<PAGE>
                                                                               .
                                                                               .
                                                                               .

                                                                      EXHIBIT 13

                          BALANCE SHEET AND OTHER DATA

<TABLE>
<CAPTION>
                                                                  AT DECEMBER 31,
                                                            ----------------------------
                                                               2004             2003
                                                            -----------      -----------
                                                               (Dollars in Thousands)
<S>                                                         <C>              <C>
TOTAL AMOUNT OF:
    Assets                                                  $   207,832      $   208,574
    Loans, net                                                   99,600          105,477
    Interest-bearing deposits in other banks                        485              256
    Securities available-for-sale                                89,025           83,325
    Loans held for sale                                           1,206            1,428
    Deposits                                                    179,966          179,939
    Subordinated debt                                             3,093            3,093
    Borrowed funds                                                2,580            3,465
    Stockholders' equity                                         19,914           19,431
NUMBER OF:
    Real estate loans outstanding                                 2,116            2,263
    Savings accounts                                             13,157           13,624
    Full-service offices open                                         6                6
</TABLE>

                          STATEMENT OF OPERATIONS DATA

<TABLE>
<CAPTION>
                                                            FOR THE YEARS ENDED DECEMBER 31,
                                                            --------------------------------
                                                                 2004              2003
                                                            -------------     --------------
                                                                     (In Thousands)
<S>                                                         <C>               <C>
INTEREST INCOME                                             $      10,636     $       11,287

INTEREST EXPENSE                                                    3,516              3,906
                                                            -------------     --------------
   Net interest income before provision for loan losses             7,120              7,381

PROVISION FOR LOAN LOSSES                                             588                963
                                                            -------------     --------------
   Net interest income after provision for loan losses              6,532              6,418

NONINTEREST INCOME                                                  1,763              2,845

NONINTEREST EXPENSE                                                 5,794              5,569

INCOME TAX EXPENSE                                                    769              1,268
                                                            -------------     --------------
Net income                                                  $       1,732     $        2,426
                                                            =============     ==============
</TABLE>

<PAGE>

                                   OTHER DATA

<TABLE>
<CAPTION>
                                                                             FOR THE YEARS ENDED
                                                                                 DECEMBER 31,
                                                                             -------------------
                                                                              2004        2003
                                                                             ------      -------
<S>                                                                          <C>         <C>
Interest rate spread                                                            3.6%         3.7%
Yield on average interest earning assets                                        5.5          5.7
Return on average assets (net income divided by average total assets)           .82          1.1
Return on average equity (net income divided by average equity)                 8.8         12.4
Equity-to-assets ratio (average equity divided by total average assets)         9.3          9.0
Dividend payout ratio (dividends declared divided by net income)               39.0         26.2
</TABLE>

                          YIELDS EARNED AND RATES PAID

      The following table sets forth, for the periods and the dates indicated,
the weighted average yields earned on interest-bearing assets and the weighted
interest rates paid on the Bank's interest-bearing liabilities, together with
the net yield on interest earning assets.

<TABLE>
<CAPTION>
                                                       FOR THE YEARS ENDED
                                                           DECEMBER 31,
                                                       -------------------
                                                        2004        2003
                                                       ------      -------
<S>                                                    <C>         <C>
Weighted average yield on loans ..................        6.9%         7.1%

Weighted average yield on securities available-
   for-sale ......................................        3.9          3.7

Weighted average yield on all interest-earning
   assets ........................................        5.5          5.7

Weighted average rate paid on deposits ...........        1.8          2.0

Weighted average rate paid on
   borrowed funds ................................        4.2          3.6

Weighted average rate paid on all interest-
   bearing liabilities ...........................        1.9          2.0

Weighted average rate paid on subordinated-
   debentures ....................................        4.6            0

Interest rate spread (spread between weighted
   average rate on all interest-bearing assets
   and all interest bearing-liabilities) .........        3.6          3.7

Net yield (net interest income as percentage of
   interest-earning assets) ......................        3.7          3.7
</TABLE>

                                       2

<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

The following is a discussion and analysis of the consolidated financial
condition of the Company and the results of operations as of the dates and for
the years indicated. It is intended to be read in conjunction with the
consolidated financial statements, and the notes thereto, along with various
other financial data disclosures, both current and historical, contained in this
Annual Report.

Management's discussion and analysis includes certain forward-looking statements
addressing, among other things, the Company's prospects for earnings, asset
growth, and net interest margin. Forward-looking statements are accompanied by,
and identified with, such terms as "anticipates," "believes," "expects,"
"intends," and similar phrases. Management's expectations for the Company's
future necessarily involve a number of assumptions and estimates. Factors that
could cause actual results to differ from the expectations expressed herein
include: substantial changes in interest rates and changes in the general
economy, as well as changes in the Company's strategies for credit-risk
management, interest-rate risk management and investment activities.
Accordingly, any forward-looking statements included herein do not purport to be
predictions of future events or circumstances and may not be realized.

INTRODUCTION

Pinnacle Bancshares, Inc. (the "Company") is a bank holding company incorporated
under the laws of the State of Delaware. The Company is the holding company for
Pinnacle Bank (the "Bank"), an Alabama chartered commercial bank that maintains
six branches in Jasper, Haleyville, Sumiton, Vestavia and Trussville, Alabama.

The Company generates revenue primarily from net interest margins derived by
soliciting deposits and borrowings, which are used to fund the Company's loan
portfolio and investment securities. The Company also derives revenues from fees
and charges on loans and deposit accounts.

Historically, the Company's business strategy has been to engage primarily in
residential lending, commercial real estate lending and retail consumer lending.
The Company's principal lending area is Walker, Jefferson, Shelby, and Winston
counties. Although the inherent risks associated with geographic concentrations
in the Company's loan portfolio do not appear to have had a significant effect
on the Company's earnings to date, any dramatic fluctuations in the economic
conditions in the Company's market area could have a material effect on the
Company's profitability.

In recent years, the Company has expanded its operations in the Birmingham,
Alabama, metropolitan area. In 1998, the Company established a branch in
Trussville, Alabama, which is located in the Birmingham market area. The Company
currently intends to expand further in the Birmingham market and other markets
contiguous with the Company's current market area as appropriate opportunities
become available.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

ALLOWANCE FOR LOAN LOSSES

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 periodic
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

                                       3

<PAGE>

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 or changes
in the creditworthiness of the borrowers. The effect of these changes is
reflected when known. Though management believes the allowance for loan losses
to be adequate, ultimate losses may vary from estimations. Specific allowances
for impaired loans are generally based on comparisons of the carrying values of
the loans to the estimated fair value of the collateral.

REAL ESTATE OWNED

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.

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.

ASSET-LIABILITY MANAGEMENT

The Company's primary market risk is its exposure to interest rate changes.
Interest rate risk management strategies are designed to optimize net interest
income while minimizing fluctuations caused by changes in the interest rate
environment. It is through these strategies that the Company seeks to manage the
maturity and repricing characteristics of its balance sheet.

Interest rate risk management is administered through the Company's
Asset/Liability Committee. This Committee reviews interest rate risk, liquidity,
capital positions, and discretionary on and off-balance sheet activity. All
decisions are made within established risk management guidelines and strategies.

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, repricing and maturing volumes and rates
of the existing balance sheet. Under a scenario simulating a hypothetical 50,
100 and 200 basis point rate increase applied to all interest- earning assets
and interest-bearing liabilities, the Company would expect net losses in fair
value of the equity in the underlying instruments of approximately ($177,000),
($427,000) and ($1,162,000) respectively. Under a scenario simulating a
hypothetical 50, 100 and 200 basis point rate decrease, the Company would expect
net changes in projected net income for the first year of approximately
$238,000, ($112,000) and ($1,127,000), 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.

The rate environment is a function of the monetary policy of the FRB. The
principal tools of the FRB for implementing monetary policy are open market
operations, or the purchases and sales of U.S. Treasury and federal agency
securities. The FRB's objective for open market operations has varied over the
years, but the focus has gradually shifted toward attaining a specified level of
the federal funds rate to achieve the long-run goals of price stability and
sustainable economic growth. The federal funds rate is the basis for overnight
funding and drives the

                                       4

<PAGE>

short end of the yield curve. Longer maturities are influenced by FRB purchases
and sales and also expectations of monetary policy going forward. The FRB began
to increase the targeted level for the federal funds rate in June 2004 after
reaching an all-time low of 1.00% in mid-2003. The targeted fed funds rate
increased at each Federal Open Market Committee meeting by 25 basis points and
ended the year at 2.25%. Although each FRB rate increase becomes more
challenging to offset, the ability to delay deposit rate increases and less
aggressive repricing of the maturing certificate of deposit portfolio has
allowed the Company to offset the negative impact of recent FRB rate movements.
Although management believes that the Company is not significantly affected by
changes in interest rates over an extended period of time, the continued
flattening of the yield curve will exert downward pressure on the net interest
margin and net interest income. The Company is most impacted at this time by the
increase in short term interest rates which continues to put upward pressure on
transaction deposit rates and short term borrowings from the Federal Home Loan
Bank. Under traditional measures of interest rate gap positions, the Company is
moderately liability sensitive in the short-term.

FINANCIAL CONDITION

Total assets were $207.8 million, at December 31, 2004, as compared to $208.6
million, at December 31, 2003. Total securities available-for-sale increased
$5.7 million, to $89.0 million at December 31, 2004 from $83.3 million at
December 31, 2003. This increase was primarily due to purchases exceeding calls,
maturities, and sales. The Bank had $12.0 million in agency securities called in
2004. Also during the fiscal year ended December 31, 2004, the Bank sold $46.7
million in agency securities. The Bank restructured its securities portfolio in
response to interest rates and incurred losses of $374,000 on these sales. With
the proceeds from these calls, maturities, and sales of securities
available-for-sale, combined with proceeds from loan principal repayments and
Federal Home Loan Bank ("FHLB") Advances, the Bank purchased $69.7 million in
agency securities with an average yield of 4.13% during fiscal year ended
December 31, 2004.

At December 31, 2004, the Company's securities portfolio of $89.0 million
consisted primarily of U.S. Agency securities and mortgage-backed securities.
The entire portfolio is classified as "available-for-sale," causing it to be
carried at fair value with the unrealized gains/losses, net of income tax
effect, to be reflected directly in stockholders' equity. See "Liquidity and
Capital Resources" and Note 2 of Notes to Consolidated Financial Statements.

Total loans receivable, net decreased $5.9 million, to $99.6 million at December
31, 2004, from $105.5 million at December 31, 2003. This decrease was primarily
due to refinancing activities of residential mortgages from adjustable rates to
fixed rates, which the Bank sells in the secondary market. See Note 1 of Notes
to Consolidated Financial Statements regarding loans held for sale.

Changes in interest rates can affect loans and other interest-earning assets,
including the Bank's investment portfolio. A significant change in interest
rates could have a negative impact on the Company's operating income and
portfolio market value.

Total deposits were approximately $180.0 million at December 31, 2004 and
December 31, 2003.

On December 22, 2003, the Company established Pinnacle Capital Trust I, (the
"Trust") a wholly-owned statutory business trust. The Company is the sole
sponsor of the trust and owns $93,000 of the Trust's common securities. The
Trust was created for the exclusive purpose of issuing 30-year capital trust
preferred securities ("Trust Preferred Securities") in the aggregate amount of
$3,000,000 and using proceeds from the issuance of the common and preferred
securities to purchase $3,093,000 of junior subordinated debentures
("Subordinated Debentures") issued by the Company. The sole assets of the Trust
are the Subordinated Debentures. The Company's $93,000 investment in the Trust
is included in other assets in the accompanying consolidated balance sheet at
December 31, 2004 and the $3,093,000 obligation of Pinnacle Bancshares, Inc. is
included in subordinated debt.

During the fiscal years ended December 31, 2004 and 2003, the Bank periodically
borrowed funds on a short-term basis from the FHLB of Atlanta. During the fiscal
year ended December 31, 2004, the Bank used proceeds from borrowed funds to
purchase agency securities as part of managing the Bank's investment portfolio.
The maximum amount outstanding during the fiscal years December 31, 2004 and
2003 was $10 million and $13.5 million, respectively. The average amount
outstanding during fiscal years December 31, 2004 and 2003 was $1.5 million and
$2.6 million, respectively.

