<PAGE>   1

                     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 September  30, 1998

[ ]      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                           (I.R.S. Employer)
Incorporation or Organization)                           Identification No.)

                 1811 Second Avenue, Jasper, Alabama 35502-1388
--------------------------------------------------------------------------------
                    (Address of Principal Executive Offices)

                                 (205) 221-4111
--------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)


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

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

Yes      X        No       
     ----------      ---------

         State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 1,789,586

         Transitional Small Business Disclosure Format (check one):

Yes               No       X        
     ----------      ---------



<PAGE>   2


                                     PART I
                              FINANCIAL INFORMATION


<TABLE>
<CAPTION>
                                                                                         PAGE
                                                                                         ----
ITEM 1.  FINANCIAL STATEMENTS

<S>                                                                                      <C>
Condensed Consolidated Statements of Financial Condition at September 30, 1998
(Unaudited) and December 31, 1997.                                                         2

Condensed Consolidated Statements of Financial Operations (Unaudited) for the
three months ended September 30, 1997 and 1998 and for the nine months ended
September 30, 1997 and 1998.                                                               3

Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months
ended September 30, 1997 and September 30, 1998.                                           4

Notes to Condensed Consolidated Financial Statements.                                      5

The Condensed Consolidated Financial Statements furnished have not been audited
by independent certified public accountants, but reflect, in the opinion of
management, all adjustments necessary for a fair presentation of financial
condition and the results for the periods presented.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                          9



                                     PART I1
                                OTHER INFORMATION




ITEM 5. OTHER INFORMATION                                                                 12

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                  12

Signatures                                                                                13
</TABLE>






                                       1
<PAGE>   3

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
                            PINNACLE BANCSHARES, INC.
            CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



<TABLE>
<CAPTION>
                                                                           December 31,           September 30,
                                                                               1997                  1998      
                                                                          ------------            ------------
                                                                                                  (Unaudited)
<S>                                                                       <C>                     <C>         
ASSETS
 Cash on hand and in banks                                                $  2,747,482            $  2,580,977
 Interest-bearing deposits at other banks                                    4,873,353              25,500,438
 Securities available for sale                                              44,423,262              42,141,631
 Accrued interest on securities and deposits                                   491,104                 304,132


Loans receivable, net                                                      137,676,037             129,319,405
Loans held for sale (fair value $1,857,042 and $2,718,853
    at December 31, 1997 and September 30, 1998, respectively)               1,857,042               2,718,853
Real estate owned                                                            2,140,003               3,351,890
Premises and equipment, net                                                  5,785,279               6,270,378
Other  assets                                                                1,955,466               2,036,725
                                                                          ------------            ------------
                                                                          $201,949,028            $214,224,429
                                                                          ------------            ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits                                                                   179,377,212             190,888,442
Borrowed funds                                                               3,640,000               3,520,000
Official checks outstanding                                                    836,383                 952,261
Other liabilities                                                            1,314,305               1,357,787
                                                                          ------------            ------------
                                                                           185,167,900             196,718,490
                                                                          ------------            ------------

STOCKHOLDERS' EQUITY
Preferred stock, par $.01 per share, no shares issued,
    100,000 and 10,000,000 authorized                                                0                       0
Common stock, par $.01 per share, 1,786,586 and
    1,786,586 outstanding, 2,400,000 and 10,000,000 authorized                  17,865                  17,865
Additional paid-in capital                                                   8,083,332               8,083,332
Retained earnings                                                            8,665,499               9,212,251
Unrealized gain on securities for sale, net                                     14,432                 192,491
                                                                          ------------            ------------
                                                                            16,781,128              17,505,939
                                                                          ------------            ------------
                                                                          $201,949,028            $214,224,429
                                                                          ------------            ------------
</TABLE>
See accompanying notes to consolidated financial statements 






                                       2
<PAGE>   4


                            PINNACLE BANCSHARES, INC.
            CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL OPERATIONS

