<PAGE>

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-QSB


               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934


               For the Quarterly Period Ended September 30, 2001


                       Commission File Number: 000-23909


                        PINNACLE BANKSHARES CORPORATION
       (Exact name of small business issuer as specified in its charter)


           VIRGINIA                                      54-1832714
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                     Identification Number)


                                  P.O. Box 29
                           Altavista, Virginia 24517
                   (Address of principal executive offices)


                                (804) 369-3000
               (Issuer's telephone number, including area code)

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

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

As of November 9, 2001, 1,450,513 shares of Pinnacle Bankshares Corporation's
common stock, $3 par value, were outstanding.

Transitional small business disclosure format: Yes___        No x .
                                                               ---
<PAGE>

                        PINNACLE BANKSHARES CORPORATION
                                  FORM 10-QSB
                              September 30, 2001

                                     INDEX


<TABLE>
<S>                                                                    <C>
Part I.   FINANCIAL INFORMATION

     Item 1.  Consolidated Financial Statements

          Consolidated Balance Sheets as of September
           30, 2001 and December 31, 2000                              3

          Consolidated Statements of Income and
           Comprehensive Income for the three months
           ended September 30, 2001 and 2000                           4

          Consolidated Statements of Income and
           Comprehensive Income for the nine
           months ended September 30, 2001 and 2000                    5

          Consolidated Statements of Cash Flows
           for the nine months ended September 30,
           2001 and 2000                                               6

          Notes to Consolidated Financial Statements                   7-10


     Item 2.   Management's Discussion and Analysis of
               Financial Condition and Results of Operations          10-17

Part II.  OTHER INFORMATION

     Item 1.   Legal Proceedings                                      17

     Item 4.   Submission of Matters to a Vote of
               Security Holders                                       17

     Item 6.   Exhibits and Reports on Form 8-K                       17

SIGNATURES                                                            18
</TABLE>
<PAGE>

                        PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

                PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS
                       (Amounts in thousands of dollars)


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Assets                                                                       September 30, 2001   December 31, 2000
                                                                                  (Unaudited)        (Audited)
                                                                                  -----------        ---------
<S>                                                                          <C>                  <C>
Cash and cash equivalents (note 2):
                 Cash and due from banks                                     $        4,114       $    5,568
                 Federal funds sold                                                  19,973            6,784
                                                                             -------------------------------

Total cash and cash equivalents                                                      24,087           12,352

Securities (note 3):
                 Available-for-sale, at fair value                                   29,160           24,197
                 Held-to-maturity, at amortized cost                                 13,462           15,229
Federal Reserve Bank stock, at cost                                                      75               75
Federal Home Loan Bank Stock, at cost                                                   439              427
Loans, net (note 4)                                                                 121,466          118,962
Bank premises and equipment, net                                                      4,275            4,367
Accrued income receivable                                                             1,186            1,430
Other assets                                                                          2,340            2,697
                                                                             -------------------------------

Total assets                                                                 $      196,490       $  179,736
------------------------------------------------------------------------------------------------------------

Liabilities and Stockholders' Equity

Liabilities:
                 Deposits:
                      Demand                                                         14,537           14,408
                      Savings and NOW accounts                                       56,226           52,067
                      Time                                                          105,127           94,118
                                                                             -------------------------------
                 Total deposits                                                     175,890          160,593
                                                                             -------------------------------

                 Note payable to Federal Home Loan Bank                                 625              700
                 Accrued interest payable                                               869              726
                 Other liabilities                                                      639              417
                                                                             -------------------------------

Total liabilities                                                                   178,023          162,436
                                                                             -------------------------------

Stockholders' equity:
                 Common stock, $3 par value. Authorized 3,000,000 shares,
                      issued and outstanding 1,450,513 shares in 2001 and
                      1,445,153 shares in 2000                                        4,351            4,335
                 Capital surplus                                                        474              420
                 Retained earnings                                                   13,113           12,501
                 Accumulated other comprehensive income                                 529               44
                                                                             -------------------------------
Total stockholders' equity                                                           18,467           17,300
                                                                             -------------------------------