                                       5

<PAGE>

RESULTS OF OPERATIONS

GENERAL

The Company's income is derived principally from net interest income, which is
the difference between interest income on loans and securities, net of
provisions for losses, and interest expense on deposits and borrowings. In
addition, net income is affected by the gain and loss on the sale of loans and
securities, loan servicing income, fee and service charge income, operating
expenses, and income taxes.

NET INCOME

The Company reported net income of $1,732,000 for the fiscal year ended December
31, 2004, compared with net income of $2,426,000 in the prior year, a decrease
of approximately 29%. The decrease in net income was primarily attributable to
decreases in net gains on the sales of loans held for sale and
available-for-sale securities of $360,000 and $774,000, respectively. During the
fiscal year ended December 31, 2004, the Company restructured a portion of its
portfolio in response to changes in interest rates and incurred losses of
approximately $374,000 in connection with these transactions.

INTEREST INCOME

Interest income on loans and securities decreased approximately $651,000 from
the fiscal year ended December 31, 2003 to the fiscal year ended December 31,
2004. The decrease was primarily due to a decrease in the average balance of
loan and securities of approximately $5.6 million and decreases in market
interest rates, causing a decrease in the yield earned, from 5.7% in 2003 to
5.5% in 2004.

Other interest income increased approximately $20,000 from the fiscal year ended
December 31, 2003 to the fiscal year ended December 31, 2004. This increase was
primarily due to an increase in the average balance of interest-bearing deposits
in other banks of approximately $715,000 as well as an increase in yields earned
from 1.1% in 2003 to 1.5% in 2004.

INTEREST EXPENSE

Interest expense on deposits decreased approximately $511,000 from the fiscal
year ended December 31, 2003 compared to the fiscal year ended December 31,
2004. The decrease was primarily due to a decrease in the weighted average rate
paid on deposits, as a result of a decline in average rates offered from 2.0% in
2003 to 1.8% in 2004.

Interest expense on borrowed funds was $173,000 for the fiscal year ended
December 31, 2004, compared to $195,000 for fiscal year ended December 31, 2003.
The decrease was primarily due to a decrease in the average balance of borrowed
funds of approximately $1,226,000. This decrease was offset by an increase in
the weighted average rate paid on borrowed funds from 3.6% in 2003 to 4.2% in
2004.

Interest expense on subordinated debentures was $144,000 for fiscal year ended
December 31, 2004. On December 22, 2003, the Company established Pinnacle
Capital Trust I, a wholly-owned statutory business trust. The Company did not
have any expense on this subordinated debenture for fiscal year ended December
31, 2003.

PROVISION FOR LOAN LOSSES

The provision for loan losses is based on management's analysis of the various
factors that affect the loan portfolio and management's desire to maintain the
allowance for loan losses at a level considered adequate to absorb inherent
losses. The provisions for losses on loans amounted to $588,000 and $963,400,
for the fiscal years ended December 31, 2004 and 2003, respectively. This
decrease was primarily due to improved credit quality.

Management reviews the adequacy of the allowance for loan losses on a periodic
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

                                       6

<PAGE>

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.

Total non-performing assets as of December 31, 2004 were $599,000, as compared
to $1,023,000 at December 31, 2003. This decrease in non-performing assets was
primarily due to sales of real estate owned exceeding foreclosures. Total
classified assets as of December 31, 2003 were $2,891,000 as compared to
$1,626,000 as of December 31, 2004. This decrease was primarily due to improved
credit quality.

NONINTEREST INCOME

Noninterest income, which includes fees and charges on deposit accounts,
servicing and fee income on loans, income on real estate operations, and gain
(loss) on sales of assets decreased $1,082,000 from the fiscal year ended
December 31, 2003 to the fiscal year ended December 31, 2004. The decrease was
due primarily to a decrease in the gain on sales of securities
available-for-sale of $774,000, a decrease in the gain on sale of mortgage loans
of $360,000, and a decrease in fees and service charges on deposit accounts of
$15,000. The decrease was offset by an increase the gain on sale of real estate
owned of $67,000.

NONINTEREST EXPENSE

Noninterest expense increased $225,000 from the fiscal year ended December 31,
2003 to the fiscal year ended December 31, 2004. This increase was due primarily
to a increase in compensation expense of $192,000 and an increase in occupancy
expense of $39,000. This increase was offset by a decrease in all other
non-interest expense of $6,000.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

Liquidity refers to the ability or the financial flexibility to manage future
cash flows to meet the needs of depositors and borrowers and to provide funds
for operations, as well as future acquisitions if they become available.
Maintaining appropriate levels of liquidity allows the Company to have
sufficient funds available for reserve requirements, customer demand for loans,
withdrawal of deposit balances and maturities of deposits and other liabilities.
The Company's primary source of liquidity is dividends paid by the Bank, which
actively manages both assets and liabilities to achieve its desired level of
liquidity. Alabama law imposes restrictions on the amount of dividends that may
be declared by the Bank. Further, any dividend payment by the Bank is subject to
the continuing ability of the Bank to maintain compliance with federal
regulatory capital requirements. See "Market Price and Dividend Information" and
Note 12 of Notes to Consolidated Financial Statements.

In the ordinary course of its business, the Company's primary sources of cash
are interest on loans and securities, loan repayments, maturities or sales of
securities, and loan sales. The entire securities portfolio at December 31,
2004, was classified as "available-for-sale," with a fair value of $89.0
million. See Notes 1 and 2 of Notes to Consolidated Financial Statements. At
December 31, 2004, liquid assets, consisting primarily of cash and cash
equivalents, interest-bearing deposits in other banks, securities
available-for-sale and FHLB stock, totaled approximately $93.4 million, compared
to $87.8 million at December 31, 2003. This increase in liquid assets of $5.6
million was primarily attributable to an increase in securities
available-for-sale.

The Bank's liability base provides liquidity through deposit growth and
accessibility to external sources of funds, including borrowings from the FHLB
Bank and other sources. At December 31, 2004, the Bank had an approved credit
availability of $31.2 million at the FHLB. At December 31, 2004, the Bank had no
advances on this credit line.

                                       7

<PAGE>

CAPITAL RESOURCES

The Company's capital position is reflected in its stockholders' equity, subject
to certain adjustments for regulatory purposes. Stockholders' equity is a
measure of the Company's net worth, soundness and viability. The capital base of
the Company allows it and the Bank to take advantage of business opportunities,
while maintaining a level of resources deemed appropriate by management to
address business risks inherent in daily operations. Stockholders' equity at
December 31, 2004 was approximately $19.9 million.

Risk-based capital regulations adopted by the Board of Governors of the Federal
Reserve Board and the Federal Deposit Insurance Corporation require bank holding
companies and banks, respectively, to achieve and maintain specified ratios of
capital to risk-weighted assets. The risk-based capital rules are designed to
measure Tier 1 Capital and Total Capital in relation to the credit risk of both
on and off-balance sheet items. Under the guidelines, one of four risk weights
is applied to the different on balance sheet items. Off-balance sheet items,
such as loan commitments on loans to be held in portfolio, are also subject to
risk-weighting after conversion to balance sheet equivalent amounts. All bank
holding companies and banks must maintain a minimum total capital to total
risk-weighted assets ratio of 8.00%, at least half of which must be in the form
of core, or Tier 1, capital (consisting of stockholders' equity, less goodwill).
At December 31, 2004, the Company and the Bank satisfied the minimum regulatory
capital requirement and were "well-capitalized" within the meaning of federal
regulatory requirements. See Note 12 of Notes to Consolidated Financial
Statements.

As of December 31, 2004, the $3.0 million of Trust Preferred Securities
qualifies as Tier I Capital under current regulatory definitions. If these Trust
Preferred Securities have not been included in the consolidated capital
calculations, the Company would have still been classified as well capitalized.

During the fiscal year ended December 31, 2004, the Bank repurchased 29,800
shares of its capital stock at an average price of $16.02 per share. On June 10,
2004, the Company announced a supplemental stock repurchase program to acquire
an additional 5% of the Company's outstanding shares outstanding upon completion
of its current repurchase program, or 77,169 shares. The Company pursued an
active stock repurchase program in 2004 in order to improve liquidity in the
market for the common stock, to increase per share earnings and book value, and
to provide a higher rate of return for the Company's funds. The Company will
consider additional repurchase programs in the future.

The following table details purchases under the Company's stock repurchase
program during year ended December 31, 2004.

<TABLE>
<CAPTION>

                          TOTAL                           TOTAL NUMBER OF         MAXIMUM NUMBER
                         NUMBER                          SHARES PURCHASED       OF SHARES THAT MAY
                        OF SHARES    AVERAGE PRICE      AS PART OF PUBLICLY      YET BE PURCHASED
       PERIOD           PURCHASED    PAID PER SHARE     ANNOUNCED PROGRAMS      UNDER THE PROGRAMS
--------------------    ---------    --------------     -------------------     ------------------
<S>                     <C>          <C>                <C>                     <C>
January 1-31, 2004              0                 0                       0                      0
February 1-29, 2004         9,900    $        17.85                   9,900                 25,300
March 1-31, 2004                0                 0                       0                      0
April 1-30, 2004                0                 0                       0                      0
May 1-31, 2004              5,000    $        14.32                   5,000                 20,300
June 1-30, 2004            14,000    $        15.40                  14,000                  6,300
July 1-31, 2004                 0                 0                       0                      0
August 1-31, 2004               0                 0                       0                      0
September 1-30, 2004            0                 0                       0                      0
October 1-31, 2004              0                 0                       0                      0
November 1-30, 2004           900    $        15.08                     900                  5,400
December 1-31, 2004             0                 0                       0                      0
                           ------    --------------                  ------                  -----
             TOTAL         29,800    $        16.02                  29,800                  5,400
                           ======    ==============                  ======                  =====
</TABLE>

                                       8

<PAGE>

IMPACT OF INFLATION

Virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or with
the same magnitude as the prices of goods and services, since such prices are
affected by inflation. Liquidity and the maturity structure of the Bank's assets
and liabilities are believed to be critical to the maintenance of desired
performance levels, and management considers the Bank's liquidity sources to be
adequate to meet its current and projected needs.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 2004, the SEC issued Staff Accounting Bulletin No. 105, Application of
Accounting Principles to Loan Commitments. Current accounting guidance requires
the commitment to originate mortgage loans to be held for sale be recognized on
the balance sheet at fair value from inception through expiration or funding.
SAB 105 requires that the fair-value measurement include only differences
between the guaranteed interest rate in the loan commitment and a market
interest rate, excluding any expected future cash flows related to the customer
relationship or loan servicing. SAB 105 was effective for commitments to
originate mortgage loans to be held for sale entered into after March 31, 2004.
Its adoption did not have a material impact on the consolidated financial
position or results of operations of the Company.

In March 2004, the Financial Accounting Standards Board's ("FASB") Emerging
Issues Task Force reached a consensus on EITF Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF
03-1 provides guidance for determining when an investment is considered
impaired, whether impairment is other-than-temporary, and measurement of an
impairment loss. An investment is considered impaired if the fair value of the
investment is less than its cost. Generally, an impairment is considered
other-than-temporary unless: (i) the investor has the ability and intent to hold
an investment for a reasonable period of time sufficient for an anticipated
recovery of fair value up to (or beyond) the cost of the investment; and (ii)
evidence indicating that the cost of the investment is recoverable within a
reasonable period of time outweighs evidence to the contrary. If impairment is
determined to be other-than-temporary, then an impairment loss should be
recognized equal to the difference between the investment's cost and its fair
value. Certain disclosure requirements of EITF 03-1 were adopted in 2003 and the
Company began presenting the new disclosure requirements in its consolidated
financial statements for the year ended December 31, 2003. The recognition and
measurement provisions were initially effective for other-than-temporary
impairment evaluations in reporting periods beginning after June 15, 2004.
However, in September 2004, the effective date of these provisions was delayed
until the finalization of a FASB Staff Position (FSP) to provide additional
implementation guidance. Due to the recognition and measurement provisions being
suspended and the final rule delayed, the Company is not able to determine
whether the adoption of these new provisions will have a material impact on its
consolidated financial position or results of operations.