<TABLE>
<CAPTION>
                                                   Three Months Ended                 Nine Months Ended
                                                      September 30,                     September 30,
                                                 1997              1998             1997             1998
                                             -----------      ------------      -----------     ------------
                                                                        (unaudited)
<S>                                          <C>              <C>               <C>             <C>         
INTEREST REVENUE:
Interest on loans                            $ 3,192,781      $  3,064,108      $ 9,304,472     $  9,180,218
Interest and dividends on securities             713,843           663,903        2,246,961        2,005,116
Other interest                                    94,901           286,919          255,441          703,553
                                             -----------      ------------      -----------     ------------
                                               4,001,525         4,014,930       11,806,874       11,888,887
INTEREST EXPENSE:
Interest on deposits                           2,191,068         2,309,365        6,483,577        6,712,877
Interest on borrowed funds                        51,829            49,218          155,488          151,540
                                             -----------      ------------      -----------     ------------
                                               2,242,897         2,358,583        6,639,065        6,864,417
                                             -----------      ------------      -----------     ------------

Net interest income before provision for
     loan losses                               1,758,628         1,656,347        5,167,809        5,024,470
Provision for losses on loans                     75,000           350,000          224,274          632,000
                                             -----------      ------------      -----------     ------------

Net interest income after provision for
losses on loans                                1,683,628         1,306,347        4,943,535        4,392,470
NONINTEREST INCOME:
Fees and service charges                         206,696           203,350          639,163          646,899
Real estate operations, net                       33,471            28,134           92,657           43,572
Net gain (loss) on sale of:
   Loans                                          78,991           161,834          270,328          505,301
   Investments                                     1,276                 0            1,276                0
   Real  estate                                    6,376          (399,028)               0         (398,482)
Other income                                         174               198            1,074              526
                                             -----------      ------------      -----------     ------------
                                                 326,984            (5,512)       1,004,498          797,816
                                             -----------      ------------      -----------     ------------
NONINTEREST EXPENSE:
Compensation and benefits                        616,100           667,602        1,873,244        1,980,165
Occupancy                                        253,216           272,114          772,224          767,822
Marketing and professional                        42,847            35,507          140,959          105,492
Other                                            216,621           232,646          641,184          705,465
                                             -----------      ------------      -----------     ------------
                                               1,128,784         1,207,869        3,427,611        3,558,944
                                             -----------      ------------      -----------     ------------
Earnings before tax expense                      881,828            92,966        2,520,422        1,631,342
Income tax expense                               328,659            14,990          940,026          549,115
                                             -----------      ------------      -----------     ------------
Net earnings                                     553,169            77,976        1,580,396        1,082,227
                                             -----------      ------------      -----------     ------------
Basic Earnings per share                     $      0.31      $       0.04      $      0.89     $       0.61
Diluted Earnings per share                   $      0.30      $       0.04      $      0.87     $       0.60
Cash Dividends per share                     $      0.09      $       0.10      $      0.09     $       0.10
 Weighted average shares outstanding           1,779,646         1,786,586        1,779,646        1,786,586
</TABLE>

See accompanying notes to consolidated financial statements.