Total liabilities and stockholders' equity                                   $      196,490       $  179,736
------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       3
<PAGE>

                PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
          CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                  (Unaudited)
        (Amounts in thousands of dollars, except for per share amounts)



<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                                                  Three Months           Three Months
                                                                                      Ended                  Ended
                                                                                 September 30, 2001    September 30, 2000
                                                                                 ------------------   --------------------
<S>                                                                              <C>                  <C>
Interest Income:
            Interest and fees on loans                                           $       2,663             $       2,634
            Interest on securities:
                            U.S. Treasury                                                   16                        48
                            U.S. Government agencies                                       225                       248
                            Corporate                                                       80                         -
                            States and political subdivisions (tax exempt)                 150                       155
                            States and political subdivisions (taxable)                    106                        79
                            Other                                                           10                        10
            Interest on federal funds sold                                                 158                       107
                                                                                 ---------------------------------------

Total interest income                                                                    3,408                     3,281
                                                                                 ---------------------------------------

Interest expense:
            Interest on deposits:
                            Savings and NOW accounts                                       467                       343
                            Time - other                                                 1,093                     1,025
                            Time - $100,000 and over                                       271                       247
            Other interest expense                                                          10                        35
                                                                                 ---------------------------------------

Total interest expense                                                                   1,841                     1,650
                                                                                 ---------------------------------------

Net interest income                                                                      1,567                     1,631

Provision for loan losses                                                                   90                        90
                                                                                 ---------------------------------------

Net interest income after provision for loan losses                                      1,477                     1,541

Noninterest income:
            Service charges on deposit accounts                                            142                       105
            Net realized gain on calls and sales of securities                               -                         2
            Commissions and fees                                                           120                       126
            Other operating income                                                          80                        42
                                                                                 ---------------------------------------

Total noninterest income                                                                   342                       275
                                                                                 ---------------------------------------

Noninterest expense:
            Salaries and employee benefits                                                 726                       641
            Occupancy expense                                                              125                        79
            Furniture and equipment                                                         99                       106
            Other operating expenses                                                       406                       389
                                                                                 ---------------------------------------

Total noninterest expense                                                                1,356                     1,215
                                                                                 ---------------------------------------

Income before income tax expense                                                           463                       601

Income tax expense                                                                         124                       164
                                                                                 ---------------------------------------

Net income                                                                                 339                       437
------------------------------------------------------------------------------------------------------------------------

Other comprehensive income, net of income tax expense:
    Net unrealized gains on securities available-for-sale                                  279                       155
                                                                                 ---------------------------------------

Comprehensive income                                                             $         618             $         592
------------------------------------------------------------------------------------------------------------------------

Net income per share (note 5):
Basic                                                                            $        0.23             $        0.30
Diluted                                                                          $        0.23             $        0.30
------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       4
<PAGE>

                PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
          CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                  (Unaudited)
        (Amounts in thousands of dollars, except for per share amounts)

<TABLE>
<CAPTION>
=====================================================================================================================

                                                                                 Nine Months          Nine Months
                                                                                    Ended                Ended
                                                                              September 30, 2001   September 30, 2000
                                                                              ------------------   ------------------
<S>                                                                           <C>                  <C>
Interest Income:
            Interest and fees on loans                                        $         8,026      $        7,414
            Interest on securities:
                         U.S. Treasury                                                     63                 156
                         U.S. Government agencies                                         657                 754
                         Corporate                                                        200                   -
                         States and political subdivisions (tax exempt)                   459                 465
                         States and political subdivisions (taxable)                      295                 232
                         Other                                                             28                  30
            Interest on federal funds sold                                                566                 156
                                                                              -----------------------------------

Total interest income                                                                  10,294               9,207
                                                                              -----------------------------------

Interest expense:
            Interest on deposits:
                         Savings and NOW accounts                                       1,472                 951
                         Time - other                                                   3,266               2,799
                         Time - $100,000 and over                                         838                 642
            Other interest expense                                                         31                  70
                                                                              -----------------------------------

