2 0 2 3 A N N U A L R E P O R T
B O A R D O F D I R E C T O R S
Front Row (Left to Right): Vivian S. Brown, Donald W. Merricks (Vice Chairman),
James E. Burton, IV (Chairman), Aubrey H. Hall, III, Michael E. Watson, Connie C. Burnette
Back Row (Left to Right): L. Frank King, Jr., C. Bryan Stott, Carroll E. Shelton, Judson H. Dalton, Robert Hurt,
Robert L. Finch, Jr., James O. Watts, IV, Elton W. Blackstock, Jr. (Not Pictured: Dr. Robert L. Johnson, II)
S E N I O R M A N A G E M E N T
Front Row (Left to Right): Melissa T. Campbell, Aubrey H. Hall, III (President & CEO), Allison G. Daniels
Back Row (Left to Right): Tracie A. Gallahan, Jennifer T. Edgell, Bryan M. Lemley, Shawn D. Stone,
James M. Minear, Krystal D. Harris
DEAR
SHAREHOLDERS,
I am pleased to report that Pinnacle Bankshares
Corporation, the one bank holding company for First
National Bank, completed another successful year in
2023, generating record high net income while materially
enhancing franchise value and shareholder returns. I
am proud of our performance especially considering the
challenges faced by the banking industry last year due
to rapidly rising interest rates, the resulting liquidity
crisis, and several bank failures. Through this volatility
we were able to grow deposits, expand our net interest
margin, and strengthen our capital position, which all
contributed to improved profitability and a higher stock
price. Most importantly, we maintained the trust of our
depositors and the confidence of our investors. As a result
of our efforts, First National achieved the # 3 overall
performance ranking per the Performance Trust Rank-
the-Banks Virginia Report as of December 31, 2023.
Pinnacle’s net income for 2023 was $9.76 million, which
represents a $1.5 million, or 18%, increase as compared
to 2022 and a return on average assets of 1.00% for the
year. The primary driver of this performance was higher
net interest income, which increased $2.7 million to $33.2
million, with higher asset yields offsetting rising cost
of funds. Our ability to grow deposits and remain core
funded helped keep our cost of funds below 1% at 0.92%
for the year and expand our net interest margin to 3.52%.
Noninterest income increased $941,000, or 13%, to $8
million in 2023 and benefitted from Bank Owned Life
Insurance (BOLI) proceeds totaling $1,363,000 received
during the year as well as an increase in interchange fees
derived from debit card usage, merchant card fees, and
insurance and investment product sales commissions.
First National has regularly invested in BOLI since 2012
to further enhance noninterest income and help fund the
cost of employee benefits. The BOLI proceeds more than
offset declines in fees generated from the sale of mortgage
loans and loan fee income. Mortgage loan originations
and overall loan volume were negatively impacted in 2023
by rising interest rates, housing inventory shortages, and
concerns regarding a potential recession.
Improved revenue surpassed higher operating costs
as noninterest expense increased $2 million, or 8%,
to $29.3 million mainly due to increased salaries and
employee benefits as well as core operating system
expenses. Salaries and benefits increased $862,000 year-
over-year as a result of pay improvement initiatives and
new incentive plans intended to ensure First National
remains competitive in a continued tight labor market for
top talent. Core operating expenses increased $748,000
mainly due to a one-time charge of $402,000 from our
core system provider, Fiserv, related to contract renewal
credits and billings. Additionally, we also experienced
higher occupancy and legal expenses as well as audit and
accounting fees due to our larger size and complexity.
As a result of our efforts,
First National achieved the
#3 overall performance ranking
per the Performance Trust
Rank-the-Banks Virginia Report
as of December 31, 2023.
Credit quality remained strong during 2023 with Pinnacle’s
criticized and classified loans decreasing $1.6 million,
or 34%, to $3 million as of year-end. Additionally, we
experienced low net charge-offs of $34,000 for the year
as compared to net recoveries of $51,000 in 2022. As
of December 31, 2023, we did not have any Other Real
Estate Owned (OREO) and Non-Performing Loans to
Total Loans and Non-Performing Assets to Total Assets
were 0.24% and 0.15%, respectively. We have continued
to emphasize credit quality due to concerns regarding the
negative impact higher inflation and market interest rates
may have on borrowers.
From a balance sheet perspective, Pinnacle finished 2023
with $1.02 billion in total assets comprised primarily of
$641 million in loans, $234 million in securities, and
$87.6 million in cash and cash equivalents. Total loans
increased $8.5 million, or 1%, during 2023 after increasing
15% the prior year. We experienced a decline in loan
volume through the first half of the year as demand was
negatively impacted by higher interest rates and concerns
about the economy, however, volume rebounded during
the second half of the year to include 3% growth in the
fourth quarter. Our securities portfolio declined $17.5
million, or 7%, during the year and remains relatively
short-term in nature with 60% invested in U.S. Treasury
issues having an average maturity of 1.29 years and $53
million maturing during the first quarter of 2024. Our
cash position as of December 31, 2023 increased $51.1
million as compared to the prior year-end due to reduced
loan growth, a decline in securities, and deposit growth,
which has put us in a strong liquidity position.
Total liabilities were $948 million as of December 31,
2023 and were mainly comprised of $932 million in
deposits, which increased $33.2 million, or 4%, for the
year. Our total number of deposit accounts increased 6%
year-over-year as we benefitted from our strong reputation
for extraordinary customer service and closures of large
national bank branches in markets served.
Stockholders’ equity totaled $68.4 million as of December
31, 2023, which is an increase of $11.4 million, or 20%,
compared to the prior year-end. Correspondingly, our
tangible book value per share improved $5.56, or 22%,
to $30.38 over the same time period. The improvement
has been driven by increased profitability, a decrease in
unrealized losses associated with our securities portfolio,
and an increase in the value of pension assets. Pinnacle
and First National Bank remain “well capitalized” per all
regulatory definitions.
Pinnacle’s stock price ended 2023 at $24.01 per share,
an increase of $4.81, or 25%, compared to year-end
2022. For 2023, Pinnacle paid $0.85 per share in cash
dividends, an increase of $0.24 per share, or 39%,
compared to the prior year, as a result of our improved
profitability and capital position. Total return for 2023
was 30.19%, which outpaced the S&P U.S. BMI Banks
Index’s total return of 9.09%1 and placed us amongst the
top fifty performing OTC Markets Group Inc. OTCQX
companies in 2024.2 Based on the last trade through
February 29, 2024, Pinnacle’s stock price was $29.33 per
share or 97% of year-end tangible book value.
I would like to thank L. Frank King, Jr., Carroll E.
Shelton, and C. Bryan Stott for their service to the
Boards of Pinnacle Bankshares Corporation and First
National Bank. Mr. King is the prior President and Chief
Executive Office of Virginia Bank and Trust Company
and has been instrumental in our expansion efforts across
Danville and Pittsylvania County. Mr. Shelton has served
our organization as an employee and/or director for over
fifty years, providing a strong source of institutional
knowledge and support. Mr. Stott has provided financial
services industry expertise to the Board and has served on
numerous Board committees, including as Chairman of
the Compensation Committee. These individuals helped
lead us through the significant growth of our company
and will be retiring from the Boards effective as of our
2024 Annual Meeting of Shareholders. Their experience,
guidance, and support will be missed.
