Pinnacle Bankshares Corporation Announces Record High 2023 Earnings

ALTAVISTA, Va., Feb. 15, 2024 (GLOBE NEWSWIRE) — Net income for Pinnacle Bankshares Corporation (OTCQX:PPBN), the one-bank holding company (the “Company” or “Pinnacle”) for First National Bank (the “Bank”), was $2,279,000, or $1.04 per basic and diluted share, for the fourth quarter of 2023. Net income for the year ended December 31, 2023 was a record high $9,762,000, or $4.45 per basic and diluted share.   In comparison, net income was $2,562,000, or $1.18 per basic and $1.17 per diluted share, and $8,242,000, or $3.78 per basic and diluted share, respectively, for the same periods of 2022.   Consolidated results for the quarter and the year are unaudited.

Fourth Quarter & 2023 Highlights include the following:

• Record High 2023 Net Income of $9,762,000 surpassed the previous annual record high net income of $8,242,000 achieved in 2022.
• Return on Assets was 1.00% for 2023 compared to 0.82% for 2022.
• Net Interest Income increased 9% in 2023 as compared to 2022 and 2% in the fourth quarter of 2023 as compared to the third quarter.
• Net Interest Margin for 2023 was 3.52%, up 34 basis points from 3.18% for 2022.
• Noninterest expense was elevated in the fourth quarter of 2023 due mainly to a one-time core operating system expense.
• Asset Quality remains strong and further improved in the fourth quarter of 2023 with low Nonperforming Assets and no Other Real Estate Owned (OREO).
• Noninterest Income increased 44% in the fourth quarter of 2023 and 13% for the year as compared to the same time periods of 2022 due primarily to Bank Owned Life Insurance (BOLI) returns.
• Total Assets increased 5% in 2023, while Deposits increased 4% as Liquidity remains strong at 37%. Deposit Accounts grew 6% for the year driven by large national bank branch closures in well-established markets.
• The Securities Portfolio is relatively short term in nature with $53 million in U.S. Treasuries maturing in the first quarter of 2024.
• The Loan Portfolio grew $17.2 million, or 3%, in the fourth quarter of 2023 and $8.5 million, or 1%, for the year.
• Capital continues to strengthen with the Bank’s Leverage Ratio increasing to 8.82% from 8.06% and Total Risk Based Capital Ratio increasing to 13.67% from 12.63% when comparing 2023 to 2022.

Net Income and Profitability

Net income generated during the fourth quarter of 2023 represents a $283,000, or 11%, decrease, as compared to the same time period of 2022, while net income generated for 2023 represents a $1,520,000, or 18%, increase, as compared to the prior year. The decrease in net income for the fourth quarter of 2023 was driven by lower net interest income and higher noninterest expense partially offset by higher noninterest income. The increase in net income for 2023 was driven by higher net interest income and higher noninterest income partially offset by higher noninterest expense.   

Profitability as measured by the Company’s return on average assets (“ROA”) increased to 1.00% for 2023, as compared to 0.82% for 2022. Correspondingly, return on average equity (“ROE”) increased to 15.69% for 2023, as compared to 14.62% for 2022.  

“We are very pleased to report Pinnacle’s record high earnings for 2023,” stated Aubrey H. Hall, III, President and Chief Executive Officer for both the Company and the Bank. Mr. Hall further commented, “Pinnacle generated solid returns for the year despite the volatility created in the banking industry by rapidly rising interest rates. We have remained core funded with significant sources of liquidity and have maintained stellar credit quality. We have also managed to expand our net interest margin, strengthen our capital ratios, and increase cash dividends, all of which have contributed to an improvement in our stock price.”  

Net Interest Income and Margin

The Company generated $8,371,000 in net interest income for the fourth quarter of 2023, which represents a $445,000, or 5%, decrease as compared to $8,816,000 for the fourth quarter of 2022. Interest income increased $1,694,000, or 18%, due to higher yields on earning assets, while interest expense increased $2,139,000, or 412%, due to higher interest rates paid on deposits.