Total interest expense                                                                  5,607               4,462
                                                                              -----------------------------------

Net interest income                                                                     4,687               4,745

Provision for loan losses                                                                 270                 270
                                                                              -----------------------------------

Net interest income after provision for loan losses                                     4,417               4,475

Noninterest income:
            Service charges on deposit accounts                                           408                 309
            Net realized gain on calls and sales of securities                              3                   2
            Commissions and fees                                                          397                 303
            Other operating income                                                        243                 121
                                                                              -----------------------------------

Total noninterest income                                                                1,051                 735
                                                                              -----------------------------------

Noninterest expense:
            Salaries and employee benefits                                              2,205               1,812
            Occupancy expense                                                             325                 209
            Furniture and equipment                                                       296                 311
            Other operating expenses                                                    1,212               1,112
                                                                              -----------------------------------

Total noninterest expense                                                               4,038               3,444
                                                                              -----------------------------------

Income before income tax expense                                                        1,430               1,766

Income tax expense                                                                        383                 474
                                                                              -----------------------------------

Net income                                                                              1,047               1,292
=================================================================================================================

Other comprehensive income, net of income tax expense:
    Net unrealized gains on securities available-for-sale                                 485                 148
                                                                              -----------------------------------

Comprehensive income                                                          $         1,532      $        1,440
=================================================================================================================

Net income per share (note 5):
Basic                                                                         $          0.72      $         0.90
Diluted                                                                       $          0.72      $         0.89
=================================================================================================================
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       5
<PAGE>

                PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                       (Amounts in thousands of dollars)

<TABLE>
<CAPTION>
=====================================================================================================================

                                                                             Nine Months            Nine Months
                                                                               Ended                  Ended
                                                                          September 30, 2001    September 30, 2000
                                                                          ------------------   -------------------
<S>                                                                       <C>                  <C>
Cash flows from operating activities:
          Net income                                                         $      1,047         $      1,292
          Adjustments to reconcile net income to net cash provided
                 by operating activities:
                 Depreciation of bank premises and equipment                          295                  250
                 Amortization of core deposit premium and goodwill                     38                   17
                 Amortization of unearned fees, net                                  (109)                 (69)
                 Net amortization of premiums and
                         discounts on securities                                        3                    8
                 Provision for loan losses                                            270                  270
                 Provision for deferred income taxes                                    -                    8
                 Net realized gain on calls and sales of securities                    (3)                  (2)
                 Net (increase) decrease in:
                         Accrued income receivable                                    244                   28
                         Other assets                                                 217                 (245)
                 Net increase in:
                         Accrued interest payable                                     143                  183
                         Other liabilities                                            222                  100
                                                                              --------------------------------

Net cash provided by operating activities                                           2,367                1,840
==============================================================================================================

Cash flows from investing activities:
          Purchases of held-to-maturity securities                                      -                 (660)
          Purchases of available-for-sale securities                              (16,725)              (2,496)
          Proceeds from maturities and calls of held-to-maturity securities         1,753                  750
          Proceeds from paydowns and maturities of held-to-maturity
                     mortgage-backed securities                                         1                    1
          Proceeds from  maturities and calls of available-for-sale
                    securities                                                     11,620                2,101
          Proceeds from paydowns and maturities of available-for-sale
                     mortgage-backed securities                                       891                  597
          Purchase of Federal Home Loan Bank stock                                    (12)                   -
          Purchase of loans                                                             -               (3,964)
          Purchase of loan participations                                          (4,508)              (5,050)
          Net (increase) decrease in loans                                          1,569               (7,357)
          Recoveries on loans charged off                                             102                  114
          Purchase of foreclosed properties                                          (117)                   -
          Proceeds from the sale of foreclosed properties                             140                    -
          Purchases of bank premises and equipment                                   (203)                (594)
                                                                              --------------------------------

Net cash used in investing activities                                              (5,489)             (16,558)
==============================================================================================================

