
and letter of credits, 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 June 30, 2003,
the Company and the Bank exceeded all regulatory capital requirements.

Proposed Tax Plan: On September 9, 2003, Alabama voters will vote on a proposed
amendment to the state constitution which, if approved is expected to increase
significantly state income taxes paid by the Company and the Bank.

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Item  3.  Controls and Procedures

The Company carried out an evaluation, under the supervision and with the
participation of the Companys management, including the Companys Principal
Executive Officer and Principal Financial Officer, of the effectiveness of the
design and operation of the Companys disclosure controls and procedures as of
June 30, 2003. Based upon that evaluation, the Companys Principal Executive
Officer and Principal Financial Officer concluded that the Companys disclosure
controls and procedures, as designed and implemented, are effective in alerting
him in a timely manner to material information relating to the Company
(including its consolidated subsidiaries) required to be included in the
Companys periodic SEC filings.

In addition, the Company reviewed its internal controls. There have been no
significant changes in the Companys internal controls or in other factors that
could significantly affect these controls subsequent to the date the Company
conducted its evaluation.

Disclosure controls and procedures are designed to ensure that information
required to be disclosed in reports filed by the Company under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms. Disclosure controls are
also designed with the objective of ensuring that such information is
accumulated and communicated to the Companys management, including the
Principal Executive Officer and Principal Financial Officer to allow timely
decisions regarding required disclosures. Disclosure controls include internal
controls that are designed to provide reasonable assurance that transactions
are properly authorized, assets are safeguarded against unauthorized or
improper use and transactions are properly recorded and reported.

Any control system, no matter how well conceived and operated, can provide only
reasonable assurance that its objectives are achieved. The design of a control
system inherently has limitations, including the controls cost relative to
their benefits. Additionally, controls can be circumvented. No cost-effective
control system can provide absolute assurance that all control issues and
instances of fraud, if any, will be detected.

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PART II  OTHER INFORMATION




ITEM  4.  Submission of Matters to a Vote of Security Holders

On May 28, 2003, the Company held its Annual Meeting of Stockholders
at which the following matters were considered and voted on.

PROPOSAL I- ELECTION OF DIRECTORS

|                    |  |     |           |          |  |      |       |  |  |         |  | 
|------------------- |  | --- | --------- | -------- |  | ---- | ----- |  |  | ------- |  | 
|NOMINEES            |  | FOR |           | WITHHELD |  | TERM
|                    |  |     |           |          |  |     
|James W. Cannon     |  |     | 1,393,418 |          |  |      | 5,727 |  |  | 3 Years
|Robert B. Nolen Jr. |  |     | 1,391,218 |          |  |      | 7,927 |  |  | 3 Years
|Max W. Perdue       |  |     | 1,389,188 |          |  |      | 9,957 |  |  | 3 Years

There were no abstentions or broker non-votes.

PROPOSAL II- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

Ratification of the appointment of KPMG LLP as independent auditors
of the Company for the fiscal year ending December 31, 2003.

|          |  |         |       |         |  |  |       | 
|--------- |  | ------- | ----- | ------- |  |  | ----- | 
|FOR       |  | AGAINST |       | ABSTAIN
|          |  |         |       |        
|1,388,647 |  |         | 7,112 |         |  |  | 3,386 | 

There were no broker non-votes.




ITEM  6.  Exhibits and Reports on Form 8-K



|(a) |  | Exhibits
|--- |  | --------

Exhibit 31.1- Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.

Exhibit 32.1 Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002



|(b) |  | Reports on Form 8-K
|--- |  | -------------------

Current Report on Form 8-K dated April 25, 2003, furnishing under
Item 9 (pursuant to Item 12) announcement of the Companys results
of operations for the quarter ended March 31, 2003.

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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: August 14, 2003 | BY:                      |  | /s/ Robert B. Nolen Jr.
Robert B. Nolen, Jr.
President and Chief
Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
|                      |                          |  |                                                                                                                                                 
|                      |                          |  | /s/ Marie Guthrie
Marie Guthrie
Treasurer
(Principal Accounting Officer)                                                                        

15