We are excited that Ramsey W. Yeatts, owner and principal
broker of Ramsey Yeatts & Associates, Realtors, is standing
for election to the Pinnacle Board. Mr. Yeatts has lived
and worked in the Pittsylvania County / Danville area
all of his life and has over thirty years of experience in
banking and real estate. His depth of knowledge of our
Southern Market will serve the company well as the area
continues to transform and provide new opportunities.
Our Annual Meeting of Shareholders will be conducted
on Tuesday, May 14, 2024, beginning at 11:00 a.m., at
Virginia Technical Institute, located at 201 Ogden Road,
Altavista, VA 24517. The meeting will be followed by a
luncheon provided for those in attendance. I hope you
will join us for an informative session regarding Pinnacle’s
continued progress.
In closing, Pinnacle has produced record high net
income each of the past two years and significantly
improved profitability and shareholder returns. We are
experiencing the benefits of our larger size and scale along
with diversification of markets served, yet we remain
committed to a community bank model focused on our
customers and employees, which is critical to success. I
continue to be excited about our future and our ability to
capitalize on opportunities and expand our relationships
across the Central and Southern Virginia markets.
As always, thank you for your support, confidence, and the
opportunity to serve your interests as President and Chief
Executive Officer of Pinnacle Bankshares Corporation.
Sincerely,
Aubrey H. Hall, III “Todd”
President & CEO
1S&P Global / S&P Capital IQ
2OTC Markets Group Announces the 2024 OTCQX Best 50 – Press Release dated January 18, 2024
All forward-looking information in this letter should be read with, and is qualified in its entirety by, the cautionary language regarding
forward-looking statements contained in this Annual Report for the year ended December 31, 2023.
DIVIDENDS PER SHARE
$1.00
$0.80
0.85
$0.60
0.545
0.56
0.56
0.61
$0.40
$0.20
$0.00
$25.00
$23.00
$21.00
$19.00
$17.00
$15.00
$19.20
(2022)
SHARE PRICE IN 2023
$24.01
PINNACLE BANKSHARES CORPORATION
AND SUBSIDIARY
Table of Contents
Company Overview
Results of Operations
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Management’s Report on Internal Control over Financial Reporting
Report of Independent Auditor
1
11
16
17
18
19
20
21
59
61
Pinnacle Bankshares Corporation
Company Overview
Business
Pinnacle Bankshares Corporation (“Pinnacle” or the “Company”), a Virginia corporation, was organized in 1997 and is
registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Pinnacle is
headquartered in Altavista, Virginia and conducts all of its business activities through the branch offices of its wholly-owned
subsidiary bank, First National Bank (Altavista, Virginia) (“First National Bank” or the “Bank”). Pinnacle was primarily established
for the purpose of holding the stock of its subsidiary, First National Bank, and of such other subsidiaries as Pinnacle may acquire or
establish. Pinnacle’s headquarters are located at 622 Broad Street, Altavista, Virginia. Information about the Company is available
under the Investor Relation tab on First National Bank's website at www.1stnatbk.com. Information on our website is not part of,
and is not incorporated into, this Annual Report.
With an emphasis on personal service and commitment to a community banking business model, First National Bank today
offers a broad range of commercial and retail banking products and services including checking, savings and time deposits,
individual retirement accounts, online banking, mobile banking, remote deposit capture, merchant bankcard processing, residential
and commercial mortgages, home equity loans, consumer installment loans, agricultural loans, investment loans, small business
loans, commercial loans, lines of credit and letters of credit. First National Bank also offers a full range of investment, insurance
and annuity products through its association with LPL Financial LLC, and Bankers Insurance, LLC.
First National Bank is a community banking organization serving central and southern Virginia. The 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 celebrating its 116th year of operation.
First National Bank has two wholly-owned subsidiaries. FNB Property Corp., which is a Virginia corporation, formed to hold
title to hold real estate for future bank premises. First Properties, Inc., also a Virginia corporation, was formed to hold title to other
real estate owned.
Pinnacle’s revenues are primarily derived from interest and fees received in connection with, real estate and other loans, and
from interest and dividends from investment securities. Pinnacle also derives noninterest revenue from a variety of sources including,
but not limited to, service charges on deposit and loan accounts, commissions and fees from the sales of investment and insurance
products, mortgage loan fees and bank owned life insurance (“BOLI”) proceeds. The principal sources of funds for Pinnacle’s
lending activities are its deposits, repayment of loans, maturity of investment securities, available lines of credit from correspondent
banks, borrowings from the Federal Home Loan Bank of Atlanta (“FHLB”) and access to the Federal Reserve discount window if
needed.
Pinnacle’s operations are influenced by general economic conditions and by related monetary and fiscal policies of regulatory
agencies, including the Board of Governors of the Federal Reserve System (the “Federal Reserve”). As a national banking
association, the Bank is supervised and examined by the Office of the Comptroller of the Currency (the “OCC”). Interest rates on
competing investments and general market rates of interest influence deposit flows and costs of funds. Lending activities are affected
by the demand for financing of real estate and other types of loans, which in turn is affected by local economic conditions, the
interest rate environment and its impact on local demand and the availability of funds. The Bank faces strong competition in the
attraction of deposits, its primary source of lendable funds, and in the origination of loans.
Competition
The banking business in central and southern Virginia is highly competitive with respect to both deposits and loans with a
number of larger banks as well as other community banks operating in Pinnacle’s market area. Pinnacle actively competes for all
types of deposits and loans with other banks and nonbank financial institutions, including savings and loan associations, finance
1
companies, credit unions, mortgage companies, insurance companies, financial technology companies, and other lending
institutions.
Institutions such as brokerage firms, credit card companies and even retail establishments offer alternative investment vehicles
such as money market funds as well as traditional banking services. Other entities (both public and private) seeking to raise capital
through the issuance and sale of debt or equity securities also represent a source of competition for Pinnacle with respect to the
acquisition of deposits. Among the advantages that the larger banks have over Pinnacle is their ability to finance extensive
advertising campaigns, to offer a wider range of products and services based on the scale of their operations, and to allocate their
investment assets to regions of highest yield and demand over a more diverse geographic area. Although larger banks have these
competitive advantages over community banks, Pinnacle actively emphasizes its competitive advantage by soliciting customers who
prefer the personal service offered by a community bank.
Pinnacle is not dependent upon a single customer or industry, the loss of which would have a material adverse effect on
Pinnacle’s financial condition. The markets Pinnacle serves benefit from both industrial and retail diversification.
Pinnacle believes that its prompt response to lending requests is a key factor to Pinnacle’s competitive position in markets
served. In addition, local decision-making and the accessibility of senior management to customers also distinguish Pinnacle from
other area financial institutions.
In order to compete with the other financial institutions in markets served, Pinnacle relies upon local promotional activities,
personal contact by its directors, officers and employees and its ability to offer specialized services to customers. Pinnacle’s
promotional activities emphasize the advantages of dealing with a community bank.
Common Stock and Dividends.
Common Stock of Pinnacle is traded on the OTCQX under the symbol “PPBN.” As of March 30, 2024, there were
approximately 2,205,666 shares of Common Stock outstanding, which shares are held by approximately 483 active shareholders of
record.