Cash flows from financing activites:
          Deposits assumed, net of premium                                              -               22,975
          Net increase in demand, savings and NOW deposits                          4,288                3,451
          Net  increase (decrease) in time deposits                                11,009               (5,866)
          Cash dividends paid                                                        (435)                (411)
          Proceeds from issuance of common stock                                       70                   25
          Proceeds from exercise of employee stock options                              -                   30
          Repayment of note payable to Federal Home Loan Bank                         (75)                 (75)
                                                                              --------------------------------

Net cash provided by financing activities                                          14,857               20,129
==============================================================================================================

Net increase in cash and cash equivalents                                          11,735                5,411

Cash and cash equivalents, beginning of period                                     12,352                8,130
                                                                              --------------------------------

Cash and cash equivalents, end of period                                      $    24,087         $     13,541
==============================================================================================================
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       6
<PAGE>

                PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements
                              September 30, 2001
                                  (Unaudited)
                     (In thousands, except for share data)

(1)  General

     The consolidated financial statements include the accounts of Pinnacle
Bankshares Corporation ("Bankshares") and its wholly-owned subsidiary, The First
National Bank of Altavista (the "Bank"),(collectively the "Company").  All
material intercompany accounts and transactions have been eliminated. The
consolidated financial statements conform to accounting principles generally
accepted in the United States of America and to general banking industry
practices.   In the opinion of the Company's management, the accompanying
unaudited consolidated financial statements contain all adjustments of a normal
recurring nature, necessary to present fairly the financial position as of
September 30, 2001, the results of operations for the three months and nine
months ended September 30, 2001 and 2000, and cash flows for the nine months
ended September 30, 2001 and 2000.

     These interim period consolidated financial statements and financial
information should be read in conjunction with the consolidated financial
statements and notes thereto included in Pinnacle Bankshares Corporation's 2000
Annual Report to Shareholders and additional information supplied in the 2000
Form 10-KSB.

     The results of operations for the nine months ended September 30, 2001 are
not necessarily indicative of the results to be expected for the full year
ending December 31, 2001.

(2)  Cash and Cash Equivalents

     For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, interest-bearing deposits, and federal
funds sold.

(3)  Securities

     The amortized costs, gross unrealized gains, gross unrealized losses, and
fair values for securities at September 30, 2001, are shown in the table below.
As of September 30, 2001, securities with amortized costs of $1,370 and fair
values of $1,418 were

                                       7
<PAGE>

pledged as collateral for public deposits.

(3) (Continued)

<TABLE>
<CAPTION>
                                                              Gross        Gross
                                             Amortized   Unrealized   Unrealized      Fair
     Available-for-Sale:                         Costs        Gains       Losses    Values
     -------------------------------------------------------------------------------------
     <S>                                     <C>         <C>          <C>           <C>
     U.S. Treasury securities
      and obligations of U.S.
       Government corporations
       and agencies                          $   5,469          204            -     5,673
     Obligations of states and
       political subdivisions                    6,683          233            -     6,916
     Mortgage-backed securities-
       Government                               10,865          154            -    11,019
     Corporate issues                            5,293          219          (10)    5,502
     Other securities                               50            -            -        50
     -------------------------------------------------------------------------------------

     Totals                                  $  28,360          810          (10)   29,160
     -------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                              Gross        Gross
                                             Amortized   Unrealized   Unrealized      Fair
     Held-to-Maturity:                           Costs        Gains       Losses    Values
     -------------------------------------------------------------------------------------
     <S>                                     <C>         <C>          <C>           <C>
     U.S. Treasury securities
      and obligations of U.S.
       Government corporations
       and agencies                          $     675            6            -       681
     Obligations of states and
       political subdivisions                   12,787          489            -    13,276
     -------------------------------------------------------------------------------------

     Totals                                  $  13,462          495            -    13,957
     -------------------------------------------------------------------------------------
</TABLE>

(4)  Allowance for Loan Losses

     Changes in the allowance for loan losses for the nine months ended
September 30, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                          2001          2000
                                          ----          ----
     <S>                                <C>            <C>
     Balance at January 1,              $1,069         $  938

     Provision for loan losses             270            270

     Loans charged off                    (281)          (269)

     Recoveries                            102            114
                                        ------         ------

     Balance at September 30,           $1,160         $1,053
                                        ======         ======
</TABLE>

(5)  Net Income Per Share

     Basic net income per share excludes dilution and is computed

                                       8
<PAGE>

by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted net income per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity.