                                       3
<PAGE>   5

                            PINNACLE BANCSHARES, INC,
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                      Nine Months Ended
                                                                                                        September 30,
                                                                                            ------------------------------------
                                                                                                1997                     1998
                                                                                                         (unaudited)
<S>                                                                                         <C>                      <C>         
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
    Net earnings)                                                                           $  1,580,396             $  1,082,227
    Adjustment to reconcile net earnings to net cash flows provided by operating
       activities:
       Depreciation                                                                              335,155                  349,927
       Provision for losses on loans                                                             224,274                  632,000
    Net (gain) loss on sale of:
       Loans held for sale                                                                      (270,328)                (505,301)
       Securities                                                                                 (1,276)                       0
       Real estate owned                                                                               0                  398,482
    Amortization, net                                                                           (223,045)                (270,724)
    Proceeds from sale of loans                                                               25,256,603               42,338,611
    Loans originated for sale                                                                (25,438,441)             (43,200,422)
    Decrease (Increase) in other assets                                                          232,948                  105,713
    (Increase)  decrease  in other liabilities                                                  (161,595)                 (48,418)
                                                                                            ------------             ------------
               Net cash provided by (used in) operating  activities                            1,534,691                  882,095
                                                                                            ------------             ------------
CASH FLOWS PROVIDED BY USED IN INVESTING ACTIVITIES:
    Principal collected on loans and securities                                               69,011,734               69,399,084
    Loans originated for portfolio                                                           (74,202,516)             (57,620,574)
    Net change in interest bearing deposits at other banks                                    (3,095,908)             (20,627,085)
    Proceeds from the purchase of securities                                                    (998,852)             (15,940,265)
    Proceeds from sale of securities                                                             196,000                  214,002
    Proceeds from maturing  securities                                                         6,022,380               15,000,000
    Purchase of  premises and equipment                                                         (585,654)                (835,026)
    Net change in real estate owned                                                           (1,337,735)              (1,610,369)
                                                                                            ------------             ------------
               Net cash (used in) investing activities                                        (4,990,551)             (12,020,233)
                                                                                            ------------             ------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
    Net increase  in  passbook, NOW, and money market  deposit accounts                          554,931                  771,935
    Proceeds from sales of time deposits                                                      24,626,753               30,832,696
    Payments from maturing time deposits                                                     (21,538,775)             (20,093,401)
    Payments on borrowed funds                                                                  (110,000)                (120,000)
    Increase (decrease) in official checks outstanding                                           180,408                  115,878
    Proceeds from stock options exercised                                                              0                    1,500
    Payments of dividends                                                                       (537,624)                (536,975)
                                                                                            ------------             ------------
               Net cash provided  by (used in) financing  activities                           3,175,693               10,971,633
                                                                                            ------------             ------------
Net increase (decrease) in cash                                                                 (280,167)                (166,505)
                                                                                                                     ------------
CASH AT BEGINNING OF PERIOD                                                                    2,879,396                2,747,482
                                                                                            ------------             ------------
CASH AT END OF PERIOD                                                                       $  2,599,229             $  2,580,977
                                                                                            ============             ============
SUPPLEMENTAL DISCLOSURES:
    Cash payments for interest on deposits and borrowed funds                               $  6,123,617             $  6,228,791
    Cash payments for income taxes                                                          $  1,022,644             $    837,207
</TABLE>


 See accompanying notes to consolidated financial statements.







                                       4
<PAGE>   6

                            PINNACLE BANCSHARES, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



1.  BASIS OF PRESENTATION:

The accompanying unaudited interim condensed consolidated financial statements
include the accounts of Pinnacle Bancshares, Inc. (the "Company"), Pinnacle Bank
(the "Bank"), and the Bank's wholly owned subsidiaries First General Services(s)
and First General Ventures. All significant inter company transactions and
accounts have been eliminated in consolidation.

In the opinion of management, all adjustments (none of which are other than
normal recurring accruals) necessary for a fair presentation of the results of
such interim periods have been included. The results of operations for the nine
month period ended September 30, 1998, are not necessarily indicative of the
results of operations which may be expected for the entire year.

These condensed consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997. The
accounting policies followed by the Company are set forth in the summary of
Significant Accounting Policies in the Company's financial statements.

2.  STOCK SPLIT:

On September 24, 1997, the Company announced that it Board of Directors had
declared a two-for-one stock split to be effected in the form of a 100% stock
dividend payable to shareholders of record on October 15, 1997. All share and
per share information included in these financial statements have been restated
to give effect for the stock split.

3.  YEAR 2000 RISK ASSESSMENT AND ACTION PLAN:

The Company is aware of the current concerns throughout the business community
of reliance upon computer software that does not properly recognize the year
2000 in date formats, often referred to as the "Year 2000 Problem." The Year
2000 Problem is the result of software being written using two digits rather
than four digits to define the applicable year (i.e., "98" rather than "1998").
A failure by a business to properly identify and correct a Year 2000 Problem in
its operations could result in system failures or miscalculations. In turn, this
could result in disruptions of operations, including among other things, a
temporary inability to process transactions, or otherwise engage in routine
business transactions on a day-to-day basis.