Statement of Position 03-03, Accounting for Certain Loans or Debt Securities
Acquired in a Transfer (SOP 03-03) addresses accounting for differences between
contractual cash flows and cash flows expected to be collected from an
investor's initial investment in loans or debt securities acquired in a transfer
if those differences are attributable, at least in part, to credit quality. It
includes loans acquired in purchase business combinations and applies to all
nongovernmental entities, including not-for-profit organizations. The SOP does
not apply to loans originated by the entity. The SOP is effective for loans
acquired in fiscal years beginning after December 15, 2004. Early adoption is
encouraged. Specific transition guidance applies to certain loans that currently
are within the scope of Practice Bulletin 6, Amortization of Discounts on
Certain Acquired Loans. Its adoption is not expected to have a material impact
on the consolidated financial position or results of operations of the Company.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment ("SFAS No. 123R"), which revised SFAS No. 123, (Accounting for
Stock-Based Compensation). This statement supercedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. The revised statement addresses the
accounting for share-based payment transactions with employees and other third
parties, eliminates the ability to account for share-based compensation
transactions using APB 25 and requires that the compensation costs relating to
such transactions be recognized in the consolidated statement of operations. The
revised statement is effective as of the first interim period beginning after
June 15, 2005. The Company is currently evaluating the provisions of SFAS No.
123R and will adopt it on July 1, 2005 as required.

                                       9

<PAGE>

                      MARKET PRICE AND DIVIDEND INFORMATION

The common stock of the Company is traded on the American Stock Exchange under
the symbol "PLE". As of December 31, 2004, the Company had 1,553,778 shares of
common stock outstanding and 353 stockholders of record. This total does not
reflect the number of persons or entities who hold stock in nominee or "street
name" through various brokerage firms.

Following are the high and low sale prices of the Company's common stock for the
periods indicated:

<TABLE>
<CAPTION>
                                              Price Range
                                              Common Stock
                                         ----------------------
                                           High          Low
                                         --------      --------
<S>                                      <C>           <C>
Fiscal Year Ended December 31, 2004
    First quarter                        $ 18.500      $ 16.050
    Second quarter                         17.100        13.500
    Third quarter                          15.500        14.050
    Fourth quarter                         16.400        14.250

Fiscal Year Ended December 31, 2003
    First quarter                        $ 12.000      $ 11.200
    Second quarter                         14.380        11.800
    Third quarter                          14.400        13.400
    Fourth quarter                         16.670        13.900
</TABLE>

Dividends of $.43 ($.10 in the first quarter and $.11 in the second, third and
fourth quarters) were declared and paid during 2004. Dividends of $.40 ($.10 in
each of the four quarters) were declared and paid during 2003. Under Alabama
law, the approval of the Superintendent of Banks of the State of Alabama is
required if the total of all the dividends declared by the Bank in any calendar
year exceeds the Bank's net income as defined for that year combined with its
retained net income for the preceding two calendar years. Federal law provides
that no insured depository institution may make any capital distribution
(including a cash dividend) if the institution would not satisfy one or more of
its minimum capital requirements after the distribution.

                                       10

<PAGE>

             Report of Independent Registered Public Accounting Firm

The Board of Directors
Pinnacle Bancshares, Inc.

We have audited the accompanying consolidated statements of financial condition
of Pinnacle Bancshares, Inc. and subsidiary (the Company) as of December 31,
2004 and 2003, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pinnacle Bancshares,
Inc. and subsidiary as of December 31, 2004 and 2003 and the results of their
operations and their cash flows for the years then ended, in conformity with U.
S. generally accepted accounting principles.

                                  /s/ KPMG LLP

Birmingham, Alabama
March 15, 2005

                                       11

<PAGE>

                            PINNACLE BANCSHARES, INC.

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                        AS OF DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                                          2004                2003
                                                                                     ---------------     ---------------
<S>                                                                                  <C>                 <C>
ASSETS:
    Cash and cash equivalents                                                        $     3,451,046     $     3,519,377
    Interest-bearing deposits in other banks                                                 484,958             256,294
    Securities available-for-sale                                                         89,025,401          83,325,381
    FHLB Stock                                                                               417,000             732,400
    Loans held for sale                                                                    1,206,322           1,428,190
    Loans receivable, net of allowance for loan losses
        of $1,167,263 and $1,467,128, respectively                                        99,599,999         105,477,419
    Real estate owned, net                                                                   598,642           1,023,026
    Premises and equipment, net                                                            5,723,120           5,790,124
    Goodwill                                                                                 306,488             306,488
    Bank owned life insurance                                                              4,797,758           4,514,902
    Accrued interest receivable                                                            1,254,307           1,362,440
    Other assets                                                                             967,308             838,150
                                                                                     ---------------     ---------------
              Total assets                                                           $   207,832,349     $   208,574,191
                                                                                     ---------------     ---------------

LIABILITIES AND STOCKHOLDERS' EQUITY:
    Deposits                                                                         $   179,965,635     $   179,939,397
    Subordinated debt                                                                      3,093,000           3,093,000
    Borrowed funds                                                                         2,580,000           3,465,000
    Official checks outstanding                                                            1,103,521           1,481,801
    Accrued interest payable                                                                 498,656             439,729
    Other liabilities                                                                        677,107             724,068
                                                                                     ---------------     ---------------
              Total liabilities                                                          187,917,919         189,142,995
                                                                                     ---------------     ---------------

STOCKHOLDERS' EQUITY:
    Common stock, par value $.01 per share; 2,400,000 authorized; 1,821,780 and
      1,800,813 issued at December 31, 2004 and 2003 respectively, 1,553,778 and
      1,562,611 outstanding at December 31, 2004 and 2003, respectively.                      18,218              18,008

    Additional paid-in capital                                                             8,418,897           8,219,941
    Treasury shares, at cost (268,002 shares and 238,202 shares at
      December 31, 2004 and 2003, respectively)                                           (3,220,730)         (2,743,245)
    Retained earnings                                                                     15,571,155          14,508,277
    Accumulated other comprehensive loss, net of tax                                        (873,110)           (571,785)
                                                                                     ---------------     ---------------
              Total stockholders' equity                                                  19,914,430          19,431,196
                                                                                     ---------------     ---------------
              Total liabilities and stockholders' equity                             $   207,832,349     $   208,574,191
                                                                                     ===============     ===============
</TABLE>

       See accompanying notes to these consolidated financial statements.

                                       12

<PAGE>

                            PINNACLE BANCSHARES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                            2004            2003
                                                        -------------   -------------
<S>                                                     <C>             <C>
INTEREST REVENUE:
    Interest on loans                                   $   7,293,812   $   8,299,438
    Interest and dividends on securities                    3,298,187       2,963,742
    Other interest                                             44,212          23,795
                                                        -------------   -------------
                                                           10,636,211      11,286,975
INTEREST EXPENSE:
    Interest on deposits                                    3,199,205       3,710,431
    Interest on borrowed funds                                173,181         195,095
    Interest on subordinated debentures                       143,823               0
                                                        -------------   -------------
                                                            3,516,209       3,905,526
                                                        -------------   -------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES        7,120,002       7,381,449
PROVISION FOR LOAN LOSSES                                     588,000         963,374
                                                        -------------   -------------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES         6,532,002       6,418,075
                                                        -------------   -------------
NONINTEREST INCOME:
    Fees and service charges on deposit accounts              948,765         963,606
    Service fee income, net                                   163,953         162,600
    Fees and charges on loans                                 189,196         173,824
    Bank owned life insurance                                 282,856         285,622
    Net gain (loss) on sale or write-down of:
       Loans held for sale                                    541,447         901,879
       Real estate owned                                       11,037         (55,718)
       Premises and equipment                                       0          13,500
       Securities available-for-sale                         (373,841)        399,827
                                                        -------------   -------------
                                                            1,763,413       2,845,140
                                                        -------------   -------------
 NONINTEREST EXPENSE:
    Compensation and benefits                               3,407,562       3,215,696
    Occupancy                                               1,059,261       1,020,285
    Marketing and professional                                239,117         249,401
    Other                                                   1,088,560       1,083,881
                                                        -------------   -------------
                                                            5,794,500       5,569,263
                                                        -------------   -------------
INCOME BEFORE INCOME TAXES                                  2,500,915       3,693,952
INCOME TAX EXPENSE                                            768,735       1,267,588
                                                        -------------   -------------
NET INCOME                                              $   1,732,180   $   2,426,364
                                                        =============   =============
Basic earnings per share                                $        1.11   $        1.53
Diluted earnings per share                              $        1.09   $        1.50
Cash dividends per share                                $        0.43   $        0.40
Weighted average basic shares outstanding                   1,557,454       1,586,044
Weighted average diluted shares outstanding                 1,596,253       1,620,302
</TABLE>

       See accompanying notes to these consolidated financial statements.

                                       13
<PAGE>

                            PINNACLE BANCSHARES, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>

                                                                                                      ACCUMULATED
                                                                                                         OTHER
                                         COMMON STOCK       ADDITIONAL                               COMPREHENSIVE       TOTAL
                                      -------------------    PAID-IN      TREASURY       RETAINED    (LOSS) INCOME,  STOCKHOLDERS'
                                        SHARES    AMOUNT     CAPITAL        STOCK        EARNINGS      NET OF TAX        EQUITY
                                      ---------  --------  ------------  ------------  ------------  --------------  -------------
<S>                                   <C>        <C>       <C>           <C>           <C>           <C>             <C>
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     2,426,364              0       2,426,364
          Change in unrealized gain
               (loss) on securities
               available-for-sale,
               net of tax                     0         0             0             0             0     (1,158,794)     (1,158,794)
                                                                                                                     -------------
          Comprehensive income                                                                                           1,267,570
     Exercise of stock options            8,727        87        88,195             0             0              0          88,282
     Cash dividends ($.40 per share)          0         0             0             0      (634,666)             0        (634,666)
     Repurchase of 98,800 shares of
       common stock                           0         0             0    (1,245,468)            0              0      (1,245,468)
                                      ---------  --------  ------------  ------------  ------------  -------------   -------------
BALANCE, December 31, 2003            1,800,813    18,008     8,219,941    (2,743,245)   14,508,277       (571,785)     19,431,196
     Comprehensive income:
          Net income                          0         0             0             0     1,732,180              0       1,732,180
          Change in unrealized gain
              (loss) on securities
              available-for-sale,
              net of tax                      0         0             0             0             0       (301,325)       (301,325)
                                                                                                                     -------------
          Comprehensive income                                                                                           1,430,855
     Exercise of stock options           20,967       210       198,956             0             0              0         199,166
     Cash dividends ($.43 per share)          0         0             0             0      (669,302)             0        (669,302)
     Repurchase of 29,800 shares of
       common stock                           0         0             0      (477,485)            0              0        (477,485)
                                      ---------  --------  ------------  ------------  ------------  -------------   -------------
BALANCE, December 31, 2004            1,821,780  $ 18,218  $  8,418,897  $ (3,220,730) $ 15,571,155  $    (873,110)  $  19,914,430
                                      =========  ========  ============  ============  ============  =============   =============
</TABLE>

       See accompanying notes to these consolidated financial statements.