Substantially all of Pinnacle’s retained earnings consist of undistributed earnings of First National Bank, which are restricted
by various regulations administered by federal banking regulatory agencies. Under applicable federal laws, the OCC restricts,
without prior approval, the total dividend payments of First National Bank in any calendar year to the net profits of that year, as
defined, combined with the retained net profits for the two preceding years.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Pinnacle and First National
Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. Pinnacle and First National Bank’s capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Employees
As of December 31, 2023, Pinnacle had 175 full-time and 8 part-time employees. Pinnacle’s management believes that its
employee relations are good, although recent growth and the current jobs market have presented challenges.
Regulation and Supervision
General. Bank holding companies, banks and their affiliates are extensively regulated under both federal and state law. The
following summary briefly describes significant provisions of currently applicable federal and state laws and certain regulations and
the potential impact of such provisions. This summary is not complete and is qualified in its entirety by reference to the particular
statutory or regulatory provisions or proposals. Because regulation of financial institutions changes regularly and is the subject of
constant legislative and regulatory debate, we cannot forecast how federal and state regulation and supervision of financial
institutions may change in the future and affect Pinnacle and First National Bank’s operations.
As a national bank, First National Bank is subject to regulation, supervision and regular examination by the OCC. The prior
approval of the OCC or other appropriate bank regulatory authority is required for a national bank to merge with another bank or
2
purchase the assets or assume the deposits of another bank. In reviewing applications seeking approval of merger and acquisition
transactions, the bank regulatory authorities will consider, among other things, the competitive effect and public benefits of the
transactions, the capital position of the constituent organizations and the combined organization, the risks to the stability of the U.S.
banking or financial system, the applicant’s performance record under the Community Reinvestment Act (the “CRA”) and fair
housing initiatives, the data security and cybersecurity infrastructure of the constituent organizations and the combined organization,
and the effectiveness of the subject organizations in combating money laundering activities.
The OCC announced on September 28, 2023 that its supervisory strategies for 2024 will focus on: (a) asset and liability
management; (b) credit; (c) allowance for credit losses; (d) cybersecurity; (e) operations; (f) distributed ledger technology related
activities; (g) change management; (h) payments; (i) Bank Secrecy Act/anti-money laundering/countering the financing of terrorism
and Office of Foreign Assets Control (“OFAC”); (j) consumer compliance; (k) community reinvestment act; (l) fair lending; and
(m) climate-related financial risks. The OCC’s 2024 supervisory plan provides the foundation for policy initiatives and supervisory
strategies as applied to national banks, such as First National Bank, and OCC staff members use the plan to guide their priorities,
planning, and resource allocations over the course of the coming fiscal year.
Each depositor’s account with First National Bank is insured by the Federal Deposit Insurance Corporation (the “FDIC”) to
the maximum amount permitted by law.
First National Bank is also subject to certain regulations promulgated by the Federal Reserve and applicable provisions of
Virginia law, insofar as they do not conflict with or are not preempted by federal banking law.
The regulations of the Federal Reserve, the OCC and the FDIC govern most aspects of Pinnacle’s business, including deposit
reserve requirements, investments, loans, certain check clearing activities, issuance of securities, payment of dividends, branching,
and numerous other matters. Further, the federal bank regulatory agencies have adopted guidelines and released interpretive
materials that establish operational and managerial standards to promote the safe and sound operation of banks and bank holding
companies. These standards relate to the institution’s key operating functions, including but not limited to internal controls, internal
audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings, compensation
of management, information systems, data security and cybersecurity, and risk management. As a consequence of the extensive
regulation of commercial banking activities in the United States, Pinnacle’s business is particularly susceptible to changes in state
and federal legislation and regulations, which may have the effect of increasing the cost of doing business, limiting permissible
activities or increasing competition.
As a bank holding company, Pinnacle is subject to the BHCA, and regulation and supervision by the Federal Reserve. A bank
holding company is required to obtain the approval of the Federal Reserve before making certain acquisitions or engaging in certain
activities. Bank holding companies and their subsidiaries are also subject to restrictions on transactions with insiders and affiliates.
A bank holding company is required to obtain the approval of the Federal Reserve before it may acquire all or substantially
all of the assets of any bank, and before it may acquire ownership or control of the voting shares of any bank if, after giving effect
to the acquisition, the bank holding company would own or control more than 5.0% of the voting shares of such bank. The approval
of the Federal Reserve is also required for the merger or consolidation of bank holding companies.
Pursuant to the BHCA, the Federal Reserve has the power to order any bank holding company or its subsidiaries to terminate
any activity or to terminate its ownership or control of any subsidiary when the Federal Reserve has reasonable grounds to believe
that continuation of such activity or ownership constitutes a serious risk to the financial soundness, safety or stability of any bank
subsidiary of the bank holding company.
Pinnacle is required to file periodic reports with the Federal Reserve and provide any additional information the Federal
Reserve may require. The Federal Reserve also has the authority to examine Pinnacle and its subsidiaries, as well as any
arrangements between Pinnacle and its subsidiaries, with the cost of any such examinations to be borne by Pinnacle. Banking
subsidiaries of bank holding companies are also subject to certain restrictions imposed by federal law in dealings with their holding
companies and other affiliates.
Regulatory Environment. Banking and other financial services statutes, regulations and policies are continually under review
by the U.S. Congress, state legislatures and federal and state regulatory agencies. The scope of the laws and regulations, and the
3
intensity of the supervision to which the Corporation and its subsidiaries are subject, have increased in recent years, initially in
response to the 2008 financial crisis, and more recently in light of other factors, including continued turmoil and stress in the financial
markets, technological factors, market changes, and increased scrutiny of proposed bank mergers and acquisitions by federal and
state bank regulators. Regulatory enforcement and fines have also increased across the banking and financial services sector.
Pinnacle continues to experience ongoing regulatory reform and these regulatory changes could have a significant effect on
how Pinnacle and First National Bank conduct business. The specific impacts of regulatory reforms, including but not limited to
the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd Frank Act), which was enacted in 2010, or the
Economic Growth, Regulatory Relief and Consumer Protection Act (the EGRRCPA), which was enacted in 2018, cannot yet be
fully predicted and will depend to a large extent on the specific regulations that are likely to be adopted in the future.
Capital Requirements and Prompt Corrective Action. The Federal Reserve, the OCC and the FDIC have adopted risk-based
capital adequacy guidelines for bank holding companies and banks pursuant to the Federal Deposit Insurance Corporation
Improvement Act of 1991 (“FDICIA”) and the Basel III Capital Accords. See the “Equity” section within “Results of Operations”
for more detail.
The federal bank regulatory agencies have broad powers to take prompt corrective action to resolve problems of insured
depository institutions. Under the FDICIA, there are five capital categories applicable to bank holding companies and insured
institutions, each with specific regulatory consequences. The extent of the agencies’ powers depends on whether the institution in
question is “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically
undercapitalized.” These terms are defined under uniform regulations issued by each of the federal bank regulatory agencies. If the
appropriate federal bank regulatory agency determines that an insured institution is in an unsafe or unsound condition, it may
reclassify the institution to a lower capital category (other than critically undercapitalized) and require the submission of a plan to
correct the unsafe or unsound condition.
Failure to meet statutorily mandated capital guidelines or more restrictive ratios separately established for a financial institution
could subject Pinnacle and its subsidiaries to a variety of enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on accepting or renewing brokered deposits, limitations on the rates of
interest that the institution may pay on its deposits, and other restrictions on its business. In addition, an institution may not make
a capital distribution, such as a dividend or other distribution that is in substance a distribution of capital to the owners of the
institution if following such a distribution the institution would be undercapitalized. Thus, if the making of such dividend would
cause First National Bank to become undercapitalized, it could not pay a dividend to Pinnacle.