The Company generated $33,172,000 in net interest income for 2023, which represents a $2,732,000, or 9%, increase as compared to $30,440,000 for 2022. Interest income increased $10,100,000, or 32%, as the yield on earning assets increased 112 basis points to 4.44%. Interest expense increased $7,368,000, or 547%, due to higher interest rates paid on deposits as cost to fund earning assets increased 78 basis points to 0.92%. Net interest margin increased to 3.52% for 2023 from 3.18% for 2022.  

Reserves for Credit Losses and Asset Quality

The provision for credit losses was only $4,000 in the fourth quarter of 2023 as compared to $114,000 in the fourth quarter of 2022. For 2023, the provision for credit losses was $70,000 as compared to $190,000 in 2022. Provision expense was minimal for 2023 as a result of strong credit quality and a decline in loan growth.  

The allowance for credit losses (ACL) was $4,511,000 as of December 31, 2023, which represented 0.70% of total loans outstanding.   In comparison, the ACL was $3,853,000 or 0.61% of total loans outstanding as of December 31, 2022. Non-performing loans to total loans decreased to 0.24% as of December 31, 2023, compared to 0.28% as of year-end 2022. ACL coverage of non-performing loans was 290% as of December 31, 2023, compared to 216% as of year-end 2022. The ACL includes an initial current expected credit losses (CECL) adjustment of $561,000 ($443,000 net of tax) incurred during the first quarter of 2023, which was a charge to capital. Management views the allowance balance as being sufficient to offset potential future losses in the loan portfolio.

Noninterest Income and Expense

Noninterest income for the fourth quarter of 2023 increased $718,000, or 44%, to $2,357,000 as compared to $1,639,000 for the fourth quarter of 2022. The increase was primarily due mainly to a $764,000 increase in bank owned life insurance (BOLI) returns partially offset by an $88,000 decline in fees generated from sales of mortgage loans. Mortgage loan originations have been challenged over the past year by higher interest rates affecting affordability and housing inventory shortages.

Noninterest income for 2023 increased $941,000, or 13%, to $7,964,000, as compared to $7,023,000 for 2022. The increase was mainly due to a $1,431,000 increase in BOLI returns, a $61,000 increase in merchant card fees, and a $38,000 increase in insurance and investment sales commissions. These increases were partially offset by a $402,000 decrease in fees generated from sales of mortgage loans, a $107,000 decrease in loan fee income, and a $66,000 decrease in income derived from ownership in Bankers Insurance, LLC.

Noninterest expense for the fourth quarter of 2023 increased $598,000, or 8%, to $8,093,000 compared to $7,495,000 for the fourth quarter of 2022. The increase was primarily due to a $550,000 increase in core operating system expenses that included a one-time charge of $402,000. The Bank also experienced a $61,000 increase in legal expenses.

Noninterest expense for 2023 increased $2,043,000, or 8%, to $29,280,000, compared to $27,237,000 for 2022. The increase was mainly due to an $862,000 increase in salaries and employee benefits, a $748,000 increase in core operating system expenses that included the referenced one-time charge of $402,000, a $243,000 increase in occupancy expenses, a $165,000 increase in legal expenses, and a $79,000 increase in audit and accounting fees.  

The Balance Sheet and Liquidity

Total assets as of December 31, 2023, were $1,016,528,000, up 5% from $969,931,000 as of December 31, 2022. The principal components of the Company’s assets as of December 31, 2023, were $641,437,000 in total loans, $233,579,000 in securities, and $87,589,000 in cash and cash equivalents. For 2023, total loans increased $8,541,000, or 1%, from $632,896,000 as of December 31, 2022.   Securities decreased $17,535,000, or 7%, while cash and cash equivalents increased $51,068,000, or 140%.  

The majority of the Company’s securities portfolio is relatively short-term in nature. Sixty percent (60%) of the Company’s securities portfolio is invested in U.S. Treasuries having an average maturity of 1.29 years with $53,000,000 maturing in the first quarter of 2024. The Company’s entire securities portfolio was classified as available for sale on December 31, 2023, which provides transparency regarding unrealized losses. Unrealized losses associated with the available for sale securities portfolio were $14,943,000 as of December 31, 2023, or six percent (6%) of book value, an improvement from $19,892,000 as of December 31, 2022.  