                                       14
<PAGE>

                            PINNACLE BANCSHARES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                                                  2004                 2003
                                                                                             --------------       --------------
<S>                                                                                          <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income                                                                             $    1,732,180       $    2,426,364
      Adjustments to reconcile net income to net cash provided by operating activities:
        Depreciation                                                                                496,550              477,987
        Provision for loan losses                                                                   588,000              963,374
        Provision for losses on real estate owned                                                         0              111,626
        Provision for deferred taxes                                                                 18,958               44,845
        Amortization, net                                                                          (525,758)            (219,727)
        Bank owned life insurance income, net                                                      (282,856)            (285,622)
      Net (gain) loss on sale or write-down of:
           Loans held for sale                                                                     (541,447)            (901,879)
           Securities available-for-sale                                                            373,841             (399,827)
           Real estate owned                                                                        (11,037)              55,718
           Premises and Equipment                                                                         0              (13,500)
      Proceeds from sales of loans                                                               39,601,726           76,115,402
      Loans originated for sale                                                                 (38,838,411)         (71,672,998)
      Decrease (increase) in accrued interest receivable                                            108,133              (44,380)
      (Increase) decrease in other assets                                                          (146,116)             283,006
      Increase (decrease) in accrued interest payable                                                58,927             (174,591)
      Decrease in other liabilities                                                                (348,287)            (597,312)
                                                                                             --------------       --------------
                           Net cash provided by operating activities                              2,284,403            6,168,486
                                                                                             --------------       --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Net loan repayments                                                                         5,021,545           12,348,693
      Net change in interest bearing deposits in other banks                                       (228,664)             101,173
      Purchases of securities available-for-sale                                                (69,726,158)         (96,705,000)
      Proceeds from sales of securities available-for-sale                                       46,689,977           46,399,828
      Proceeds from maturing or callable securities available-for-sale                           17,180,280           40,753,946
      Proceeds from sale of Federal Home Loan Bank stock                                            315,400              242,600
      Purchases of premises and equipment                                                          (429,546)            (625,998)
      Proceeds from sales of premises and equipment                                                       0               26,210
      Investment in unconsolidated subsidiary                                                             0              (93,000)
      Proceeds from sales of real estate owned                                                    1,009,094            1,311,160
                                                                                             --------------       --------------
                            Net cash (used in) provided by investing activities                    (168,072)           3,759,612
                                                                                             --------------       --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Net increase in passbook, NOW, and money market deposit accounts                            2,256,791            2,626,313
      Proceeds from sales of time deposits                                                       19,460,382           19,912,231
      Payments on maturing time deposits                                                        (21,690,935)         (31,553,877)
      Decrease in borrowed funds                                                                   (885,000)          (2,475,000)
      Proceeds from issuance of subordinated debt                                                         0            3,093,000
      Debt issuance cost related to issuance of subordinated debt                                         0              (60,000)
      Decrease in official checks outstanding                                                      (378,280)             (22,492)
      Proceeds from exercise of stock options                                                       199,166               88,282
      Repurchase of common stock                                                                   (477,485)          (1,245,468)
      Payments of cash dividends                                                                   (669,302)            (634,666)
                                                                                             --------------       --------------
                            Net cash used in financing activities                                (2,184,663)         (10,271,677)
                                                                                             --------------       --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS                                                           (68,331)            (343,579)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                                    3,519,377            3,862,956
                                                                                             --------------       --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                                     $    3,451,046       $    3,519,377
                                                                                             ==============       ==============
SUPPLEMENTAL DISCLOSURES:
      Cash payments for interest                                                             $    3,457,282       $    4,080,117
      Cash payments for income taxes                                                                645,000            1,400,938
      Real estate acquired through foreclosure                                                      573,673              892,820
</TABLE>

       See accompanying notes to these consolidated financial statements.

                                       15
<PAGE>

                            PINNACLE BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003

1.    SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

      Following is a description of the business and the more significant
      accounting policies followed by Pinnacle Bancshares, Inc. (the "Company")
      and its wholly-owned subsidiary Pinnacle Bank (the "Bank") in presenting
      the consolidated financial statements.

      NATURE OF OPERATIONS

      The Bank is primarily in the business of obtaining funds in the form of
      various savings and time deposit products and investing those funds in
      mortgage, consumer, and commercial loans. The Bank operates in six offices
      in the central and northwest portion of Alabama and originates its loans
      in this market area. The Company's principal activities do not constitute
      separate reportable segments of its business, but encompass traditional
      banking activities which offer similar products and services within the
      same primary geographic area and regulatory and economic environment.

      USE OF ESTIMATES

      The preparation of financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosures of contingent assets and
      liabilities at the date of the financial statements and the reported
      amounts of revenue and expenses during the reporting period. Actual
      results may differ from those estimates. The primary estimates that are
      reflected in the consolidated financial statements are the valuation
      allowances for loan losses and real estate owned.

      CONSOLIDATION

      The consolidated financial statements include the accounts of the Company
      and the Bank. All significant intercompany transactions and accounts have
      been eliminated in consolidation.

      CASH AND CASH EQUIVALENTS

      Cash and cash equivalents include cash on hand and in banks.

      SECURITIES

      Securities are classified as available-for-sale and are carried at fair
      value. The unrealized difference between amortized cost and fair value of
      securities available-for-sale is excluded from earnings and is reported
      net of deferred taxes as a separate component of stockholders' equity in
      accumulated other comprehensive income. The available-for-sale category
      includes securities that management intends to use as part of its
      asset/liability management strategy or that may be sold in response to
      changes in interest rates, changes in prepayment risk, liquidity needs, or
      for other purposes.

      Amortization of premiums and accretion of discounts is computed using the
      level yield method. The adjusted cost of the specific security sold is
      used to compute gain or loss on the sale of securities.

                                       16
<PAGE>

      LOANS HELD FOR SALE

      Loans held for sale are recorded at the lower of amortized cost or fair
      value, as such loans are not intended to be held to maturity. Net
      unrealized losses measured in the aggregate are recognized in a valuation
      allowance by charges to income. There were no unrealized losses at
      December 31, 2004 or 2003. Gains or losses on loan sales are recognized at
      the time of sale and are determined by the difference between net sales
      proceeds and the carrying value of the loan sold.

      The Company enters into interest rate lock commitments, where customers
      have locked into mortgages at a set interest rate, and forward sales
      commitments, which are sales of mortgage loans to third parties at a
      specified price. These interest rate locks and forward sales commitments
      qualify as derivatives; however, the change in fair value of these
      derivatives during the year did not have a material impact on the
      Company's consolidated financial position or results of operations.

      LOANS RECEIVABLE

      Loans receivable are stated at their unpaid principal balance, less the
      undisbursed portion of loans, unearned interest income, net deferred loan
      fees, and an allowance for loan losses. Unearned interest on consumer
      loans is accreted into income by use of a method which approximates the
      level yield method over the lives of the related loans. Interest accrual
      on loans is generally discontinued and uncollected accrued interest is
      reversed if principal or interest payments become 90 days past due, unless
      the credit is well secured and in the process of collection. Past due
      status is based on the contractual terms of the loan. Income is
      subsequently recognized only to the extent that cash payments are received
      until, in management's judgment, the borrower's ability to make interest
      and principal payments has been demonstrated, in which case the loan is
      returned to accrual status.

      ALLOWANCE FOR LOAN LOSSES

      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). Changes in the allowance can
      result from changes in economic events or changes in the creditworthiness
      of the borrowers. The effect of these changes is reflected when known.
      Though management believes the allowance for loan losses to be adequate,
      ultimate losses may vary from estimations. Specific allowances for
      impaired loans are generally based on comparisons of the carrying values
      of the loans to the estimated fair value of the collateral. The Company
      had no loans designated as impaired at December 31, 2004 or 2003.

      LOAN ORIGINATION FEES, LOAN COMMITMENT FEES AND PREMIUMS AND DISCOUNTS

      Amortization of loan fees, net of certain direct costs of loan
      origination, are treated as an adjustment to the yield of the related loan
      over the contractual term of the loan adjusted for prepayments as they
      occur. Loan commitment fees are recognized into income upon expiration of
      the commitment period or sale of the loan, unless the commitment results
      in the loan being funded and maintained in the loan portfolio.

      REAL ESTATE OWNED

      Real estate owned acquired through foreclosure is carried at the lower of
      cost or fair value, less expected selling cost. 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.

                                       17
<PAGE>

      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.

      LONG-LIVED ASSETS

      Land is carried at cost. Premises and equipment are stated at cost less
      accumulated depreciation computed on a straight-line basis over the
      estimated service lives of the related assets (30 to 50 years for
      buildings, shorter of lease period or estimated life approximating 10 to
      15 years for leasehold improvements and 3 to 10 years for equipment).
      Expenditures for maintenance and repairs are charged to operations as
      incurred; expenditures for renewals and improvements are capitalized and
      written off through depreciation and amortization charges. Equipment
      retired or sold is removed from the asset and related accumulated
      depreciation amounts and any gain or loss resulting therefrom is reflected
      in the accompanying consolidated statements of operations.

      The Company continually evaluates whether events and circumstances have
      occurred that indicate such long-lived assets have been impaired.
      Measurement of any impairment of such long-lived assets is based on those
      assets' fair values and is recognized through a valuation allowance with
      the resulting charge reflected in the accompanying consolidated statements
      of operations. There were no impairment losses recorded during any period
      reported herein.

      GOODWILL

      The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, on
      January 1, 2002, and ceased amortizing goodwill. Based upon the initial
      goodwill impairment test completed on January 1, 2002, as required by SFAS
      No. 142, no goodwill impairment was indicated. In addition, the goodwill
      impairment testing completed at December 31, 2004 and 2003, indicated
      there was no goodwill impairment. Therefore, the Company has no changes in
      the carrying amount of goodwill from December 31, 2003 to December 31,
      2004.

      BANK OWNED LIFE INSURANCE

      The Company has bank owned life insurance on certain current and former
      key officers of the Company. The life insurance policies were purchased to
      reduce costs associated with certain existing employee benefits. Increases
      in the cash surrender value of the policies, as well as insurance proceeds
      received, are recorded as a component of non-interest income.

      STOCK-BASED COMPENSATION

      In accordance with the provision of SFAS No. 123, Accounting for
      Stock-Based Compensation, the Company has elected to continue to record
      compensation cost under 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 value of the
      underlying stock on the date of grant. Had compensation cost been
      determined, consistent with SFAS No. 123, the impact on the Company's net
      income would not have been material.

      EARNINGS PER SHARE

      Basic earnings per share ("EPS") is computed by dividing net income by the
      weighted average number of shares outstanding during the period. Diluted
      EPS reflects the potential dilution that could occur if securities or
      other contracts to issue common stock are exercised and converted into
      common stock and is computed in the same manner, except the number of
      weighted average shares outstanding is adjusted for the number of
      additional common shares that would have been outstanding if the potential
      common shares had been issued.

                                       18
<PAGE>

      The following table represents the earnings per share calculations for the
      years ended December 31, 2004 and 2003:

<TABLE>
<CAPTION>
                                                                        SHARE
                                           NET                           PER
       FOR THE YEARS ENDED               INCOME          SHARES         AMOUNT
--------------------------------      -----------     -----------     ----------
<S>                                   <C>             <C>             <C>
December 31, 2004
      Basic earnings per share        $ 1,732,180       1,557,454     $     1.11
                                      -----------                     ----------
      Dilutive securities                                  38,799
                                                        ---------
      Diluted earnings per share      $ 1,732,180       1,596,253     $     1.09
                                      ===========       =========     ==========

December 31, 2003
      Basic earnings per share        $ 2,426,364       1,586,044     $     1.53
                                      -----------       ---------     ----------
      Dilutive securities                                  34,258
                                                        ---------
      Diluted earnings per share      $ 2,426,364       1,620,302     $     1.50
                                      ===========       =========     ==========
</TABLE>

For the years ended December 31, 2004 and 2003, no options were excluded from
the calculation of diluted EPS, as the exercise price of all option was less
than the average market price.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 2004, the SEC issued Staff Accounting Bulletin No. 105, Application of
Accounting Principles to Loan Commitments. Current accounting guidance requires
the commitment to originate mortgage loans to be held for sale be recognized on
the balance sheet at fair value from inception through expiration or funding.
SAB 105 requires that the fair-value measurement include only differences
between the guaranteed interest rate in the loan commitment and a market
interest rate, excluding any expected future cash flows related to the customer
relationship or loan servicing. SAB 105 was effective for commitments to
originate mortgage loans to be held for sale entered into after March 31, 2004.
Its adoption did not have a material impact on the consolidated financial
position or results of operations of the Company.