Basel III Capital Framework. The federal bank regulatory agencies have adopted rules to implement the Basel III capital
framework as outlined by the Basel Committee on Banking Supervision and standards for calculating risk-weighted assets and risk-
based capital measurements (collectively, the “Basel III Capital Rules”) that apply to banking institutions they supervise. For
purposes of these capital rules, (i) common equity Tier 1 capital (“CET1”) consists principally of common stock (including surplus)
and retained earnings; (ii) Tier 1 capital consists principally of CET1 plus non-cumulative preferred stock and related surplus, and
certain grandfathered cumulative preferred stock and trust preferred securities; and (iii) Tier 2 capital consists of other capital
instruments, principally qualifying subordinated debt and preferred stock, and limited amounts of an institution’s allowance for
credit losses. Each regulatory capital classification is subject to certain adjustments and limitations, as implemented by the Basel
III Capital Rules. The Basel III Capital Rules also establish risk weightings that are applied to many classes of assets held by
community banks, including, importantly, applying higher risk weightings to certain commercial real estate loans.
The Basel III Capital Rules also include a requirement that banks maintain additional capital (the “capital conservation
buffer”). As fully phased in, the Basel III Capital Rules require banks and bank holding companies to maintain (i) a minimum ratio
of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer (which is added to the 4.5% CET1 ratio,
effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7.0%), (ii) a minimum ratio of Tier 1 capital to
risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively
resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of total (that is, Tier 1 plus Tier 2) capital to risk-weighted
assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a
minimum total capital ratio of 10.5%) and (iv) a minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average
total assets, subject to certain adjustments and limitations.
4
The Basel III Capital Rules provide deductions from and adjustments to regulatory capital measures, primarily to CET1,
including deductions and adjustments that were not applied to reduce CET1 under historical regulatory capital rules. For example,
mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated
financial entities must be deducted from CET1 to the extent that any one such category exceeds 25.0% of CET1.
In July 2023 , the Federal Reserve Board and the FDIC issued proposed rules to implement the final components of the Basel
III agreement, often known as the “Basel III endgame.” These proposed rules contain provisions that apply to banks with $100
billion or more in total assets and that will significantly alter how those banks calculate risk-based assets. These proposed rules do
not apply to holding companies or banks with less than $100 billion in assets, such as Pinnacle or First National Bank, but the final
impacts of these rules cannot yet be predicted. The comment window for these proposed rules closed on November 30, 2023.
The capital ratios described above are the minimum levels that the federal bank regulatory agencies expect. Federal bank
regulatory agencies have the discretion to require an institution to maintain higher capital levels based upon its concentrations of
loans, the risk of its lending or other activities, the performance of its loan and investment portfolios and other factors. Failure to
maintain such higher capital expectations imposed at the supervisory discretion of federal bank regulatory agencies could result in
a lower composite regulatory rating, which would impact the institution’s deposit insurance premiums and could affect its ability to
borrow and costs of borrowing, and could result in additional or more severe enforcement actions. In respect of institutions with
high concentrations of loans in areas deemed to be higher risk, or during periods of significant economic stress, regulators may
require an institution to maintain a higher level of capital, and/or to maintain more stringent risk management measures, than those
required by these regulations.
Small Bank Holding Company. The EGRRCPA also expanded the category of bank holding companies that may rely on the
Federal Reserve Board’s Small Bank Holding Company Policy Statement by raising the maximum amount of assets a qualifying
bank holding company may have from $1 billion to $3 billion. Bank holding companies with less than $3 billion in assets may rely
on the Federal Reserve Board's Small Bank Holding Company Policy Statement. In addition to meeting the asset threshold, a bank
holding company must not engage in significant nonbanking activities, not conduct significant off-balance sheet activities, and not
have a material amount of debt or equity securities outstanding and be registered with the Securities and Exchange Commission (the
"SEC") (subject to certain exceptions). The Federal Reserve Board may, in its discretion, exclude any bank holding company from
the application of the Small Bank Holding Company Policy Statement if such action is warranted for supervisory purposes.
In August 2018, the Federal Reserve Board issued an interim final rule to apply the Small Bank Holding Company Policy
Statement to bank holding companies with consolidated total assets of less than $3 billion. The policy statement, which, among
other things, exempts certain bank holding companies from minimum consolidated regulatory capital ratios that apply to other bank
holding companies. As a result of the interim final rule, which was effective August 30, 2018, Pinnacle expects that it will be treated
as a small bank holding company and will not be subject to regulatory capital requirements. The comment period on the interim
final rule closed on October 29, 2018 and, to date, the Federal Reserve has not issued a final rule to replace the interim final rule.
First National Bank remains subject to the regulatory capital requirements described above.
Limits on Dividends. Pinnacle is a legal entity that is separate and distinct from First National Bank. A significant portion of
Pinnacle’s revenues result from dividends paid to it by First National Bank. Both Pinnacle and First National Bank are subject to
laws and regulations that limit the payment of dividends, including limits on the sources of dividends and requirements to maintain
capital at or above regulatory minimums. Federal Reserve supervisory guidance indicates that the Federal Reserve may have safety
and soundness concerns if a bank holding company pays dividends that exceed earnings for the period in which the dividend is
being paid. Generally, dividends paid by First National Bank during a year may not exceed the sum of the bank’s net income in that
year and the bank’s retained earnings of the immediately preceding two calendar years without prior approval of the OCC. Further,
the Federal Deposit Insurance Act (the “FDIA”) prohibits insured depository institutions such as First National Bank from making
capital distributions, including paying dividends, if, after making such distribution, the institution would become undercapitalized
as defined in the statute. The OCC may prevent First National Bank from paying a dividend if the OCC concludes such dividend
would be an unsafe or unsound banking practice. We do not expect that any of these laws, regulations or policies will materially
affect the ability of Pinnacle or First National Bank to pay dividends.
Insurance of Accounts, Assessments and Regulation by the FDIC. First National Bank’s deposits are insured by the Deposit
Insurance Fund (the “DIF”) of the FDIC up to the standard maximum insurance amount for each deposit insurance ownership
category. The basic limit on FDIC deposit insurance coverage is $250,000 per depositor. Under the FDIA, the FDIC may terminate
5
deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound
condition to continue operations as an insured institution, or has violated any applicable law, regulation, rule, order or condition
imposed by the FDIC, subject to administrative and potential judicial hearing and review processes. Management is aware of no
existing circumstances that could result in termination of the Bank's deposit insurance.
Deposit Insurance Assessments. The DIF is funded by assessments on banks and other depository institutions calculated
based on average consolidated total assets minus average tangible equity (defined as Tier 1 capital). As required by the Dodd-Frank
Act, the FDIC has adopted a large-bank pricing assessment scheme, set a target “designated reserve ratio” (described in more detail
below) of 2.0% for the DIF and, in lieu of dividends, provides for a lower assessment rate schedule when the reserve ratio reaches
2.0% and 2.5%. An institution’s assessment rate is based on a statistical analysis of financial ratios that estimates the likelihood of
failure over a three-year period, which considers the institution’s weighted average capital adequacy, assets, management capability,
earnings, liquidity, and sensitivity (“CAMELS”) component rating, and is subject to further adjustments including those related to
levels of unsecured debt and brokered deposits (not applicable to banks with less than $10 billion in assets). On December 31, 2023,
total base assessment rates for institutions that have been insured for at least five years range from 2.5 to 32 basis points applying
to banks with less than $10 billion in assets.