Management has implemented a Company-wide initiative for preparing its systems,
applications and equipment for functionality in the Year 2000 and beyond. The
Company's Year 2000 project consists of three phases: (1) awareness and
assessment, (2) testing and implementation and (3) remediation and renovation.
The awareness and assessment phase, in which the 





                                       5
<PAGE>   7

Company evaluated the potential effect of the Year 2000 Problem on the Bank and
its customers, has been completed. The testing and implementation phase, in
which the Company tested critical systems, applications and equipment for Year
2000 compliance, is well underway and must be substantially complete by December
31, 1998. The remediation and renovation phase, in which the Company will
install system upgrades and enhancements of technology, is to be completed by
June 30, 1999.

The Company continues to monitor efforts to ready internal systems to correct
the Year 2000 Problem. Highest priority has been assigned to those systems
determined to be critical to the ongoing operations of the Company.

The Company has developed a contingency plan that would be implemented
immediately if the Bank's system fails upon the commencement of Year 2000.
Mission critical functions, including data processing, deposit servicing, teller
operations and loan servicing would resort to a manual system.

The Company has modified its credit risk assessment to include consideration of
incremental risk that may be posed by the inability of customers to address the
Year 2000 Problem. The Company has developed policies and procedures to help
identify potential customer related risks to the Company and to gain a better
understanding of how its customers are managing their own risks associated with
the Year 2000 Problem. Additionally, the Company has implemented a process for
assessing the readiness of its major vendors and suppliers. There can be no
assurance, however, that the systems of these outside parties will be remediated
on a timely basis, or that a failure to remediate would not have a material
adverse effect on the Company.

As of September 30, 1998, the Company had incurred minimal direct compliance
costs associated with the Year 2000 Problem. The Company estimates that $120,000
will approximate total direct compliance costs through the Year 2000, most of
which will be incurred in connection with the remediation and renovation phase.
The Company does not separately track internal costs incurred for Year 2000
compliance; such costs are principally related to payroll expenditures. Funding
for such costs has been and will be derived from normal operating cash flow.

4.  PENDING ACCOUNTING PRONOUNCEMENTS:

The AICPA has issued Statements of Position 98-1, Accounting for the Costs of
Computer Software Developed or obtained for Internal Use. This statement
requires capitalization of external direct costs of materials and services;
payroll and payroll related costs for employees directly associated; and
interest cost during development of computer software for internal use (planning
and preliminary costs should be amortized on a straight-line basis unless
another systematic and rational basis is more representative of the software's
use.

This statement is effective for financial statements for fiscal years beginning
after December 15, 1998 (prospectively) and is not expected to have a material
effect on the consolidated financial statements.






                                       6
<PAGE>   8

The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and for Hedging Activities. The statement requires derivatives to be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The Statement also requires that changes in the derivatives' fair value be
recognized currently in earnings unless specified hedge accounting criteria are
met.

This statement is effective for fiscal years beginning after June 15, 1999
(prospectively) and is not expected to have a material effect on the
consolidated financial statements.

5.  NET INCOME PER SHARE:

Basic net income per share was computed by nine month periods ended September
30, 1998 and 1997, was computed by dividing net income by the weighted average
number of shares of common stock and the dilutive effects of the shares awarded
under the Stock Option plan, based on the treasury stock method using an average
fair market value of the stock during the respective periods.

