Net income for the referenced 2013 time periods includes the recognition of $1,077,000 in insurance proceeds received as a result of the fire that destroyed the Vista Branch Office and the subsequent rebuild of that facility, which re-opened on May 6, 2013. The proceeds were recognized as noninterest income in the second quarter of 2013, while the new building and equipment were booked as fixed assets and are being depreciated over the useful life of the assets.
Exclusive of the insurance proceeds, “core” operating net income was $453,000 for the quarter ended June 30, 2013 and $850,000 for the six months ended June 30, 2013. Current year net income for the same time periods has increased approximately 1% and 27% respectively.
Profitability as measured by the Company’s return on average assets (“ROA”) was 0.61% for the six months ended June 30, 2014, compared to the 1.08% generated during the first six months of 2013. Correspondingly, return on average equity (“ROE”) for the six months ended June 30, 2014 was 6.61% compared to 13.37% generated for the same time period of the prior year. ROA and ROE for the six month period of 2013 exclusive of the insurance proceeds were 0.57% and 7.08% respectively.
“We are pleased to report higher net income for both the second quarter and first half of 2014 as compared to the same time periods of 2013, exclusive of insurance proceeds,” stated Aubrey H. Hall, III, President and Chief Executive Officer for both the Company and the Bank. He further commented, “An expansion of our net interest margin and further strengthening of asset quality are the primary drivers of this improvement.”
The company produced net interest income of $6,039,000 for the first half of 2014, which represents a 6% increase as compared to the $5,697,000 generated for the same period of 2013. Year over year improvement for the time period was achieved through lower cost of funds as interest expense was down an estimated 45% or $833,000 to $1,021,000. This cost reduction was achieved through further lowering of interest rates paid on deposits and the continued growth of checking account balances in relation to savings and time deposits. The decrease in interest expense was offset to a degree by lower interest income, which decreased approximately 7% or $491,000 to $7,060,000 due to a decline in the yield on interest earning assets, which were primarily loans. The Company’s net interest margin increased 24 basis points to 3.65% for the first half of 2014 compared to the first half of 2013.
Continued improvement in asset quality over the last year has lowered the Company’s provision for loan losses, which was $(13,000) for the first half of 2014 as compared to $131,000 for the first six months of 2013. This decline has been driven by a $766,000 decline in nonperforming assets from June 30, 2013 to June 30, 2014.
The allowance for loan losses was $3,187,000 as of June 30, 2014, which represented 1.13% of total loans outstanding. In comparison, the allowance was $3,409,000, or 1.23% of total loans outstanding, as of December 31, 2013. The decrease in the allowance to total loans ratio is reflective of the Company’s strengthened asset quality position. Allowance coverage of problem loans continues to expand as the balance was 161% of nonperforming loans as of June 30, 2014 versus 132% as of December 31, 2013.
Noninterest income decreased $1,320,000 or approximately 47% to $1,516,000 for the first half of 2014 as compared to $2,836,000 for the same period of 2013. As referenced earlier, $1,077,000 in insurance proceeds related to the Vista Branch fire and rebuild were recognized as income in the second quarter of 2013. Net of the insurance proceeds, noninterest income still decreased $185,000 or approximately 14% year over year for the time period due to lower fees generated from sales of mortgage loans and commissions and fees derived from sales of investment products.
Noninterest expense decreased $101,000 or approximately 2% to $5,991,000 for the first half of 2014 compared to $6,092,000 for the same period of 2013. This decrease is primarily attributed to lower compensation and employee benefits expense due to lower commissions, lower retirement plan expenses and fewer losses from the sale of foreclosed real estate. These decreases were partially offset by one-time costs associated with outsourcing our core systems and a contract buyout to change electronic bill pay vendors. The Company expects to benefit from greater efficiency and more focus on client service and delivery channels as a result of these initiatives.
Total assets as of June 30, 2014 were $357,926,000, down less than 1% or $1,041,000 from $358,967,000 as of December 31, 2013. The principal components of the Company’s assets as of the end of the period were $280,916,000 in total loans, $29,288,000 in cash and cash equivalents and $27,696,000 in securities. During the first half of 2014, total loans increased 1% or $3,158,000 from $277,758,000 as of December 31, 2013 while securities decreased less than 1% or 1,429,000 from $29,125,000.
Total liabilities as of June 30, 2014 were $324,764,000, down less than 1% or $1,895,000 from $326,659,000 of December 31, 2013. Lower levels of time and savings deposits drove the decrease as time deposits decreased approximately 1% or $1,181,000 and savings deposits decreased approximately 1% or $1,575,000. The decreases were partially offset by an approximate 2%, or $1,066,000 increase in demand deposits.
Total stockholders’ equity as of June 30, 2014 was $33,162,000 including $27,775,000 in retained earnings. As of December 31, 2013, total stockholders’ equity was $32,308,000 including $26,920,000 in retained earnings. The Company and Bank have continued to improve their capital positions while also paying a cash dividend to shareholders in each of the last seven quarters.
Pinnacle Bankshares Corporation is a locally managed community banking organization based in Central Virginia. The one-bank holding company of First National Bank serves an area consisting primarily of all or portions of the Counties of Campbell, Pittsylvania, Bedford, Amherst and the City of Lynchburg. The Company has a total of eight branches with two located in the Town of Altavista, where the Bank was founded. Other branch locations include Village Highway in Rustburg, Wards Road near the Lynchburg Regional Airport, Timberlake Road in Campbell County, South Main Street in the Town of Amherst, Old Forest Road in the City of Lynchburg and Forest Road in Bedford County. First National Bank is in its 107th year of operation.
Selected financial highlights are shown below.
Net Interest Income
Provision for Loan Losses
Earnings Per Share (Basic)
Earnings Per Share (Diluted)
* Includes $1,077 in insurance proceeds received as a result of the fire that destroyed the Vista Branch Office and the subsequent rebuild of that facility, which reopened on May 6, 2013