The Dodd-Frank Act transferred to the FDIC increased discretion with regard to managing the required amount of reserves for
the DIF, or the “designated reserve ratio.” The FDIA requires that the FDIC consider the appropriate level for the designated reserve
ratio on at least an annual basis. On October 18, 2022, the FDIC adopted a final rule to increase initial base deposit insurance
assessment rate schedules uniformly by 2 bps, beginning in the first quarterly assessment period of 2023. This increase in assessment
rate schedules is intended to increase the likelihood that the reserve ratio reaches 1.35% by the statutory deadline of September 30,
2028. The new assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds 2%. Progressively
lower assessment rate schedules will take effect when the reserve ratio reaches 2%, and again when it reaches 2.5%.
In November 2023, the FDIC issued a final rule to implement a special DIF assessment following the FDIC’s use of the
“systemic risk” exception to the least-cost resolution test in connection with the failures and resolutions of Silicon Valley Bank and
Signature Bank. Banks with less than $5 billion of uninsured deposits, such as First National Bank, are exempt from this special
assessment.
Certain Transactions by Insured Banks with their Affiliates. There are statutory restrictions related to the extent bank holding
companies and their non-bank subsidiaries may borrow, obtain credit from or otherwise engage in “covered transactions” with their
insured depository institution (i.e., banking) subsidiaries. In general, an “affiliate” of a bank includes the bank’s parent holding
company and any subsidiary thereof. However, an “affiliate” does not generally include the bank’s operating subsidiaries. A bank
(and its subsidiaries) may not lend money to, or engage in other covered transactions with, its non-bank affiliates if the aggregate
amount of covered transactions outstanding involving the bank, plus the proposed transaction, exceeds the following limits: (a) in
the case of any one such affiliate, the aggregate amount of covered transactions of the bank and its subsidiaries cannot exceed 10.0%
of the bank’s capital stock and surplus; and (b) in the case of all affiliates, the aggregate amount of covered transactions of the bank
and its subsidiaries cannot exceed 20.0% of the bank’s capital stock and surplus. “Covered transactions” are defined to include a
loan or extension of credit to an affiliate, a purchase of or investment in securities issued by an affiliate, a purchase of assets from
an affiliate, the acceptance of securities issued by an affiliate as collateral for a loan or extension of credit to any person or company,
the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate, securities borrowing or lending transactions with
an affiliate that creates a credit exposure to such affiliate, or a derivatives transaction with an affiliate that creates a credit exposure
to such affiliate. Certain covered transactions are also subject to collateral security requirements.
Covered transactions as well as other types of transactions between a bank and a bank holding company must be on market
terms, which means that the transaction must be conducted on terms and under circumstances that are substantially the same, or at
least as favorable to the bank, as those prevailing at the time for comparable transactions with or involving non-affiliates or, in the
absence of comparable transactions, that in good faith would be offered to or would apply to non-affiliates. Moreover, certain
amendments to the BHCA provide that, to further competition, a bank holding company and its subsidiaries are prohibited from
engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property of any kind, or furnishing
of any service.
6
Federal Home Loan Bank of Atlanta. First National Bank is a member of the Federal Home Loan Bank (the “FHLB”) of
Atlanta, which is one of 12 regional FHLBs that provide funding to their members for making housing loans as well as for affordable
housing and community development loans. Each FHLB serves as a reserve, or central bank, for the members within its assigned
region. Each FHLB makes loans to members in accordance with policies and procedures established by the Board of Directors of
the FHLB. As a member, First National Bank must purchase and maintain stock in the FHLB. Additional information related to
First National Bank’s FHLB stock can be found in Note 1(d) to Pinnacle’s consolidated financial statements attached hereto.
Community Reinvestment Act. Pinnacle is subject to the requirements of the CRA, which imposes on financial institutions an
affirmative and ongoing obligation to meet the credit needs of their local communities, including low and moderate-income
neighborhoods, consistent with the safe and sound operation of those institutions. A financial institution’s efforts in meeting
community credit needs are assessed based on specified factors. These factors are also considered in evaluating mergers,
acquisitions and applications to open a branch or facility. At its last evaluation in 2023, First National Bank received a “Satisfactory”
CRA rating.
On October 24, 2023, the federal bank regulatory agencies jointly issued a final rule to modernize CRA regulations consistent
with the following key goals: (1) to encourage banks to expand access to credit, investment, and banking services in low to moderate
incoming communities; (2) to adapt to changes in the banking industry, including internet and mobile banking and the growth of
non-branch delivery systems; (3) to provide greater clarity and consistency in the application of the CRA regulations, including
adoption of a new metrics-based approach to evaluating bank retail lending and community development financing; and (4) to tailor
CRA evaluations and data collection to bank size and type, recognizing that differences in bank size and business models may
impact CRA evaluations and qualifying activities. Most of the final CRA rule’s requirements will be applicable beginning January
1, 2026, with certain requirements, including the data reporting requirements, applicable as of January 1, 2027. First National Bank
is evaluating the expected impact of the modified CRA regulations, but currently does not anticipate any material impact to its
business, operations or financial condition due to the modified CRA regulations.
Confidentiality and Required Disclosures of Consumer Information. Pinnacle is subject to various laws and regulations that
address the privacy of nonpublic personal financial information of consumers. The Gramm-Leach-Bliley Act and certain regulations
issued thereunder protect against the transfer and use by financial institutions of consumer nonpublic personal information. A
financial institution must provide its customers, at the beginning of the customer relationship and annually thereafter, the institution’s
policies and procedures regarding the handling of customers’ nonpublic personal financial information. These privacy provisions
generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated third parties
unless the institution discloses to the customer that the information may be so provided and the customer is given the opportunity
to opt out of such disclosure.
Certain exceptions may apply to the requirement to deliver an annual privacy notice based on how a financial institution limits
sharing of nonpublic personal information, and whether the institution’s disclosure practices or policies have changed in certain
ways since the last privacy notice that was delivered.
Pinnacle is also subject to various laws and regulations that attempt to combat money laundering and terrorist financing. The
Bank Secrecy Act requires all financial institutions to, among other things, create a system of controls designed to prevent money
laundering and the financing of terrorism, and imposes recordkeeping and reporting requirements. The USA Patriot Act facilitates
information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money
laundering, and requires financial institutions to establish anti-money laundering programs. OFAC, which is a division of the U.S.
Department of the Treasury, is responsible for helping to ensure that United States entities do not engage in transactions with
“enemies” of the United States, as defined by various Executive Orders and Acts of Congress. If First National Bank finds a name
of an “enemy” of the United States on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account
or place transferred funds into a blocked account, file a suspicious activity report with the Treasury and notify the Federal Bureau
of Investigation.
Although these laws and programs impose compliance costs and create privacy obligations and, in some cases, reporting
obligations, and compliance with all of the laws, programs, and privacy and reporting obligations may require significant resources
of Pinnacle and First National Bank, these laws and programs do not materially affect First National Bank’s products, services or
other business activities.