In March 2004, the Financial Accounting Standards Board's ("FASB") Emerging
Issues Task Force reached a consensus on EITF Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF
03-1 provides guidance for determining when an investment is considered
impaired, whether impairment is other-than-temporary, and measurement of an
impairment loss. An investment is considered impaired if the fair value of the
investment is less than its cost. Generally, an impairment is considered
other-than-temporary unless: (i) the investor has the ability and intent to hold
an investment for a reasonable period of time sufficient for an anticipated
recovery of fair value up to (or beyond) the cost of the investment; and (ii)
evidence indicating that the cost of the investment is recoverable within a
reasonable period of time outweighs evidence to the contrary. If impairment is
determined to be other-than-temporary, then an impairment loss should be
recognized equal to the difference between the investment's cost and its fair
value. Certain disclosure requirements of EITF 03-1 were adopted in 2003 and the
Company began presenting the new disclosure requirements in its consolidated
financial statements for the year ended December 31, 2003. The recognition and
measurement provisions were initially effective for other-than-temporary
impairment evaluations in reporting periods beginning after June 15, 2004.
However, in September 2004, the effective date of these provisions was delayed
until the finalization of a FASB Staff Position (FSP) to provide additional
implementation guidance. Due to the recognition and measurement provisions being
suspended and the final rule delayed, the Company is not able to determine
whether the adoption of these new provisions will have a material impact on its
consolidated financial position or results of operations.

Statement of Position 03-03, Accounting for Certain Loans or Debt Securities
Acquired in a Transfer (SOP 03-03) addresses accounting for differences between
contractual cash flows and cash flows expected to be collected from an
investor's initial investment in loans or debt securities acquired in a transfer
if those differences are attributable, at least in

                                       19
<PAGE>

part, to credit quality. It includes loans acquired in purchase business
combinations and applies to all nongovernmental entities, including
not-for-profit organizations. The SOP does not apply to loans originated by the
entity. The SOP is effective for loans acquired in fiscal years beginning after
December 15, 2004. Early adoption is encouraged. Specific transition guidance
applies to certain loans that currently are within the scope of Practice
Bulletin 6, Amortization of Discounts on Certain Acquired Loans. Its adoption is
not expected to have a material impact on the consolidated financial position or
results of operations of the Company.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment ("SFAS No. 123R"), which revised SFAS No. 123, (Accounting for
Stock-Based Compensation). This statement supercedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. The revised statement addresses the
accounting for share-based payment transactions with employees and other third
parties, eliminates the ability to account for share-based compensation
transactions using APB 25 and requires that the compensation costs relating to
such transactions be recognized in the consolidated statement of operation. The
revised statement is effective as of the first interim period beginning after
June 15, 2005. The Company is currently evaluating the provisions of SFAS No.
123R and will adopt it on July 1, 2005 as required.

                                       20
<PAGE>

2.    SECURITIES

      The amortized cost, unrealized gross gains and losses, and estimated fair
      value of securities available-for-sale at December 31, 2004 and 2003 are
      as follows:

<TABLE>
<CAPTION>
                                                                   December 31, 2004
                                            ------------------------------------------------------------------
                                              Amortized       Unrealized        Unrealized            Fair
                                                Cost          Gross Gain        Gross Loss            Value
                                            ------------     ------------      ------------       ------------
<S>                                         <C>              <C>               <C>                <C>
Securities of U.S. Government Agencies      $ 58,957,618     $          0      ($ 1,039,671)      $ 57,917,947
Other Securities                                     716                0                 0                716
Mortgage-Backed Securities                    31,460,672          135,454          (489,388)        31,106,738
                                            ------------     ------------      ------------       ------------
                                            $ 90,419,006     $    135,454      ($ 1,529,059)      $ 89,025,401
                                            ============     ============      ============       ============
</TABLE>

<TABLE>
<CAPTION>
                                                                   December 31, 2003
                                            ------------------------------------------------------------------
                                              Amortized       Unrealized        Unrealized            Fair
                                                Cost          Gross Gain        Gross Loss            Value
                                            ------------     ------------      ------------       ------------
<S>                                         <C>              <C>               <C>                <C>
Securities of U.S. Government Agencies      $ 75,669,244     $     42,503      ($ 1,116,652)      $ 74,595,095
Other Securities                                     716                0                 0                716
Mortgage-Backed Securities                     8,563,017          192,088           (25,535)         8,729,570
                                            ------------     ------------      ------------       ------------
                                            $ 84,232,977     $    234,591      ($ 1,142,187)      $ 83,325,381
                                            ============     ============      ============       ============
</TABLE>

      The amortized cost and estimated fair value of securities
      available-for-sale at December 31, 2004 by contractual maturity are shown
      below. Expected maturities will differ from contractual maturities because
      the issuers may have the right to call or prepay obligations with or
      without call or prepayment penalties.

<TABLE>
<CAPTION>
                                              AMORTIZED           FAIR
                                                COST             VALUE
                                            ------------     ------------
<S>                                         <C>              <C>
Due in one year or less                     $          0     $          0
Due after one year through five years         29,961,458       29,436,897
Due after five years through ten years        28,996,876       28,481,766
                                            ------------     ------------
                                              58,958,334       57,918,663
Mortgage-Backed Securities                    31,460,672       31,106,738
                                            ------------     ------------
                                            $ 90,419,006     $ 89,025,401
                                            ============     ============
</TABLE>

      Securities of approximately $26 million at December 31, 2004 and 2003,
      respectively, were pledged to secure deposits. Deposits associated with
      pledged securities had aggregate balances of approximately $19 million and
      $20 million at December 31, 2004 and 2003, respectively. Gross gains
      realized on sales were $35,278 during December 31, 2004. Losses realized
      on sales were $409,119 during 2004. Gross gains realized on sales were
      $399,827 during 2003. There were no realized losses on sales during 2003.

                                       21
<PAGE>

      The following table shows the Company's combined investments' gross
      unrealized losses and fair values, aggregated by investment category and
      length of time that individual securities have been in continuous
      unrealized loss position, at December 31, 2004.

<TABLE>
<CAPTION>
                                     LESS THAN 12 MONTHS            12 MONTHS OR MORE                   TOTAL
                                 ---------------------------   ---------------------------   ---------------------------
                                     Fair        Unrealized        Fair        Unrealized        Fair        Unrealized
                                     Value       Gross Loss        Value       Gross Loss        Value       Gross Loss
                                 ------------   ------------   ------------   ------------   ------------   ------------
<S>                              <C>            <C>            <C>            <C>            <C>            <C>
Securities of U.S. Government
     Agencies                    $ 47,268,066   $    685,135   $ 10,640,077   $    354,536   $ 57,908,143   $  1,039,671
Other Securities                            0              0              0              0              0              0
Mortgage-Backed Securities         25,039,575        475,608      1,134,323         13,780     26,173,898        489,388
                                 ------------   ------------   ------------   ------------   ------------   ------------
                                 $ 72,307,641   $  1,160,743   $ 11,774,400   $    368,316   $ 84,082,041   $  1,529,059
                                 ============   ============   ============   ============   ============   ============
</TABLE>

      At December 31, 2004, the Company had 9 individual investment positions
      that were in an unrealized loss position or impaired for more than twelve
      months. All of these investment positions' impairments are deemed not to
      be other-than temporary impairments and are primarily due to the fact that
      these securities have experienced volatility in their fair value as a
      result of current market conditions, with no credit concerns related to
      the entities that issued the securities. The Company does not expect any
      other than temporary impairment to develop related to these investment
      positions.

3.    LOANS RECEIVABLE

      Loans receivable, net at December 31, 2004, are summarized as follows:

<TABLE>
<CAPTION>
                                                                                  2004              2003
                                                                             --------------    --------------
<S>                                                                          <C>               <C>
Residential and commercial real estate mortgage loans with variable rates    $   29,688,078    $   28,109,526
Residential and commercial real estate mortgage loans with fixed rates           34,672,845        40,927,949
Real estate construction loans                                                   12,019,555        14,060,167
Commercial loans                                                                 10,806,851        10,567,871
Consumer loans                                                                   13,709,262        13,444,417
                                                                             --------------    --------------
                                                                                100,896,591       107,109,930
Allowance for loan losses                                                        (1,167,263)       (1,467,128)
Unearned income                                                                    (129,329)         (165,383)
                                                                             --------------    --------------
                                                                             $   99,599,599    $  105,477,419
                                                                             ==============    ==============
</TABLE>

      During fiscal years 2004 and 2003, certain executive officers and
      directors of the Bank were loan customers of the Bank. Total loans
      outstanding to these persons at December 31, 2004 and 2003 amounted to
      $884,367 and $942,512, respectively. The change from December 31, 2003 to
      December 31, 2004 reflects payments amounting to $286,418 and advances of
      $228,273 made during the year.

      The Bank has a credit concentration in residential and commercial real
      estate mortgage loans. Approximately $64 million and $69 million at
      December 31, 2004 and 2003, respectively, of the Bank's total loan
      portfolio represented first or second mortgage residential and commercial
      real estate loans. Substantially all of the Bank's loan customers are
      located in the Bank's primary lending areas of Walker, Winston, Jefferson,
      and Shelby counties in Alabama. Although the Bank believes that its
      underwriting standards are generally conservative, including a policy
      calling for low loan to collateral values, the ability of its borrowers to
      meet their mortgage obligations is dependent upon local economic
      conditions. At December 31, 2004, the largest amount loaned by the Bank to
      one borrower was $2.3 million, which was approximately 11% of the
      Company's stockholders' equity.

                                       22
<PAGE>

      A reconciliation of the allowance for loan losses is as follows:

<TABLE>
<CAPTION>
                                                                                2004            2003
                                                                            ------------    ------------
<S>                                                                         <C>             <C>
Balance at beginning of year                                                $  1,467,128    $  1,322,380
Charge-offs                                                                   (1,070,765)     (1,048,617)
Recoveries                                                                       182,900         229,991
Provision                                                                        588,000         963,374
                                                                            ------------    ------------
Balance at end of year                                                      $  1,167,263    $  1,467,128
                                                                            ============    ============
</TABLE>

      The Bank was servicing first mortgage loans for others totaling
      $67,313,826 and $64,593,371 at December 31, 2004 and 2003, respectively.
      The liability associated with the Company's total servicing portfolio at
      December 31, 2004 and 2003 was not deemed significant by the Company.

      At December 31, 2004, the Bank had outstanding loan commitments of
      $22,852,556, including $5,412,398 in undisbursed construction loans in
      process; $16,547,158 in unused lines and letters of credit; and $893,000
      in commitments to originate mortgage loans consisting primarily of 30-day
      commitments. Commitments to originate conventional mortgage loans
      consisted of fixed-rate mortgages all having terms ranging from 15 to 30
      years.

      The Company had approximately $726,000 and $728,000 of loans classified as
      non-accrual at December 31, 2004 and 2003, respectively. During the years
      ended December 31, 2004 and 2003, gross interest income of $8,941 and
      $22,889 respectively, would have been recorded on loans accounted for on a
      non-accrual basis if the loans had been current throughout the period. The
      amount of interest income included in current income for these loans was
      $5,743 and $3,639 for the years ended December 31, 2004 and 2003,
      respectively.

4.    REAL ESTATE OWNED

      Activity in the allowance for losses on real estate owned is as follows:

<TABLE>
<CAPTION>
                                                                                2004            2003
                                                                            -----------     ------------
<S>                                                                         <C>             <C>
Balance at beginning of year                                                $    65,626     $          0
Provision                                                                             0          111,626
Charge-offs, net of recoveries                                                   (4,000)         (46,000)
                                                                            -----------     ------------
Balance at end of year                                                      $    61,626     $     65,626
                                                                            ===========     ============
</TABLE>

                                       23
<PAGE>

5.    PREMISES AND EQUIPMENT

      Premises and equipment at December 31, 2004 and 2003 are summarized as
      follows:

<TABLE>
<CAPTION>
                                            2004             2003
                                        ------------     ------------
<S>                                     <C>              <C>
Land                                    $    883,230     $    883,230
Buildings and leasehold improvements       6,677,797        6,522,761
Furniture, fixtures, and equipment         5,034,866        4,773,555
Automobiles                                  113,014          111,336
                                        ------------     ------------
                                          12,708,907       12,290,882
Less accumulated depreciation             (6,985,787)      (6,500,758)
                                        ------------     ------------
                                        $  5,723,120     $  5,790,124
                                        ============     ============
</TABLE>

      Depreciation expense for the fiscal years ended December 31, 2004 and 2003
      on premises and equipment was approximately $497,000 and $478,000,
      respectively.