The significant increase in cash and cash equivalents referenced was due to an increase in deposits combined with a decrease in securities. The Company had a strong liquidity ratio of 37% as of December 31, 2023. The liquidity ratio excluding the available for sale securities portfolio was 10% providing the opportunity to sell excess funds at an attractive federal funds rate. The Company has access to multiple liquidity lines of credit through its correspondent banking relationships and the Federal Home Loan Bank. None of these contingency funding sources have been utilized.

Total liabilities as of December 31, 2023, were $948,124,000, up $35,201,000, or 4%, from $912,923,000 as of December 31, 2022, as deposits increased $33,206,000, or 4%, to $932,444,000 in 2023. First National Bank’s number of deposit accounts increased 6% during the same time period as the Bank has benefitted from the closures of large national bank branches within markets served and its reputation of providing extraordinary customer service.

Total stockholders’ equity as of December 31, 2023, was $68,405,000 and consisted primarily of $62,069,000 in retained earnings. In comparison, as of December 31, 2022, total stockholders’ equity was $57,008,000. The increase in stockholders’ equity is due primarily to 2023 profitability and an increase in the market value of the securities portfolio and pension assets. Both the Company and Bank remain “well capitalized” per all regulatory definitions.

Company Information

Pinnacle Bankshares Corporation is a locally managed community banking organization based in Central and Southern Virginia. The one-bank holding company of First National Bank serves market areas consisting primarily of all or portions of the Counties of Amherst, Bedford, Campbell and Pittsylvania, and the Cities of Charlottesville, Danville and Lynchburg. The Company has a total of eighteen branches with one branch in Amherst County within the Town of Amherst, two branches in Bedford County; five branches in Campbell County, including two within the Town of Altavista, where the Bank was founded; one branch in the City of Charlottesville, three branches in the City of Danville; three branches in the City of Lynchburg; and three branches in Pittsylvania County, including one within the Town of Chatham. First National Bank is in its 116th year of operation.         

Cautionary Statement Regarding Forward-Looking Statements

This press release may contain “forward-looking statements” within the meaning of federal securities laws that involve significant risks and uncertainties. Any statements contained herein that are not historical facts are forward-looking and are based on current assumptions and analysis by the Company. These forward-looking statements, including statements made in Mr. Hall’s quotes may include, but are not limited to, statements regarding the credit quality of our asset portfolio in future periods, the expected losses of nonperforming loans in future periods, returns and capital accretion during future periods, our cost of funds, the maintenance of our net interest margin, future operating results and business performance and our growth initiatives. Although we believe our plans and expectations reflected in these forward-looking statements are reasonable, our ability to predict results or the actual effect of future plans or strategies is inherently uncertain, and we can give no assurance that these plans or expectations will be achieved. Factors that could cause actual results to differ materially from management’s expectations include, but are not limited to: changes in consumer spending and saving habits that may occur, including increased inflation; changes in general business, economic and market conditions; attracting, hiring, training, motivating and retaining qualified employees; changes in fiscal and monetary policies, and laws and regulations; changes in interest rates, inflation rates, deposit flows, loan demand and real estate values; changes in the quality or composition of the Company’s loan portfolio and the value of the collateral securing loans; changes in macroeconomic trends and uncertainty, including liquidity concerns at other financial institutions, and the potential for local and/or global economic recession; changes in demand for financial services in Pinnacle’s market areas; increased competition from both banks and non-banks in Pinnacle’s market areas; a deterioration in credit quality and/or a reduced demand for, or supply of, credit; increased information security risk, including cyber security risk, which may lead to potential business disruptions or financial losses; volatility in the securities markets generally, including in the value of securities in the Company’s securities portfolio or in the market price of Pinnacle common stock specifically; and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.   These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and you should not place undue reliance on such statements, which reflect our views as of the date of this release.

Selected financial highlights are shown below.

CONTACT: Pinnacle Bankshares Corporation, Bryan M. Lemley, 434-477-5882 or bryanlemley@1stnatbk.com