7
Cybersecurity. The federal bank regulatory agencies have adopted guidelines for establishing information security standards
and cybersecurity programs for implementing safeguards under the supervision of a financial institution’s board of directors. These
guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information
technology and the use of third parties in the provision of financial products and services. The federal bank regulatory agencies
expect financial institutions to establish lines of defense and ensure that their risk management processes also address the risk posed
by compromised customer credentials, and also expect financial institutions to maintain sufficient business continuity planning
processes to ensure rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack. If Pinnacle or
First National Bank fails to meet the expectations set forth in this regulatory guidance, Pinnacle or First National Bank could be
subject to various regulatory actions and any remediation efforts may require significant resources of Pinnacle or First National
Bank. In addition, all federal and state bank regulatory agencies continue to increase focus on cybersecurity programs and risks as
part of regular supervisory exams and the federal bank regulatory agencies have adopted rules to require a banking organization to
notify its primary regulator no later than 36 hours after the banking organization determines a material cyber event has occurred and
impose other related obligations.
If Pinnacle or First National Bank fail to meet regulatory expectations, each could be subject to various regulatory sanctions,
including financial penalties and may be required to perform remediation efforts that demand significant resources. To date, neither
Pinnacle nor First National Bank have experienced a significant compromise, significant data loss or any material financial losses
related to cybersecurity attacks, but our respective systems (and those of our customers and third-party service providers) are under
constant threat and it is possible that a significant event could occur in the future. Risks and exposures related to cybersecurity
attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats,
as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by First
National Bank and its customers.
Consumer Laws and Regulations. Pinnacle is also subject to certain consumer laws and regulations that are designed to
protect consumers in transactions with banks. While the list set forth herein is not exhaustive, these laws and regulations include the
Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act and the Fair Housing Act, among others. These laws and regulations mandate certain disclosure requirements and
regulate the manner in which financial institutions transact business with customers. Pinnacle must comply with the applicable
provisions of these consumer protection laws and regulations as part of its ongoing customer relations.
The Consumer Financial Protection Bureau (the “CFPB”) is the federal regulatory agency responsible for implementing,
examining and enforcing compliance with federal consumer financial laws for institutions with more than $10 billion of assets and,
to a lesser extent, smaller institutions. The CFPB supervises and regulates providers of consumer financial products and services
and has rulemaking authority in connection with numerous federal consumer financial protection laws (for example, but not limited
to, the Truth in Lending Act and the Real Estate Settlement Procedures Act). As a smaller institution (i.e., with assets of $10 billion
or less), most consumer protection aspects of the Dodd-Frank Act will continue to be applied to Pinnacle by the Federal Reserve
and to First National Bank by the OCC. However, the CFPB may include its own examiners in regulatory examinations by a smaller
institution’s prudential regulators and may require smaller institutions to comply with certain CFPB reporting requirements. In
addition, regulatory positions taken by the CFPB and administrative and legal precedents established by CFPB enforcement
activities, including in connection with supervision of larger bank holding companies and banks, could influence how the Federal
Reserve and the OCC apply consumer protection laws and regulations to financial institutions that are not directly supervised by the
CFPB.
While Pinnacle and First National Bank continue to monitor the CFPB’s rulemaking actions, the precise effect of the CFPB’s
consumer protection activities on Pinnacle and First National Bank cannot be forecast at this time.
Mortgage Banking Regulation. In connection with making mortgage loans, First National Bank is subject to rules and
regulations that, among other things, establish standards for loan origination, prohibit discrimination, provide for inspections and
appraisals of property, require credit reports on prospective borrowers, in some cases, restrict certain loan features and fix maximum
interest rates and fees, require the disclosure of certain basic information to mortgagors concerning credit and settlement costs, limit
payment for settlement services to the reasonable value of the services rendered and require the maintenance and disclosure of
information regarding the disposition of mortgage applications based on race, gender, geographical distribution and income level.
First National Bank’s mortgage origination activities are subject to the Equal Credit Opportunity Act, Truth in Lending Act, Home
8
Mortgage Disclosure Act, Real Estate Settlement Procedures Act, and Home Ownership Equity Protection Act, and the regulations
promulgated under these acts, among other additional state and federal laws, regulations and rules.
First National Bank’s mortgage origination activities are also subject to Regulation Z, which implements the Truth in Lending
Act. Certain provisions of Regulation Z require mortgage lenders to make a reasonable and good faith determination, based on
verified and documented information, that a consumer applying for a mortgage loan has a reasonable ability to repay the loan
according to its terms. Alternatively, mortgage lenders can originate “qualified mortgages”, which are generally defined as mortgage
loans without negative amortization, interest-only payments, balloon payments, terms exceeding 30 years, and points and fees paid
by a consumer equal to or less than 3.0% of the total loan amount. Under the EGRRCPA, most residential mortgages loans originated
and held in portfolio by a bank with less than $10 billion in assets will be designated as “qualified mortgages.” Higher-priced
qualified mortgages (e.g., subprime loans) receive a rebuttable presumption of compliance with ability-to-repay rules, and other
qualified mortgages (e.g., prime loans) are deemed to comply with the ability-to-repay rules.
Call Reports and Examination Cycle. All institutions, regardless of size, submit a quarterly call report that includes data used
by federal bank regulatory agencies to monitor the condition, performance, and risk profile of individual institutions and the industry
as a whole. The EGRRCPA contained provisions expanding the number of regulated institutions eligible to use streamlined call
report forms. In June 2019, the federal bank regulatory agencies issued a final rule to permit insured depository institutions with
total assets of less than $5 billion that do not engage in certain complex or international activities to file the most streamlined version
of the quarterly call report.
In December 2018, consistent with the provisions of the EGRRCPA, the federal bank regulatory agencies jointly adopted final
rules that permit banks with up to $3 billion in total assets, that received a composite CAMELS rating of “1” or “2,” and that meet
certain other criteria (including not having undergone any change in control during the previous 12-month period, and not being
subject to a formal enforcement proceeding or order), to qualify for an 18-month on-site examination cycle.
Effect of Governmental Monetary Policies. As with other financial institutions, the earnings of Pinnacle and First National
Bank are affected by general economic conditions as well as by the monetary policies of the Federal Reserve. Such policies, which
include regulating the national supply of bank reserves and bank credit, can have a major effect upon the source and cost of funds
and the rates of return earned on loans and investments. The Federal Reserve exerts a substantial influence on interest rates and
credit conditions, primarily through establishing target rates for federal funds, open market operations in U.S. Government securities,
varying the discount rate on member bank borrowings and setting cash reserve requirements against deposits. Changes in monetary
policy, including changes in interest rates, will influence the origination of loans, the purchase of investments, the generation of
deposits, and rates received on loans and investment securities and paid on deposits. Fluctuations in the Federal Reserve’s monetary
policies have had a significant impact on the operating results of Pinnacle and First National Bank and are expected to continue to
do so in the future.
Future Regulation. From time to time, various legislative and regulatory initiatives are introduced in Congress and state
legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank
holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such
legislation could change banking statutes and the operating environment of Pinnacle in substantial and unpredictable ways. If
enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the
competitive balance among banks, savings associations, credit unions, and other financial institutions. Pinnacle cannot predict
whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on the
financial condition or results of operations of Pinnacle. A change in statutes, regulations or regulatory policies applicable to Pinnacle
or First National Bank could have a material effect on our business.