      The Bank had noncancelable operating leases for the main and branch office
      sites. Occupancy expenses for the fiscal years ended December 31, 2004 and
      2003, respectively, include rental expense under these leases of $108,061
      and $109,527, respectively. Future rental payments subject to periodic
      renegotiations required under these leases are as follows:

<TABLE>
<CAPTION>
At December 31, 2004                 Amount
--------------------               ---------
<S>                                <C>
2005                               $  61,565
2006                                  58,565
2007                                  41,687
2008                                  14,400
2009                                  14,400
Thereafter                           115,200
                                   ---------
    Total                          $ 305,817
                                   =========
</TABLE>

      The Bank has a lease agreement for the building in which the main office
      branch is located that generated income of $97,836 for the fiscal years
      ended December 31, 2004 and 2003, respectively. The Bank also has a lease
      from a related party for a building that formerly housed administrative
      offices. This lease generated income of $56,000 for each of the fiscal
      years ended December 31, 2004 and 2003, respectively.

                                       24
<PAGE>

6.    DEPOSITS

      Deposits at December 31, 2004 and 2003 are summarized as follows:

<TABLE>
<CAPTION>
                                                          2004            2003
                                                     -------------   -------------
<S>                                                  <C>             <C>
Passbook accounts                                    $  18,047,218   $  17,072,161
NOW accounts                                            19,635,415      17,323,986
Money market deposit accounts                            8,934,786      11,593,749
Noninterest-bearing accounts                            11,022,644       9,393,376
                                                     -------------   -------------
                                                        57,640,063      55,383,272

Time deposits:
     Fixed-rate certificates less than $100,000         69,037,464      72,755,523
     Fixed-rate certificates greater than $100,000      53,288,108      51,800,602
                                                     -------------   -------------
                                                       122,325,572     124,556,125
                                                     -------------   -------------
                                                     $ 179,965,635   $ 179,939,397
                                                     =============   =============
</TABLE>

      The amounts and scheduled maturities of time deposits at December 31, 2004
      are as follows:

<TABLE>
<S>                                    <C>
2005                                   $  82,308,055
2006                                      10,274,723
2007                                      12,772,790
2008                                       7,032,201
2009 and thereafter                        9,937,803
                                       -------------
                                       $ 122,325,572
                                       =============
</TABLE>

      Interest expense on deposits is summarized as follows:

<TABLE>
<CAPTION>
                                                         2004            2003
                                                     ------------    ------------
<S>                                                  <C>             <C>
Passbook accounts                                    $     59,200    $     55,943
NOW accounts                                               26,837          28,055
Money market deposit accounts                              58,034          55,732
Fixed-rate certificates less than $100,000              1,766,818       2,211,236
Fixed-rate certificates greater than $100,000           1,288,316       1,359,465
                                                     ------------    ------------
                                                     $  3,199,205    $  3,710,431
                                                     ============    ============
</TABLE>

                                       25
<PAGE>

7.    SUBORDINATED DEBT

      On December 22, 2003, the Company established Pinnacle Capital Trust I
      ("Trust"), a wholly-owned statutory business trust. The Company is the
      sole sponsor of the Trust and acquired the Trust's common securities for
      $93,000. The Trust was created for the exclusive purpose of issuing
      30-year capital trust securities ("Trust Preferred Securities") in the
      aggregate amount of $3,000,000 and using proceeds to purchase $3,093,000
      of junior subordinated debentures ("Subordinated Debentures") issued by
      the Company. The sole assets of the Trust are the Subordinated Debentures.
      The Company's $93,000 investment in the Trust is included in other assets
      in the accompanying consolidated balance sheet and the $3,093,000
      obligation of the Company is included in subordinated debt.

      The Trust Preferred Securities bear a floating interest rate based on a
      spread over 3-month LIBOR which is set each quarter and matures on
      December 22, 2033. Distributions are payable quarterly. The Trust
      Preferred Securities are subject to mandatory redemption upon repayment of
      the Subordinated Debentures at their stated maturity date or their earlier
      redemption in an amount equal to their liquidation amount plus accumulated
      and unpaid distributions to the date of redemption. The Company guarantees
      the payment of distributions and payments for redemption or liquidation of
      the Trust Preferred Securities to the extent of funds held by the Trust.
      Pinnacle Bancshares, Inc.'s obligation under the Subordinated Debentures
      together with the guarantee and other back-up obligation, in aggregate,
      constitute a full and unconditional guarantee by the Company of the
      obligations of the Trust under the Trust Preferred Securities.

      The Subordinated Debentures are unsecured, bear an interest rate based on
      a spread over a 3 month LIBOR (equal to the spread paid by the Trust on
      the Trust Preferred Securities) which is set each quarter and matures on
      December 30, 2033. Interest is payable quarterly. The Company may defer
      the payment of interest at any time for a period not exceeding 20
      consecutive quarters provided that deferral period does not extend past
      the stated maturity. During any such deferral period, distributions on the
      Trust Preferred Securities will also be deferred and the Company's ability
      to pay dividends on the common shares will be restricted.

      Subject to approval by the Federal Reserve Bank of Atlanta, the Trust
      Preferred Securities may be redeemed prior to maturity at the Company's
      option on or after January 7, 2009. The Trust Preferred Securities may
      also be redeemed at any time in whole (but not in part) in the event of
      unfavorable changes in laws or regulations that result in (1) the Trust
      becoming subject to federal income tax on income received on the
      Subordinated Debentures, (2) interest payable by the Company on the
      Subordinated Debentures becoming non-deductible for federal tax purposes,
      (3) the requirement for Trust Preferred Securities as "Tier I Capital"
      under the Federal Reserve capital adequacy guidelines.

      Debt issuance cost of $58,000 consisting primarily of underwriting
      discounts and professional fees are included in other assets in the
      accompanying consolidated statements of financial condition as of December
      31, 2004. These debt issuance costs are being amortized over 30 years
      using the straight-line method.

                                       26
<PAGE>

8.    BORROWED FUNDS

      Borrowed funds at December 31, 2004 and 2003 are summarized as follows:

<TABLE>
<CAPTION>
                                                                     2004          2003
                                                                 ------------  -----------
<S>                                                              <C>           <C>
Warrants payable: $205,000 with an interest rate of
5.35%, maturing one year or less; $455,000 with an
interest rate of 5.48%, maturing greater than one year
through 3 years; $530,000 with an interest rate of
5.83%, maturing greater than 3 years through 5 years;
$1,390,000 with an interest rate of 6.00%, maturing
after 5 years                                                    $  2,580,000  $ 2,765,000

Short term advances from the Federal Home Loan Bank of Atlanta:             0      700,000
                                                                 ------------  -----------

                                                                 $  2,580,000  $ 3,465,000
                                                                 ============  ===========
</TABLE>

      The Company has available credit of $31,100,000 at the FHLB of Atlanta,
      Georgia at December 31, 2004. The FHLB notes are payable to the FHLB of
      Atlanta and are secured by FHLB stock owned by the Bank with a carrying
      value of $417,000, as well a pledge of all the real estate loans owned by
      the Bank secured by qualified first liens on one-to-four unit single
      family dwellings. The total carrying value of qualified mortgages owned by
      the Bank at December 31, 2004 was $35,563,484. There were no FHLB advances
      outstanding at December 31, 2004. Interest rates on the notes are fixed
      and interest is payable monthly. Principal on the notes is payable at
      maturity or in semiannual principal reductions until maturity. The maximum
      amount outstanding under advances from the Federal Home Loan Bank of
      Atlanta during 2004 and 2003 was $10,000,000 and $13,500,000,
      respectively. The average amount outstanding during 2004 and 2003 was
      $1,548,000 and $2,600,000, respectively.

                                       27
<PAGE>

9.    INCOME TAXES

      Income tax expense included in the consolidated statements of operations,
      is comprised of the following:

<TABLE>
<CAPTION>
                                    Federal         State          Total
                                    -------         -----          -----
<S>                               <C>            <C>            <C>
Year ended December 31, 2004:
    Current                       $  693,690     $   56,087     $  749,777
    Deferred                          15,965          2,993         18,958
                                  ----------     ----------     ----------
                                  $  709,655     $   59,080     $  768,735

Year ended December 31, 2003:
    Current                       $1,078,984     $  143,759     $1,222,743
    Deferred                          37,764          7,081         44,845
                                  ----------     ----------     ----------
                                  $1,116,748     $  150,840     $1,267,588
                                  ==========     ==========     ==========
</TABLE>

      Total income tax expense differs from the amount determined by multiplying
      income before income taxes by the statutory federal rate of 34%, as
      follows:

<TABLE>
<CAPTION>
                                                         2004             2003
                                                         ----             ----
<S>                                                  <C>               <C>
Tax expense at federal income tax rate               $   850,311       $ 1,255,944
Increase (decrease) resulting from:
    State income tax, net of federal tax benefit          38,994           101,221
    Cash surrender value of bank owned life
    insurance, net of premiums                           (94,597)          (97,111)
    Tax credit                                           (33,123)                0
    Other                                                  7,150             7,534
                                                     -----------       -----------
                                                     $   768,735       $ 1,267,588
                                                     ===========       ===========

Effective income tax rate                                   30.7%             34.3%
                                                     ===========       ===========
</TABLE>

      Temporary differences between the consolidated financial statement
      carrying amounts and tax bases of assets and liabilities that give rise to
      significant portions of the net deferred tax assets relate to the
      following:

<TABLE>
<CAPTION>
                                                     December 31,     December 31,
                                                         2004             2003
                                                     ------------     ------------
<S>                                                  <C>              <C>
Allowance for loan losses                            $   431,888      $   542,838
Unrealized loss on securities available-for-sale         520,495          335,811
Other real estate reserves                                25,572           26,356
Other                                                     70,873           63,622
                                                     -----------      -----------
              Deferred tax assets                      1,048,828          968,627
                                                     -----------      -----------
Depreciation                                            (511,370)        (553,428)
FHLB stock                                               (53,437)         (93,859)
Other                                                          0           (3,045)
                                                     -----------      -----------
              Deferred tax liabilities                  (564,807)        (650,332)
                                                     -----------      -----------
Net deferred tax assets                              $   484,021      $   318,295
                                                     ===========      ===========
</TABLE>

      There was no valuation allowance during either 2004 or 2003 due to the
      significant amount of taxes paid in previous years.

                                       28
<PAGE>

10.   COMPENSATION AND BENEFITS

      The Bank maintains a noncontributory profit sharing plan and a
      contributory 401(k) plan. The Company's contributions to these plans were
      $86,144 and $81,679 in fiscal years ended December 31, 2004 and 2003,
      respectively.

      The Company and the Bank have an employment agreement with the chief
      executive officer which provides for compensation and benefits in the
      event the chief executive officer is terminated. The maximum aggregate
      liability at December 31, 2004 for termination is approximately $398,000.

11.   LONG-TERM INCENTIVE COMPENSATION PLAN

      The Bank maintains the 1996 Stock Option and Incentive Plan ("Option
      Plan") which provides for a number of forms of stock-based compensation
      for key employees of the Company. Under the Option Plan, eligible
      employees may be awarded incentive and nonqualified stock options, stock
      appreciation rights, and restricted stock. The Option Plan provides for
      the issuance of up to 170,000 shares of the Company's common stock, 44,500
      of which are available to be granted at December 31, 2004. In addition,
      each option vests three years after the grant date and expires no later
      than ten years after the grant date. The exercise price of each option is
      determined by the stock option committee but, in the case of incentive
      stock options, the price shall not be less than the fair value on the
      grant date.