The following is a reconciliation of the numerators and denominators of the
basic and diluted net income per share computations for the periods indicated:

<TABLE>
<CAPTION>

                                         Net Income      Shares      Per Share
Three Months Ended September 30, 2001    (Numerator)  (Denominator)   Amount
---------------------------------------  -----------  -------------  ---------
<S>                                      <C>          <C>            <C>
Basic net income per share               $      339      1,450,513   $    0.23
                                                                     =========
Effect of dilutive stock options                  -          7,526
                                         ----------   ------------
Diluted net income per share             $      339      1,458,039   $    0.23
                                         ==========   ============   =========

Three Months Ended September 30, 2000
-------------------------------------

Basic net income per share               $      437      1,443,557   $    0.30
                                                                     =========
Effect of dilutive stock options                  -          3,797
                                         ----------   ------------

Diluted net income per share             $      437      1,447,354   $    0.30
                                         ==========   ============   =========
</TABLE>

<TABLE>
<CAPTION>
                                         Net Income      Shares       Per Share
Nine Months Ended September 30, 2001     (Numerator)  (Denominator)    Amount
------------------------------------     ----------   ------------   ---------
<S>                                      <C>          <C>            <C>
Basic net income per share               $    1,047      1,449,299   $    0.72
                                                                     =========
Effect of dilutive stock options                  -          7,928
                                         ----------   ------------

Diluted net income per share             $    1,047      1,457,227   $    0.72
                                         ==========   ============   =========

Nine Months Ended September 30, 2000
------------------------------------

Basic net income per share               $    1,292      1,441,595   $    0.90
                                                                     =========
Effect of dilutive stock options                  -          4,920
                                         ----------   ------------

Diluted net income per share             $    1,292      1,446,515   $    0.89
                                         ==========   ============   =========
</TABLE>

(6)  Grant of Stock Options

     On July 10, 2001, the Board of Directors granted stock options to employees
for a total of 11,500 shares under the Company's Incentive Stock Option Plan.
The per share exercise price of $14.00 associated with these stock options was
equal to the fair market value of the Company's common stock on the date of the
grant.

                                       9
<PAGE>

(7)  Subsequent Declaration of Cash Dividend

     On October 19, 2001, the Board of Directors declared a quarterly cash
dividend in the amount of $0.10 per common share payable to shareholders of
record as of October 9, 2001.


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS
          (Dollar Amounts in 000's)

     The following discussion supplements and provides information about the
major components of the results of operations and financial condition, liquidity
and capital resources of Pinnacle Bankshares Corporation and subsidiary (the
"Company"). This discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements, and supplemental financial data.

OVERVIEW

     Total assets at September 30, 2001 were $196,490, up 9.32% from $179,736 at
December 31, 2000.  The principal components of the Company's assets at the end
of the period were $42,622 in securities and $121,466 in net loans. During the
nine month period, net loans increased 2.10% or $2,504.  This increase was a
result of the purchase of a $4,508 loan participation during the second quarter
of 2001.  The Company's lending activities are a principal source of income.

     Total liabilities at September 30, 2001 were $178,023, up from $162,436 at
December 31, 2000, with an increase in deposits of $15,297 or 9.53%. Non-
interest bearing demand deposits increased $129 or 0.90% and represented 8.26%
of total deposits.  The Company's deposits are provided by individuals and
businesses located within the communities served.

     Total stockholders' equity at September 30, 2001 was $18,467 consisting of
$13,113 in retained earnings and $529 of net unrealized gains on securities
available-for-sale. At December 31, 2000, total shareholder's equity was
$17,300.