9
First National Bank Full-Service Office Locations
Location
Altavista Main Corporate Headquarters
Amherst Branch
Brosville Station Branch
Charlottesville Ivy Road Branch
Chatham Branch
Danville Airport Branch
Danville Main Branch
Downtown Lynchburg Branch
Forest Branch
Graves Mill Road Branch
Lynchburg Airport Branch
Mt. Hermon Branch
Odd Fellows Road Branch
Old Forest Road Branch
Riverside Branch
Rustburg Branch
Timberlake Branch
Vista Branch
Address
622 Broad Street
Altavista, Virginia 24517
130 South Main Street
Amherst, Virginia 24521
10370 Martinsville Highway
Brosville, Virginia 24541
2208 Ivy Road
Charlottesville, Virginia 22903
55 North Main Street
Chatham, Virginia 24531
1312 South Boston Road
Danville, Virginia 24540
336 Main Street,
Danville, Virginia 24541
800 Main Street
Lynchburg, Virginia 24504
14417 Forest Road
Forest, Virginia 24551
18077 Forest Road
Forest, Virginia 24521
14580 Wards Road
Lynchburg, Virginia 24502
4080 Franklin Turnpike
Danville, Virginia 24540
3401 Odd Fellows Road
Lynchburg, Virginia 24501
3321 Old Forest Road
Lynchburg, Virginia 24501
2600 Riverside Drive
Danville, Virginia 24540
1033 Village Highway
Rustburg, Virginia 24588
20865 Timberlake Road
Lynchburg, Virginia 24502
1303 N. Main Street
Altavista, Virginia 24517
Phone
(434) 369-3000
(434) 946-7814
(434) 483-6606
(434) 290-3498
(434) 483-6604
(434) 483-6003
(434) 483-6600
(434) 485-5999
(434) 534-0451
(434) 473-6600
(434)-237-3788
(434) 483-6605
(434) 333-6801
(434) 385-4432
(434) 483-6601
(434) 332-1742
(434) 237-7936
(434) 369-3001
10
Pinnacle Bankshares Corporation
Results of Operations
(In thousands, except ratios, share and per share data)
Net Income. Pinnacle generated record high net income of $9,762 for 2023, which represents a $1,520, or 18.44%, increase
as compared to net income of $8,242 for 2022. The increase in net income for 2023 was driven by higher net interest income and
higher noninterest income partially offset by higher noninterest expense. Pinnacle benefited from the higher interest rate
environment in 2023 that led to higher yields on earning assets, which offset an increase in its cost of funds. Noninterest income
increased in 2023 compared to 2022 due to an increase in bank-owned life insurance ("BOLI") returns. The increase in noninterest
expense was due mainly to higher salary and benefits, core operating system expense and occupancy expenses.
Profitability. Profitability as measured by Pinnacle’s return on average assets was 1.00% for 2023, which is an 18 basis
points increase from the 0.82% produced in 2022. Return on average equity increased in 2023 to 15.69%, compared to 14.62% for
the prior year.
The following table presents certain financial ratios for periods indicated.
RETURN ON AVERAGE ASSETS AND EQUITY
Return on average assets
Return on average equity
Dividend payout ratio
Average equity to average assets
Year ended
December 31, 2023
Year ended
December 31, 2022
Year ended
December 31, 2021
1.00 %
15.69 %
19.10 %
6.35 %
0.82 %
14.62 %
16.11 %
5.64 %
0.47 %
7.31 %
27.06 %
6.46 %
Net Interest Income. Net interest income represents the principal source of earnings for Pinnacle. Net interest income is the
amount by which interest and fees generated from loans, securities and other interest-bearing assets exceed the interest expense
associated with funding those assets. Changes in the amounts and composition of interest-bearing liabilities, as well as their
respective yields and rates, have a significant impact on the level of net interest income. Changes in the interest rate environment
and Pinnacle’s cost of funds also affect net interest income.
Pinnacle produced $33,172 in net interest income in 2023, which represents a $2,732, or 8.98%, increase as compared to the
$30,440 generated in 2022 as the Company benefited from higher yields on average earning assets. Interest income increased
$10,100, or 31.77%, in 2023, due to higher yields on earning assets, which was 4.44% in 2023 compared to 3.32% in 2022. Interest
expense increased $7,368, or 546.59%, during the same period due to higher cost to fund earning assets, which was 0.92% for 2023
compared to 0.14% in 2022.
The net interest spread decreased to 3.05% in 2023 from 3.10% in 2022. In 2023, Pinnacle’s cost of interest-bearing deposits
increased more than the increase in asset yields causing a lower interest rate spread. Pinnacle’s cost of interest-bearing deposits was
128 basis points higher in 2023 than in 2022 due to a higher interest rate environment.
Pinnacle’s net interest margin increased to 3.52% in 2023 from 3.18% in 2022. The higher net interest margin was due to
higher yields from loans and investments as a result of the higher interest rate environment in 2023. Upward loan and investment
repricing and loans made at higher rates in 2023 led to an increase in asset yields partially offset by the increase in time deposits at
increased offered rates which increased the cost to fund earning assets. Pinnacle attempts to improve net interest margin by product
pricing strategies, such as attracting deposits with longer maturities when rates are relatively low and attracting deposits with shorter
maturities when rates are relatively high, all depending on our funding needs. While there is no guarantee of how rates may change
in 2024, Pinnacle will price products that are competitive in the market, allow for growth and strive to maintain the net interest
margin as much as possible. Pinnacle also continues to seek new sources of noninterest income to combat the effects of volatility
in the interest rate environment.
11
Provision for Credit Losses. Pinnacle’s provision for credit losses was $70 for 2023 representing a $120, or 63.16%, decrease
as compared to $190 for 2022. Asset quality remained very strong in 2023 with the Company experiencing only $34 in net
chargeoffs for the year as compared to incurring $51 in net recoveries from charged off loans for 2022. Pinnacle's nonperforming
loans were $1,557 as of December 31, 2023, a decrease compared to $1,695 as of December 31, 2022. Correspondingly, the
Company's nonperforming loans-to-total loans ratio decreased to 0.24% as of December 31, 2023 from 0.27% as of the prior year-
end. Pinnacle could experience some credit quality deterioration in its loan portfolio in 2024 due to the impact of inflationary
pressures and the higher interest rate environment on borrowers. The Company continues to work to minimize its losses from its
loan portfolio by practicing conservative and diligent loan underwriting practices.
Noninterest Income. Noninterest income increased $941, or 13.40%, in 2023 to $7,964 from $7,023 in 2022. The increase is
primarily due to a $1,431 increase in BOLI returns, a $61 increase in merchant card fees and a $38 increase in insurance and
investment sales commissions. These increases were partially offset by a $402 decrease in fees generated from sales of mortgage
loans, a $107 decrease in service charges on loan accounts and a $66 decrease in income derived from ownership in Bankers
Insurance, LLC.
Noninterest Expense. Noninterest expense increased $2,043, or 7.50%, in 2023 to $29,280 from $27,237 in 2022. The
increase is primarily attributed to an $862 increase in salaries and employee benefits, a $748 increase in core operating system
expenses that included a one-time charge of $402, a $243 increase in occupancy expenses, a $165 increase in legal expenses, and a
$79 increase in audit and accounting fees.