      A summary of the status of the Company's stock option plan at December 31,
      2004 and 2003 and the changes during the years then ended is as follows:

<TABLE>
<CAPTION>
                                             2004                     2003
                                     ---------------------    ---------------------
                                                  Weighted                 Weighted
                                                  Average                  Average
                                                  Exercise                 Exercise
                                      Shares       Price       Shares       Price
                                     --------     --------    -------      --------
<S>                                  <C>          <C>         <C>          <C>
Outstanding at beginning of year      91,333      $  9.34     100,060      $  9.41
Granted                                    0            0           0            0
Exercised                            (20,967)        9.44      (8,727)       10.12
Forfeited                                  0            0           0            0
                                     -------      -------     -------      -------
Outstanding at end of year            70,366      $  9.30      91,333      $  9.34
                                     =======      =======     =======      =======

Exercisable at end of year            70,366      $  9.30      91,333      $  9.34
                                     =======      =======     =======      =======

Fair value of options granted            N/A                      N/A
                                     =======                  =======
</TABLE>

      The following table summarizes information about these stock options at
      December 31, 2004:

<TABLE>
<CAPTION>
                Number outstanding        Remaining
Exercise                At               Contractual
 Price           December 31, 2004          Life
--------        ------------------       -----------
<S>             <C>                      <C>
$ 8.81                44,500                2 years

$10.13                25,866              4.4 years
                      ------
                      70,366
                      ------
</TABLE>

                                       29
<PAGE>

12.   STOCKHOLDERS' EQUITY

      Dividends are paid by the Company from funds provided by dividends from
      the Bank. However, certain regulatory restrictions exist regarding the
      ability of the Bank to transfer funds to the Company in the form of cash
      dividends, loans, or advances. As of January 1, 2005, approximately $1.8
      million of the Bank's retained earnings was available for distribution
      without prior regulatory approval.

      The Company and the Bank are subject to various regulatory capital
      requirements that prescribe quantitative measures of the Company's and
      Bank's assets, liabilities, and certain off-balance sheet items. The
      regulators have also imposed qualitative guidelines for capital amounts
      and classifications such as risk weightings, capital components, and other
      details. The quantitative measures to ensure capital adequacy require that
      the Company and the Bank maintain amounts and ratios, as set forth in the
      schedule below, of Total and Tier I capital (as defined in the
      regulations) to risk-weighted assets (as defined) and of Tier I capital to
      average total assets (as defined). Failure to meet minimum capital
      requirements can initiate certain actions by regulators that, if
      undertaken, could have a direct material effect on the Company's financial
      statements. Management believes, as of December 31, 2004 and 2003, that
      the Company and the Bank meet all capital adequacy requirements imposed by
      its regulators.

      As of December 31, 2004 and 2003, the most recent notification from the
      Federal Deposit Insurance Corporation categorized the Bank as well
      capitalized under the regulatory framework for prompt corrective action.
      To be categorized as well capitalized, the Bank must maintain minimum
      Total risk-based, Tier I risk-based, and Tier I leverage ratios as set
      forth in the table. There have been no conditions or events since that
      notification that Management believes have changed the institution's
      category.

      Actual capital amounts as well as required and well capitalized Tier I,
      Total, and Tier I leverage ratios as of December 31, 2004, for the Company
      and the Bank are as follows:

<TABLE>
<CAPTION>
                                                                                                     To be Well-Capitalized
                                                                                                          Under Prompt
                                                                             For Capital                   Corrective
                                                        Actual            Adequacy Purposes            Action Provisions
                                                   ---------------   ---------------------------  ----------------------------
                                                   Amount    Ratio      Amount         Ratio          Amount          Ratio
                                                   ------    -----      ------         -----          ------          -----
                                                                   (Dollar Amounts in Thousands)
<S>                                              <C>         <C>     <C>             <C>          <C>               <C>
As of December 31, 2004:
    Total Capital (to Risk Weighted Assets):
       Consolidated                              $  24,647   20.8%   > or =$9,459    > or =8.0%             N/A            N/A
       Pinnacle Bank                                21,647   18.3    > or = 9,459    > or =8.0    > or =$11,824     > or =10.0%
    Tier I Capital (to Risk Weighted Assets):
       Consolidated                                 23,480   19.9    > or = 4,729    > or =4.0              N/A            N/A
       Pinnacle Bank                                20,480   17.3    > or = 4,729    > or =4.0    > or =  7,094     > or = 6.0
    Tier I Capital (to Average Assets):
       Consolidated                                 23,480   11.2    > or = 8,391    > or =4.0              N/A            N/A
       Pinnacle Bank                                20,480    9.8    > or = 8,391    > or =4.0    > or = 10,489     > or = 5.0
As of December 31, 2003:
    Total Capital (to Risk Weighted Assets):
       Consolidated                              $  24,163   20.1%   > or =$9,635    > or =8.0%             N/A            N/A
       Pinnacle Bank                                20,713   17.2    > or = 9,635    > or =8.0    > or =$12,043     > or = 0.0%
    Tier I Capital (to Risk Weighted Assets):
       Consolidated                                 22,696   18.8    > or = 4,817    > or =4.0              N/A            N/A
       Pinnacle Bank                                19,246   16.0    > or = 4,817    > or =4.0    > or =  7,226     > or = 6.0
    Tier I Capital (to Average Assets):
       Consolidated                                 22,696   10.8    > or = 8,375    > or =4.0              N/A            N/A
       Pinnacle Bank                                19,246    9.2    > or = 8,375    > or =4.0    > or = 10,468     > or = 5.0
</TABLE>

                                       30
<PAGE>

      As of December 31, 2004, the $3.0 million of Trust Preferred Securities
      qualifies as Tier I Capital under current regulators definitions. If these
      Trust Preferred Securities had not been included in the consolidated
      capital calculations, the Company would have still been classified as well
      capitalized.

      On April 25, 2003, the Company announced a stock repurchase program to
      acquire up to 80,000 shares of common stock. As of December 31, 2004, the
      Company had repurchased 74,600 shares at an average price of $14.71 per
      share. On June 10, 2004, the Company announced a supplemental stock
      repurchase program to acquire an additional 5% of the Company's
      outstanding shares outstanding upon completion of its current repurchase
      program, or 77,169 shares. This program supplements the Company's current
      repurchase program. The repurchase programs are 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.

      COMPREHENSIVE INCOME

      Comprehensive income is the change in equity during a period from
      transactions and other events and circumstances from nonowner sources. For
      the Company, comprehensive income includes changes in unrealized gains and
      losses on securities available-for-sale and net income.

      In the calculation of comprehensive income, certain reclassification
      adjustments are made to avoid double- counting items that are displayed as
      part of net income and accumulated other comprehensive income in that
      period or earlier periods.

      The following table reflects the reclassification amounts and the related
      tax effects for the two years ended December 31:

<TABLE>
<CAPTION>
                                                                      2004
                                                  ---------------------------------------------
                                                    Before                            After
                                                      Tax              Tax             Tax
                                                    Amount            Effect          Amount
                                                  -----------      -----------      -----------
<S>                                               <C>              <C>              <C>
Unrealized losses arising during the year         $  (859,850)     $   311,790      $  (548,060)
Reclassification for adjustments for
    losses included in net earnings                   373,841         (127,106)         246,735
                                                  -----------      -----------      -----------
Net change in unrealized losses on securities     $  (486,009)     $   184,684      $  (301,325)
                                                  ===========      ===========      ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                      2003
                                                  ---------------------------------------------
                                                    Before                             After
                                                      Tax              Tax              Tax
                                                    Amount            Effect          Amount
                                                  -----------      -----------      -----------
<S>                                               <C>              <C>              <C>
Unrealized gains arising during the year          $(1,439,531)     $   544,622      $  (894,909)
Reclassification for adjustments for
    gains included in net earnings                   (399,826)         135,941         (263,885)
                                                  -----------      -----------      -----------
Net change in unrealized gains on securities      $(1,839,357)     $   680,563      $(1,158,794)
                                                  ===========      ===========      ===========
</TABLE>

13    FAIR VALUES OF FINANCIAL INSTRUMENTS

      SFAS No. 107, Disclosure About Fair Value of Financial Instruments,
      requires disclosure of fair value information about financial instruments,
      whether or not recognized in the balance sheet, for which it is
      practicable to estimate that value. Financial instruments are defined as
      cash, evidence of ownership in an entity, contracts that convey either a
      right to receive cash or other financial instruments or an obligation to
      deliver cash or other financial instruments, or contracts that convey the
      right or obligation to exchange financial instruments on potentially
      favorable or unfavorable terms. The Company has a variety of financial
      instruments, which include

                                       31
<PAGE>

      items recorded on the consolidated statements of financial condition and
      items which, by their nature, are not recorded on the consolidated
      statements of financial condition.

      Quoted market prices, if available, are utilized as an estimate of the
      fair value of financial instruments. In cases where quoted market prices
      are not available, fair values have been estimated using present value or
      other valuation techniques. These methods are highly sensitive to the
      assumptions used by management, such as those concerning appropriate
      discount rates and estimates of future cash flows. Different assumptions
      could significantly affect the estimated fair value amounts presented
      above. In that regard, the derived fair value estimates cannot be
      substantiated by comparison to independent markets and, in many cases,
      could not be realized in the immediate settlement of the instrument.
      Further, assets that are not financial instruments are not included in the
      following table. Accordingly, the aggregate estimated fair value amounts
      presented do not represent the underlying value of the Company.

      A summary of the Company's disclosure of fair value of financial
      instruments made in accordance with the requirements of SFAS No. 107 is as
      follows:

<TABLE>
<CAPTION>
                                                  AT DECEMBER 31, 2004      AT DECEMBER 31, 2003
                                                 ----------------------    ----------------------
                                                 CARRYING     ESTIMATED    CARRYING     ESTIMATED
                                                  AMOUNT     FAIR VALUE     AMOUNT     FAIR VALUE
                                                 --------    ----------    --------    ----------
                                                                  (IN THOUSANDS)
<S>                                              <C>         <C>           <C>         <C>
ASSETS:
    Cash on hand and in banks                    $  3,451     $  3,451     $  3,519     $  3,519
    Interest-bearing deposits in other banks          485          485          256          256
    Securities available-for-sale                  89,025       89,025       83,325       83,325
    FHLB stock                                        417          417          732          732
    Loans held for sale                             1,206        1,206        1,428        1,431
    Loans receivable, net                          99,600      101,258      105,477      107,645
    Accrued interest receivable                     1,254        1,254        1,362        1,362

LIABILITIES:
    Deposits                                     $179,966     $180,781     $179,939     $180,447
    Subordinated Debt                               3,093        3,093        3,093        3,093
    Borrowed funds                                  2,580        3,126        3,465        3,642
    Accrued interest payable                          499          499          440          440
</TABLE>

      The following methods and assumptions were used by the Company in
      estimating the fair values provided above:

      CASH ON HAND AND IN BANKS AND INTEREST-BEARING DEPOSITS IN OTHER BANKS.
      The carrying value of highly liquid instruments, such as cash on hand and
      in banks and interest-bearing deposits are considered to approximate their
      fair values. The carrying amount of accrued interest in these instruments
      approximates its fair value.

      SECURITIES AVAILABLE-FOR-SALE AND LOANS HELD FOR SALE. Substantially all
      of the Company's securities available-for-sale and loans held for sale,
      primarily to third-party investors, have a readily determinable fair
      value. Fair values for these securities are based on quoted market prices,
      where available. If not available, fair values are based on market prices
      of comparable instruments. The carrying amount of accrued interest on
      these instruments approximates its fair value.

      FHLB STOCK. The FHLB has historically repurchased their stock at cost, as
      no readily available market exists. Therefore the carrying amount is
      considered a reasonable estimate of its fair value.

      LOANS RECEIVABLE, NET. For loans with rates that are repriced in
      coordination with movements in market rates and with no significant credit
      risk, fair value estimates are based on carrying values. The fair value
      for certain mortgage loans is based on quoted market prices of similar
      loans sold in conjunction with securitization transactions, adjusted for
      differences in loan characteristics. The fair values for other loans are
      estimated by discounting future

                                       32
<PAGE>

      cash flows using current rates at which loans with similar terms would be
      made to borrowers of similar credit ratings. The carrying amount of
      accrued interest on loans approximates its fair value.

      DEPOSITS. The fair value of deposits with no stated maturity, such as
      interest and noninterest-bearing deposits, NOW accounts, savings accounts,
      and money market accounts, is by definition, equal to the amount payable
      on demand at the reporting date (i.e., their carrying amounts). Fair
      values for certificates of deposits are estimated using a discounted cash
      flow analysis that applies rates currently offered for certificates of
      deposits with similar remaining maturities. The carrying amount of accrued
      interest payable on deposits approximates its fair value.