In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," effective
December 15,1997. As a result, the Company's reported net income per share for
1996 was restated. The following table represents the net income per share
calculations for the three and nine months ended September 30, 1998 and 1997:





                                       7
<PAGE>   9



<TABLE>
<CAPTION>
                                                                                                             Net Income
                                                                        Income              Shares            Per Share    
                                                                       ------------------------------------------------
<S>                                                                    <C>                 <C>               <C>    
For the Three Months Ended September 30, 1998:
   Net Income                                                          $   77,976
                                                                       ------------------------------------------------
Basic net income per share:
   Income available to common shareholders                             $   77,976          1,786,586            $   .04
                                                                       ------------------------------------------------
Diluted securities:
   Stock option
Dilutive net income per share                                                   0             26,001
                                                                       ------------------------------------------------
    Income available to common                                         $   77,976          1,812,587            $   .04
                                                                       ------------------------------------------------
For the Three Months Ended September 30, 1997:
  Net Income                                                           $  553,169
                                                                       ------------------------------------------------
Basic net income per share:
  Income available to common shareholders                              $  553,169          1,779,648            $   .31
                                                                       ------------------------------------------------
Diluted securities:
  Stock option
Dilutive net income per share                                                   0             34,466
                                                                       ------------------------------------------------
    Income available to common                                         $  553,169          1,814,114            $   .30
                                                                       ------------------------------------------------

                                                                                                             Net Income
                                                                        Income              Shares            Per Share    
                                                                       ------------------------------------------------
For the Nine Months Ended September 30, 1998:
  Net Income                                                           $1,082,227
                                                                       ------------------------------------------------
Basic net income per share:
  Income available to common shareholders                              $1,082,227          1,786,586            $   .61
                                                                       ------------------------------------------------
Diluted securities:
   Stock option
Dilutive net income per share                                                   0             26,001
                                                                       ------------------------------------------------
    Income available to common
     shareholders plus assumed conversations                           $1,082,227          1,812,587            $   .60
                                                                       ------------------------------------------------


For the Nine Months Ended September 30, 1997:
  Net Income                                                           $1,580,396
                                                                       ------------------------------------------------
Basic net income per share:
  Income available to common shareholder                               $1,580,396          1,779,648            $   .89
                                                                       ------------------------------------------------
Diluted securities:
   Stock option
Dilutive net income per share                                                   0               34,466
                                                                       ------------------------------------------------
   Income available to common
     shareholders plus assumed conversations                           $1,580,396          1,814,114            $   .87
                                                                       ------------------------------------------------
</TABLE>



6.  COMPREHENSIVE  INCOME:

The Company adopted SFAS No. 130 on January 1, 1998. SFAS No. 130 established
standards for reporting and display of comprehensive income and its components.

The Company has classified the majority of its securities as available for sale
in accordance with Financial Accounting Standards Board Statement No 115.
Pursuant to Statement No. 115, any unrealized gain or loss activity of available
for sale securities is to be recorded as an adjustment to a separate component
of stockholders' equity, net of income tax effect.







                                       8
<PAGE>   10

Since comprehensive income is a measure of all changes in equity of an
enterprise that result from transactions and other economic events of the
period, this change in unrealized loss serves to decrease or increase
comprehensive income. The following table represents comprehensive income for
the three and nine month periods ended September 30, 1998, and 1997:

<TABLE>
<CAPTION>
                                                              1997                   1998
                                                           -----------             ----------
<S>                                                        <C>                     <C>       
 For the  three months ended
 Net income                                                $   553,169             $   77,976
 Other comprehensive  income (loss), net of tax
   Unrealized  gain (loss) on securities                        19,156                124,893
                                                           ----------------------------------
 Comprehensive income                                      $   572,325             $  202,869
                                                           ----------------------------------



                                                              1997                   1998
                                                           -----------             ----------
 For the nine months ended
 Net income                                                $ 1,580,396             $1,082,227
 Other comprehensive  income (loss), net of tax
   Unrealized  gain (loss) on securities                          (365)               178,058
                                                           ----------------------------------
 Comprehensive income                                      $ 1,580,031             $1,260,285
                                                           ----------------------------------
</TABLE>


7. MARKET RISK:

The Company believes that there have been no material changes in reported market
risks since year end.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS
         OR PLAN OF OPERATION

                   PINNACLE BANCSHARES, INC. AND SUBSIDIARIES

            MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

FINANCIAL CONDITION: Total assets increased from $201.9 million as of December
31, 1997 to $214.2 million as of September 30, 1998. This increase was due
primarily to an increase in cash and interest bearing deposits of approximately
$20.5 million as well as an increase in real estate owned of approximately $1.2
million. This increase was offset by a decrease in securities available for sale
of approximately $2.3 million and a decrease in total loans of approximately
$7.5 million, as well as slight increases in all other assets.