     The Company had net income of $1,047 for the nine months ended September
30, 2001, compared with net income of $1,292 for the comparable period in 2000,
a decrease of 18.96%.  The Company had net income of $339 for the three months
ended September 30, 2001, compared with net income of $437 for the comparable
period in 2000,

                                       10
<PAGE>

a decrease of 22.43%. The decrease in net income is the result of a lower net
interest margin and higher overhead costs in 2001. The results of operations for
the nine months ended September 30, 2001 are not necessarily indicative of the
results to be expected for the full year ending December 31, 2001.

     Profitability as measured by the Company's return on average assets (ROA)
was 0.74% for the nine months ended September 30, 2001, down from 1.09% for the
same period of 2000.  This decrease was due to a tightening of net interest
margin.  Another key indicator of performance, the return on average equity
(ROE) for the nine months ended September 30, 2001 was 7.72%, compared to 10.74%
for the nine months ended September 30, 2000.

NET INTEREST INCOME

     Net interest income represents the principal source of earnings for the
Company. Changes in the volume and mix of interest-earning assets and interest-
bearing liabilities, as well as their respective rates and yields, have a
significant impact on the level of net interest income.

     The net interest margin decreased from 4.48% for the nine months ended
September 30, 2000, to 3.71% for the nine months ended September 30, 2001. Net
interest income was $4,687 for the nine months ended September 30, 2001 and is
attributable to interest income from loans and securities exceeding the cost
associated with interest paid on deposits.

     Interest expense on deposits increased 25.66% for the nine months ended
September 30, 2001 relative to the same period in 2000. Interest income on loans
and securities increased 11.81% for the nine months ended September 30, 2001
relative to the same period in 2000. The new Old Forest Road and Timberlake
Plaza facilities, which were acquired in August 2000, greatly contributed to the
current year increases in interest expense and income. Interest and fees on
loans was $8,026 for the nine month period ended September 30, 2001, up from
$7,414 at September 30, 2000. The increase was due to the 4.08% increase in
loans from September 30, 2000 to September 30, 2001.

NON-INTEREST INCOME

     Non-interest income increased $316 or 42.99% for the nine month period
ended September 30, 2001 over the same period of 2000. Non-interest income
increased $67, or 24.36% when comparing the three months ended September 30,
2001 to the same period of 2000.  The Company's principal sources of non-
interest income are service

                                       11
<PAGE>

charges and fees on deposit accounts, particularly transaction accounts, and
fees from other bank products. Fees from the sale of mortgage loans were another
source of the increase. Fees from the sale of mortgage loans increased $98 for
the nine months ended September 30, 2001 compared to the same period in 2000.
The new Old Forest Road and Timberlake Plaza facilities, which were acquired in
August 2000, also contributed to the current year's non-interest income
increase.

NON-INTEREST EXPENSE

     Non-interest expense increased $594 or 17.25%, for the nine month period
ended September 30, 2001 over the same period of 2000. An increase of $141 or
11.60% is reflected when comparing the three month period ended September 30,
2001 to the same period of 2000. The increase in non-interest expense when
comparing the two periods is attributed to the effect of overall growth of the
Company on personnel expenses, fixed asset costs associated with bank premises
additions and other operating expenses. The new Old Forest Road and Timberlake
Plaza facilities, which were acquired in August 2000, also contributed to the
current year's non-interest expense increase.

ALLOWANCE AND PROVISION FOR LOAN LOSSES

     A provision for loan losses of $270 was expensed in the first nine months
of 2001 in recognition of management's estimate of risks inherent with lending
activities. Among other factors, management considers the Company's historical
loss experience, the size and composition of the loan portfolio, the value and
adequacy of collateral and guarantors, non-performing credits, and current and
anticipated economic conditions.  There are additional risks of future loan
losses that cannot be precisely quantified or attributed to particular loans or
classes of loans.  Since those risks include general economic trends as well as
conditions affecting individual borrowers, the allowance for loan losses is an
estimate.  The allowance is also subject to regulatory examinations and
determination as to adequacy, which may take into account such factors as the
methodology used to calculate the allowance. The allowance for loan losses was
$1,160 as of September 30, 2001, and represents approximately 0.95% of total
loans outstanding.  Management believes the allowance was adequate as of
September 30, 2001. Management evaluates the reasonableness of the allowance for
loan losses on a quarterly basis and adjusts the provision as deemed necessary.