      The economic value attributed to the long-term relationship with
      depositors who provide low-cost funds to the Company is considered to be a
      separate intangible asset and is excluded from the presentation.

      SUBORDINATED DEBT. The carrying amount of subordinated debt approximates
      its fair value.

      BORROWED FUNDS. The fair value of borrowed funds is estimated using
      discounted cash flow analyses, based on the current rates offered for
      similar borrowing arrangements. The carrying amount of accrued interest
      payable on borrowed funds approximates its fair value.

      OFF-BALANCE SHEET ITEMS. Off-balance sheet financial instruments include
      commitments to extend credit and letters of credit to be held in the
      Bank's loan portfolio. The fair value of such instruments is negligible
      since the arrangements are at current rates, and are for short periods,
      and have no significant credit exposure.

14.   CONTINGENCIES

      The Company and the Bank are parties to litigation and claims arising in
      the normal course of business. Management, after consultation with legal
      counsel, believes that the liabilities, if any, arising from such
      litigation and claims will not be material to the consolidated financial
      statements.

                                       33
<PAGE>

15.   CONDENSED PARENT COMPANY FINANCIAL STATEMENTS

                             STATEMENTS OF CONDITION

                           DECEMBER 31, 2004 AND 2003
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               2004          2003
                                                             --------      --------
<S>                                                          <C>           <C>
ASSETS:
    Cash and cash equivalents                                $     12      $      6
    Interest-bearing deposits in other banks                    3,035         3,398
    Debt issue cost                                                58            60
    Investment in unconsolidated subsidiary                        93            93
    Investment in subsidiary                                   19,811        18,980
    Other assets                                                   43             0
                                                             --------      --------
              Total assets                                   $ 23,052      $ 22,537
                                                             ========      ========

LIABILITIES:
    Subordinated debt                                        $  3,093      $  3,093
    Other liabilities                                              45            13
                                                             --------      --------
              Total liabilities                                 3,138         3,106
                                                             --------      --------

STOCKHOLDERS' EQUITY:
    Common stock                                                   18            18
    Additional paid in capital                                  8,419         8,220
    Treasury shares at cost                                    (3,221)       (2,743)
    Retained earnings                                          15,571        14,508
    Accumulated other comprehensive loss, net of tax             (873)         (572)
                                                             --------      --------
              Total stockholders' equity                       19,914        19,431
                                                             --------      --------
              Total liabilities and stockholders' equity     $ 23,052      $ 22,537
                                                             ========      ========
</TABLE>

                                       34
<PAGE>

                            STATEMENTS OF OPERATIONS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                  2004       2003
                                                  ----       ----
<S>                                              <C>        <C>
INCOME:
    Dividend income from Pinnacle Bank           $  669     $1,636
    Interest income                                  40          6
                                                 ------     ------
           Total income                             709      1,642

EXPENSE                                             149          8
                                                 ------     ------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
    INCOME OF SUBSIDIARY                            560      1,634
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY      1,172        792
                                                 ------     ------
           Net income                            $1,732     $2,426
                                                 ======     ======
</TABLE>

                            STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                        2004        2003
                                                                        ----        ----
<S>                                                                   <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                        $ 1,732      $ 2,426
    Adjustments to reconcile net income to net cash provided by
       operating activities:
       Undistributed income of subsidiary                              (1,172)        (792)
       Increase in other assets                                           (43)           0
       Increase (decrease) in other liabilities                            73           (1)
                                                                      -------      -------
              Net cash provided by operating activities                   590        1,633
                                                                      -------      -------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Investment in trust                                                     0          (93)
    Net change in interest bearing deposits in other banks                363       (3,171)
                                                                      -------      -------
              Net cash provided by (used in) investing activities         363       (3,264)
                                                                      -------      -------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Repurchase of shares of common stock                                 (477)      (1,245)
    Proceeds from stock options exercised                                 199           88
    Debt issue cost paid                                                    0          (60)
    Proceeds from issuance of subordinated debt                             0        3,093
    Cash dividends paid                                                  (669)        (634)
                                                                      -------      -------
              Net cash (used in) provided by financing activities        (947)       1,242
                                                                      -------      -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            6         (389)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                              6          395
                                                                      -------      -------
CASH AND CASH EQUIVALENTS AT END OF YEAR                              $    12      $     6
                                                                      =======      =======
</TABLE>

                                       35
<PAGE>

16.   INVESTMENT IN AFFILIATED COMPANIES (UNAUDITED)

      Investments in affiliated companies accounted for under the equity method
      consist of 100% of common stock of Pinnacle Capital Trust I ("Trust"), a
      wholly-owned statutory business trust. The Trust was formed on December
      22, 2003. Summary unaudited financial information for the Trust as of
      December 31, 2004 and 2003 follows (dollars in thousands):

                              SUMMARY BALANCE SHEET

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                   2004       2003
                                                                                   ----       ----
<S>                                                                               <C>        <C>
ASSETS:
    Investment in subordinated debentures issued by Pinnacle Bancshares, Inc.     $3,093     $3,093
                                                                                  ======     ======

LIABILITIES:                                                                      $    0     $    0

EQUITY:
    Trust preferred securities                                                     3,000      3,000
    Common stock (100% owned by Pinnacle Bancshares, Inc.)                            93         93
                                                                                  ------     ------
    TOTAL EQUITY                                                                   3,093      3,093
                                                                                  ------     ------
 TOTAL LIABILITIES & EQUITY                                                       $3,093     $3,093
                                                                                  ======     ======
</TABLE>

                            SUMMARY INCOME STATEMENT

                                 (In thousands)

<TABLE>
<CAPTION>
                                                            2004     2003
                                                            ----     ----
<S>                                                         <C>      <C>
INCOME:
    Interest income from subordinated debentures issued
      by Pinnacle Bancshares, Inc.                          $144     $  0
                                                            ====     ====

 NET INCOME:                                                $144     $  0
                                                            ====     ====
</TABLE>

                                       36
<PAGE>

      SELECTED QUARTERLY INFORMATION (UNAUDITED)

      A summary of unaudited results of operations for each quarter of the years
      ended December 31, 2004 and 2003 follows:

<TABLE>
<CAPTION>
                                                              FIRST          SECOND         THIRD          FOURTH
                                                             QUARTER        QUARTER        QUARTER         QUARTER
                                                             -------        -------        -------         -------
<S>                                                         <C>            <C>            <C>            <C>
Year Ended December 31, 2004:
    Interest revenue                                        $2,617,329     $2,692,624     $2,663,150     $2,663,108
    Interest expense                                           856,603        863,679        876,902        919,025
    Net interest income after provision for loan losses      1,613,726      1,681,945      1,639,248      1,597,083
    Noninterest income                                         441,345        617,758        197,957        506,353
    Noninterest expense                                      1,427,453      1,458,537      1,382,914      1,525,596
    Net income                                                 418,679        553,121        309,358        451,022
    Basic earnings per share                                      0.27           0.35           0.20           0.29
    Diluted earnings per share                                    0.26           0.35           0.20           0.28

Year Ended December 31, 2003:
    Interest revenue                                        $2,923,430     $2,909,968     $2,758,603     $2,694,974
    Interest expense                                         1,113,052      1,031,955        916,249        844,270
    Net interest income after provision for loan losses      1,542,878      1,610,513      1,495,354      1,769,330
    Noninterest income                                         898,611        687,526        775,581        483,422
    Noninterest expense                                      1,363,419      1,391,845      1,404,873      1,409,126
    Net income                                                 703,677        595,327        571,207        556,153
    Basic earnings per share                                      0.43           0.38           0.36           0.36
    Diluted earnings per share                                    0.42           0.37           0.36           0.35
</TABLE>

                                       37
<PAGE>

                              CORPORATE INFORMATION
                     DIRECTORS -- PINNACLE BANCSHARES, INC.
                                AND PINNACLE BANK

                                 Greg Batchelor
                 President, Dependable True Value Hardware, Inc.

                                   O. H. Brown
                      Haynes, Downard, Andra & Jones, LLP

                                 James W. Cannon
                                     Retired

                                   Max Perdue
                                     Retired

                                  Sam W. Murphy
                Chairman of the Board & Chief Executive Officer,
                           Murphy Manufacturing, Inc.

                              Robert B. Nolen, Jr.
                                    President
                            Pinnacle Bancshares, Inc.
                                  Pinnacle Bank

                                  Al H. Simmons
                              Chairman of the Board
                            Pinnacle Bancshares, Inc.
                                  Pinnacle Bank
                   Insurance Agent, Pittman & Associates, Inc.

                              J. T. "Jabo" Waggoner
                                   Consultant,
                      Birmingham Business Consultants, LLC

                               Melvin R. Kacharos
                                     Retired
                               (Director Emeritus)

                 EXECUTIVE OFFICERS -- PINNACLE BANCSHARES, INC.

                              Robert B. Nolen, Jr.
                                    President

                                 Mary Jo Gunter
                      Vice President & Corporate Secretary

                                  Marie Guthrie
                                    Treasurer

                                       38
<PAGE>

                            OFFICERS - PINNACLE BANK

                              Robert B. Nolen, Jr.
                                   President

                                 Mary Jo Gunter
                     Senior Vice President Banking Services
                             & Corporate Secretary

                                 Marie Guthrie
                          Vice President & Controller

                                   Alan Grice
                Vice President - Lending & Business Development

                                   Donna Hyde
                            Vice President- Lending

                                   Rick Brown
                         Vice President- Loan Servicing
                              & Compliance Officer

                                 Jaye Ottinger
                       Vice President - Mortgage Lending

                                Carl Schoettlin
                            Vice President - Lending

                                 Brenda Steele
                         Vice President & I. S. Officer
                            & GLBA Security Officer

                                  Pam Elliott
                         Haleyville Regional President

                                   Tracy Rye
                            Vice President - Lending

                               Edward A. Davidson
                         Birmingham Regional President

                                 Susie Roberts
                    Vice President-Office Manager - Sumiton

                                  David Davis
                       Vice President-Secondary Marketing

                                       39
<PAGE>

                                     OFFICES
        Main Office, 1811 2nd Avenue/Jasper, AL 35502-1388 (205/221-4111)
        Mall Office, 204 Highway 78 East/Jasper, AL 35501 (205/221-1322)
      Sumiton Office, 790 Highway 78 East/Sumiton, AL 35148 (205/648-6091)
    Haleyville Office, 1012 20th Street/Haleyville, AL 35565 (205/486-2225)
     Birmingham South, 2013 Canyon Road/Birmingham, AL 35216 (205/822-2265)
   Trussville Office, 2064 Gadsden Highway/Trussville, AL 35235 (205/661-9625)

                                 TRANSFER AGENT
                         Registrar & Transfer Co., Inc.
                              Cranford, New Jersey

                                 GENERAL COUNSEL
                     Maddox, MacLaurin, Nicholson & Thornley
                                 Jasper, Alabama

                                    AUDITORS
                                    KPMG LLP
                               Birmingham, Alabama

                             ADDITIONAL INFORMATION
                  Analysts, stockholders and any other parties
                 interested in obtaining additional information
                          may contact Marie Guthrie at
           Post Office Box 1388, Jasper, AL 35502-1388 (205/221-4111)

                                 ANNUAL MEETING
         The Annual Meeting of Stockholders of Pinnacle Bancshares, Inc.
                       will be held at CHS Activity Center
                      204 19th Street East, Jasper, Alabama
                          at 11:00 a.m. on May 25, 2005

                                   FORM 10-KSB
      A COPY OF THE PINNACLE BANCSHARES, INC. ANNUAL REPORT ON FORM 10-KSB
           FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004, AS FILED WITH
             THE SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE TO
               STOCKHOLDERS OF RECORD FOR THE 2005 ANNUAL MEETING
                     WITHOUT CHARGE UPON WRITTEN REQUEST TO
                                  MARIE GUTHRIE
                            PINNACLE BANCSHARES, INC.
                              POST OFFICE BOX 1388
                           JASPER, ALABAMA 35502-1388

                                       40