INVESTMENTS: The Bank's investment portfolio at December 31, 1997 and at
September 30, 1998 consisted primarily of U.S. Treasury and Agency securities
with a majority maturing in three years or less. The Bank presently intends to
sell most long-term fixed-rate mortgage loans as they are originated.






                                       9
<PAGE>   11

RESULTS OF OPERATIONS: Net interest income after the provision for loan losses
on loans showed a decrease of $377,281 or 22.4% for the three month period ended
September 30, 1998 as compared to the corresponding period in the previous year.
This decrease was due to an increase in the provision for loan losses of
$275,000, an increase in interest income of $13,405 and an increase in interest
expense of $115,686. Net interest income after the provision for losses on loans
showed a decrease of $551,065 or 11.2% for the nine month period ended September
30, 1998 as compared to the corresponding period in the previous year. This
decrease was due to an increase in the provision for loan losses of $407,726 and
an increase in interest income of $82,013 and an increase in interest expense of
$225,352. Market interest rates remained relatively steady during the nine
months ended September 30, 1998. However, if rates were to rise rapidly, net
income may be adversely affected.

The Bank's yield on interest-bearing assets decreased from approximately 8.30%
in the nine month period ended September 30, 1997, to approximately 8.18% in the
current year period. This decrease was due in part to a decrease in interest
rates and an increase in non performing loans. The Bank's cost of funds
increased from 4.93% in the nine month period ending September 30, 1997 to 4.97%
in the current year period.

Non interest income, which includes fees and services charges, real estate
operations, net, net gain (loss) on sale of loans and other income decreased
approximately $332,496 and $206,682 in the three and nine month periods ended
September 30, 1998 as compared to the corresponding prior year periods. The
decrease in the three month period ended September 30, 1998 was due primarily to
loss on sale of real estate owned of approximately $400,304 and was offset by an
increase in the gain on sale of mortgage loans of approximately $82,843 as well
as slight increases in other non interest income. The decrease in the nine month
period ending September 30, 1998 was due primarily to a loss on the sale of real
estate owned of approximately $399,758, a decrease in real estate operation, net
of approximately $49,085. This increase was offset by an increase in the gain on
sale of mortgage loans of approximately $234,973 as well slight increases in all
other non interest income.

Non interest expense increased approximately $79,084 and $131,333 in the three
and nine month periods ended September 30, 1998 as compared to the corresponding
prior year periods. The increase in the three month period ended September 30,
1998, was due primarily to an increase in compensation expense of approximately
$51,502, an increase in occupancy expense of approximately $18,898, an increase
in other non interest expense of approximately $16,024. This increase was offset
by a decrease in marketing and professional expense of approximately $7,340. The
increase in the nine month period ended September 30, 1998, was due primarily to
an increase in compensation expense of approximately $106,921,an increase in
other non interest expense of approximately $64,281. The increase was offset by
a decrease in marketing and professional expense of approximately, $35,467, and
a decrease in occupancy expense of approximately $4,402.

NET EARNINGS: The Company reported net income for the three months ended
September 30, 1998 of $77,976 or $0.04 per share, compared with net income of
$553,169 or $0.31 per share, for the three months ended September, 1997. The
Company reported net income for the six 