NON-PERFORMING ASSETS AND IMPAIRED LOANS

                                       12
<PAGE>

     Nonperforming assets, which consist of nonaccrual loans and foreclosed
properties, were $330 at September 30, 2001 and $142 December 31, 2000. There
were no foreclosed properties as of September 30, 2001 nor as of December 31,
2000. Nonaccrual loans were $330 at September 30, 2001 and $142 December 31,
2000.  Loans are generally placed in nonaccrual status when the collection of
principal and interest is 90 days or more past due, unless the obligation is
both well-secured and in the process of collection.  Impaired loans equaled
nonaccrual loans as of September 30, 2001.

LIQUIDITY

     Liquidity represents an institution's ability to meet present and future
financial obligations through either the sale or maturity of existing assets or
the acquisition of additional funds from alternative funding sources. The
Company's liquidity is provided by cash and due from banks, federal funds sold,
investments available for sale, managing investment maturities, interest-earning
deposits in other financial institutions and loan repayments.  The Company's
ability to obtain deposits and purchase funds at favorable rates also affects it
liquidity. As a result of the Company's management of liquid assets and the
ability to generate liquidity through alternative funding sources, management
believes that the bank maintains overall liquidity that is sufficient to satisfy
its depositors' requirements and to meet customers' credit needs. The Company's
ratio of liquid assets to deposits and short-term borrowings was 30.24% as of
September 30, 2001 as compared to 22.76% as of December 31, 2000. Additional
sources of liquidity available to the Company include its capacity to borrow
additional funds through correspondent banks. The Company derives cash flows
from its operating, investing, and financing activities. Cash flows of the
Company are primarily used to fund loans and securities and are provided by the
deposits and borrowings of the Company.

CAPITAL

     The Company's financial position as of September 30, 2001 reflects
liquidity and capital levels currently adequate to fund anticipated future
business expansion.  Capital ratios are well in excess of required regulatory
minimums for a well-capitalized institution. The assessment of capital adequacy
depends on a number of factors such as asset quality, liquidity, earnings
performance, and changing competitive conditions and economic forces.  The
adequacy of the Company's capital is reviewed by management on an ongoing basis.
Management seeks to maintain a capital structure that will assure an adequate
level of capital to support anticipated asset growth and to absorb potential
losses.

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<PAGE>

     Stockholders' equity reached $18,467 at the end of the third quarter of
2001 compared to $17,300 at December 31, 2000. The leverage ratio consists of
Tier I capital divided by quarterly average assets.  At September 30, 2001, the
Company's leverage ratio was 8.92% compared to 9.43% at December 31, 2000.  Each
of these exceeds the required minimum leverage ratio of 3%.

NEW ACCOUNTING STANDARDS

     In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133. SFAS No. 137 deferred the effective date of SFAS No. 133 to
apply to all fiscal quarters of all fiscal years beginning after June 15, 2000.
In June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133. SFAS No. 138 amends SFAS No. 133 for a limited number of issues that have
caused application difficulties. The adoption of SFAS No. 133, as amended, as of
January 1, 2001, did not have any effect on the financial position, results of
operations or liquidity of the Company.

     In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, a
replacement of FASB Statement No. 125. SFAS No. 140 supercedes and replaces the
guidance in SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. SFAS No. 140 revises the standards
for accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of the
provisions of SFAS No. 125 without reconsideration. SFAS No. 140 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities that occur after March 31, 2001, and for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
Disclosures about securitization and collateral accepted need not be reported
for periods ending on or before December 15, 2000 for which financial statements
are presented for comparative purposes. Management believes the adoption of SFAS
No. 140 will not have significant effect on the

                                       14
<PAGE>

Company's consolidated financial statements.