                                       10
<PAGE>   12

months period ended September 30, 1998 of $1,082,227 or $0.61 per share,
compared to $1,580,396 or $0.89 per share, for the six month period ended
September 30 1997. This decrease was primarily due to an increase in the
provision for loan losses of approximately $275,000 and $407,726 and a loss on
the sale of real estate owned of approximately $400,304 and $399,758 for three
and nine month periods ended September 30, 1998. The decrease in both net income
and net interest income was primarily attributable to two factors: a loss on the
sale of real estate owned (REO) of $400,000 and a $408,000 increase in the
provision for loan losses, from $224,000 in the nine months ended September 30,
1997, to $632,000 in 1998. The loss on the sale of REO related to a golf course
loan in Walker County, Alabama, and was a one-time charge to earnings. The
increase in the provision for loan losses in 1998 to $350,000 from $75,000 in
1997 was due to an increase in the level of charge-offs. Charge-offs increased
to $576,000 for the nine months ended September 30, 1998, of which $250,000
related to the golf course loan, compared to $389,000 for the nine months ended
September 30, 1997. The allowance for loan losses at September 30, 1998,
increased to $1,290,000, from $1,234,000 at December 31, 1997.

CAPITAL RESOURCES: Historically, funds provided by operations, mortgage loan
principal repayments, savings deposits and short-term borrowings have been the
Bank's principal sources of funds. In addition, the Bank has the ability to
obtain funds through the sale of mortgage loans, through borrowings from the
Federal Home Loan Bank of Atlanta and other borrowings sources. At September 30,
1998, the Bank's total loan commitments, including construction loans in process
and unused lines of credit were approximately $22.3 million. Management believes
that the Bank's liquidity and other sources of funds are sufficient to fund all
commitments outstanding and other cash needs. The Company and the Bank are
required to maintain certain levels of regulatory capital. At September 30,
1998, the Company and the Bank exceeded all regulatory capital requirements.

YEAR 2000 RISK ASSESSMENT AND ACTION PLAN: See Note 4 of Notes to Condensed
Consolidated Financial Statements.

PENDING ACCOUNTING PRONOUNCEMENTS: See Note 5 of Notes to Condensed Financial
Statements.

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







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<PAGE>   13

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.


                           PART II - OTHER INFORMATION


ITEM 5.  OTHER INFORMATION

         Effective June 29, 1998, the Securities and Exchange Commission adopted
an amendment to Rule 14a-4 under the Securities Exchange Act of 1934. As
amended, Rule 14a-4(c)(1) relates to the Company's use of its discretionary
proxy voting authority with respect to a stockholder proposal which the
stockholder has not sought to include in the Company's proxy statement. If the
proponent of the proposal fails to notify the Company by the date established by
the notice provision in the Company's Certificate of Incorporation, management
proxies will be allowed to use their discretionary voting authority if the
proposal is raised at the meeting, without any discussion of the matter in the
proxy statement.

         The Certificate of Incorporation of the Company provides an advance
notice procedure for certain business to be brought before an annual meeting of
stockholders. In order for a stockholder to properly bring business before an
annual meeting, the stockholder must give written notice to the Secretary of the
Company not less than 30 nor more than 60 days prior to the date of such
meeting; provided, however, that if less than 40 days' notice of the meeting is
given to stockholders, written notice by the stockholder to be timely must be
delivered or mailed to the Secretary of the Company not later than the close of
business on the tenth day following the day on which notice of the meeting was
mailed to stockholders.

         With respect to the Company's 1999 Annual Meeting of Stockholders,
which will be held at CHS Activity Center, 204 19th Street, Jasper, Alabama, on
May 26, 1999, if the Company is not provided notice of a stockholder proposal,
which the stockholder has not previously sought to include in the Company's
proxy statement, by April 26, 1999, management proxies will be allowed to use
their discretionary authority as outlined above.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  Exhibit 27 - Financial Data Schedule (SEC use only)

         (b)      Not applicable.






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                                   SIGNATURES


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




                                        PINNACLE BANCSHARES, INC


DATE:     November 14,  1998            BY:  /s/ Robert B. Nolen Jr. 
     ----------------------------            -----------------------------------
                                             Robert B. Nolen, Jr.
                                             President and Chief
                                             Executive Officer
                                             (Principal Executive Officer,
                                             Principal Financial Officer and
                                             Principal Accounting Officer)




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