     On July 6, 2001, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 102, Selected Loan Loss Allowance Methodology and
Documentation Issues. The guidance contained in the SAB is effective
immediately. This SAB expresses the views of the SEC staff regarding a
registrant's development, documentation, and application of a systematic
methodology for determining the allowance for loan and lease losses, as required
by SEC Financial Reporting Release (FRR) No. 28. The guidance in the SAB focuses
on the documentation the SEC staff normally expects registrants to prepare and
maintain in support of the allowance for loan and lease losses.

     Concurrent with the SEC's issuance of SAB No. 102, the federal banking
agencies (the Federal Deposit Insurance Corporation (FDIC), the Board of
Governors of the Federal Reserve System (FRB), the Office of the Comptroller of
the Currency (OCC), and the Office of Thrift Supervision (OTS)) represented by
the Federal Financial Institutions Examination Council issued an interagency
policy statement entitled Allowance for Loan and Lease Losses Methodologies and
Documentation for Banks and Savings Institutions (Policy Statement). The SAB and
Policy Statement were the result of an agreement between the SEC and the federal
banking agencies in March 1999 to provide guidance on allowance for loan and
lease methodologies and supporting documentation.

     The guidance contained in the SAB does not prescribe specific allowance
estimation methodologies registrants should employ in estimating their allowance
for loan and lease losses, but rather emphasizes the need for a systematic
methodology that is properly designed and implemented by registrants.

     In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires the use of
the purchase method of accounting for all business combinations. The use of the
pooling-of-interests method is prohibited for business combinations initiated
after June 30, 2001. SFAS No. 142 requires that goodwill and intangible assets
with indefinite useful lives would no longer be amortized, but rather be tested
for impairment at least annually in accordance with the provisions of SFAS No.
142. SFAS No. 142 is effective for fiscal years beginning after December 15,
2001. Management is currently evaluating the impact of SFAS No. 142 on the
financial position, results of operations and liquidity of the Company.

                                       15
<PAGE>

     In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The standard applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) normal use of the asset.

     SFAS No. 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of the liability
is added to the carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset. The liability is
accreted at the end of each period through charges to operating expense. If the
obligation is settled for other than the carrying amount of the liability, an
entity would recognize a gain or loss on settlement.

     SFAS No. 143 is effective for fiscal years beginning after June 15, 2002.
The adoption of SFAS No. 143 is not expected to have a material effect on the
financial position, results of operations or liquidity of the Company.

     In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of; however, it retains
many of the fundamental provisions of that Statement.

     SFAS No. 144 also supersedes the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business.
However, it retains the requirement in APB No. 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. By broadening the presentation of
discontinued operations to include more disposal transactions, the FASB has
enhanced management's ability to provide information that helps financial
statement users to assess the effects of a disposal transaction on the ongoing
operations of an entity.

                                       16
<PAGE>

     SFAS No. 144 is effective for fiscal years beginning after December 15,
2001 and interim periods within those fiscal years. Early application is
encouraged. The provisions of SFAS No. 144 generally are to be applied
prospectively. The adoption of SFAS No. 144 is not expected to have a material
effect on the financial position, results of operations or liquidity of the
Company.

     As of November 9, 2001, there are no other new accounting standards issued,
but not yet adopted by the Company, which are expected to be applicable to the
Company's financial position, operating results or financial statement
disclosures.


PART II - OTHER INFORMATION

Item 1 - LEGAL PROCEEDINGS

     There are no material pending legal proceedings to which the Company is a
party or of which the property of the Company is subject.


Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

Item 6 - EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits
               None


     (b)  Reports on Form 8-K
               None

                                       17
<PAGE>

                                  SIGNATURES

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


                                   PINNACLE BANKSHARES CORPORATION



NOVEMBER 9, 2001                   /s/ Robert H. Gilliam, Jr.
----------------------             ---------------------------------------
Date                               Robert H. Gilliam, Jr., President and
                                   Chief Executive Officer



NOVEMBER 9, 2001                   /s/ Bryan M. Lemley
----------------------             ---------------------------------------
Date                               Bryan M. Lemley, Secretary,
                                   Treasurer and Chief Financial Officer

                                       18