Income Tax Expense. Income taxes on 2023 earnings amounted to $2,024, resulting in an effective tax rate of 17.17%,
compared to $1,794, and an effective tax rate of 17.88% in 2022. The income tax rate decreased in 2023 due to $1,364 in nontaxable
BOLI benefit proceeds.
Assets. Total assets as of December 31, 2023 were $1,016,528, up $46,597, or 4.80% from $969,931 as of December 31,
2022. The principal components of Pinnacle’s assets as of December 31, 2023 were $87,589 in cash and cash equivalents, $641,437
in total gross loans and $233,579 in investment securities.
Cash and Cash Equivalents. Cash and cash equivalents as of December 31, 2023, totaled $87,589 which is an increase of
$51,068, or 139.83%, from $36,521, as of December 31, 2022 This increase was driven by an influx of deposits, occurring mainly
in December of 2023, combining with maturing securities, which resulted in Pinnacle's strong liquidity position.
Securities. Pinnacle’s investment portfolio is used primarily for investment income and secondarily for liquidity purposes.
Pinnacle invests funds not used for lending purposes or capital expenditures in securities of the U.S. Government and its agencies,
mortgage-backed securities, taxable and tax-exempt municipal bonds, and certificates of deposit. Obligations of the U.S.
Government and its agencies include treasury notes and callable or noncallable agency bonds. The mortgage-backed securities
include mortgage-backed security pools that are diverse as to interest rates. Pinnacle has not invested in derivatives.
Investment securities as of December 31, 2023, totaled $233,579, a decrease of $17,535, or 6.98%, from $251,114 as of
December 31, 2022 due primarily to $16,127 in maturities and no purchases during 2023 as the Company sought to preserve its
liquidity position and benefit from higher rates on Federal funds sold. Available-for-sale investments decreased to $233,579 as of
December 31, 2023 from $241,172 as of December 31, 2022, a decrease of $7,593, or 3.15%. Held-to-maturity investment securities
decreased to $0 as of December 31, 2023 from $9,942 as of December 31, 2022.
Loans. Total loans as of December 31, 2023, totaled $641,437, an increase of $8,541, or 1.35%, from $632,896, as of
December 31, 2022 with the increase driven by higher volumes of commercial and consumer automobile loans. Pinnacle’s net loans
were $636,288 as of December 31, 2023, an increase of $7,817, or 1.24%, from $628,471 as of December 31, 2022. Loan demand
was challenging in 2023 due to higher interest rates, housing inventory shortages, and inflation. Pinnacle’s ratio of net loans to total
deposits was 68.24% as of December 31, 2023 compared to 69.89% as of December 31, 2022.
Allowance for Credit Losses. The allowance for credit losses was $4,511 as of December 31, 2023, which represented 0.70%
of total loans outstanding. In comparison, the allowance for credit losses was $3,853, or 0.61% of total loans outstanding as of
December 31, 2022. Pinnacle's ASC 326 current expected credit loss ("CECL") adjustment was $561 ($443 net of tax) as of January
1, 2023.
12
Bank Premises and Equipment. Bank premises and equipment decreased $245, or 1.13%, in 2023 due to depreciation expense
being offset partially by improvements made to several branches. Pinnacle was leasing the Downtown Lynchburg, Amherst and
Charlottesville facilities and leasing land for the Riverside Branch in Danville as of December 31, 2023.
Liabilities. Total liabilities as of December 31, 2023 were $948,123, up $35,200, or 3.86%, from $912,923, as of December 31,
2022. The increase in liabilities was driven by an increase in total deposits which mainly occurred in December of 2023.
Deposits. The levels of demand deposits (including retail accounts) are influenced by such factors as customer service, service
charges and the availability of banking services. No assurance can be given that Pinnacle will be able to maintain its current level
of demand deposits. Competition from other banks and nonbank financial institutions, such as credit unions, some of which offer
interest rates substantially higher than Pinnacle, could make it difficult for Pinnacle to maintain the current level of demand deposits.
Management continually works to implement pricing and marketing strategies designed to control the cost of interest-bearing
deposits and to maintain a stable deposit composition.
Total deposits increased $33,206, or 3.69%, to $932,444 as of December 31, 2023 from $899,238 at December 31, 2022.
Noninterest-bearing demand deposits decreased $17,331, or 6.04%, and represented 28.90% of total deposits as of December 31,
2023, compared to 31.90% as of December 31, 2022. Savings and NOW accounts decreased $15,749, or 3.08%, and represented
53.22% of total deposits as of December 31, 2023, compared to 56.49% as of December 31, 2022. Time deposits increased $66,286
or 66.03% and represented 17.87% of total deposits as of December 31, 2023, compared to 11.16% as of December 31, 2022 as a
result of customers preferring time deposit accounts due to an increase in interest rates offered. Pinnacle had no brokered deposits
as of December 31, 2023 and December 31, 2022.
Average deposits were $905,683 for 2023, a decrease of $22,301, or 2.40% compared to $927,984 in average deposits for
2022. For 2023, average demand deposits were $281,108, or 31.04% of average deposits compared to $313,830, or 33.82% of
average deposits in 2022. Average interest-bearing deposits were $624,575, or 68.96% of average deposits for 2023 compared to
$614,154 or 66.18% of average deposits, in 2022. Deposit growth was minimal through the first three quarters of 2023. Pinnacle
experienced much of its deposit growth in the last two months of 2023, which was primarily driven by deposits of public entities.
Equity. Total stockholders’ equity as of December 31, 2023 was $68,405 and consisted primarily of $62,069 in retained
earnings. In comparison, as of December 31, 2022, total stockholders’ equity was $57,008. The $11,397 increase in stockholders’
equity resulted primarily from net income of $9,762 less dividends paid to shareholders of $1,864 and a $3,911 decrease in Pinnacle's
unrealized accumulated other comprehensive losses on its available for sale securities portfolio as values improved in the second
half of 2023; partially offset by a $297 increase in unrealized accumulated other comprehensive losses on its pension plan assets.
Dividends paid to shareholders were $0.85 per share paid in 2023 up from $0.61 per share paid in 2022. Both Pinnacle and First
National Bank remain “well capitalized” per all regulatory definitions.
In July 2013, the Federal Reserve Board approved and published the final Basel III Capital Rules establishing a new
comprehensive capital framework for U.S. banking organizations. CET1 capital for Pinnacle and First National Bank consists of
common stock, related paid in capital, and retained earnings. In connection with the adoption of the Basel III Capital Rules, we
elected to opt out of the requirement to include most components of accumulated other comprehensive income in CET1. CET1 for
Pinnacle and First National Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities and
subject to transition provisions.
Basel III limits capital distributions and certain discretionary bonus payments if First National Bank does not hold a “capital
conservation buffer” consisting of 2.50% of CET1 capital, Tier 1 capital and total capital to risk weighted assets in addition to the
amount necessary to meet minimum risk-based capital requirements. The capital conservation buffer was fully implemented at
2.50% on January 1, 2019. Basel III was fully phased in on January 1, 2019 and now requires (i) a minimum ratio of CET1 capital
to risk weighted assets of at least 4.50%, plus a 2.50% capital conservation buffer, (ii) a minimum ratio of Tier 1 capital to risk
weighted assets of at least 6.00%, plus the capital conservation buffer, (iii) a minimum ratio of total capital to risk weighted assets
of at least 8.00%, plus the capital conservation buffer and (iv) a minimum leverage ratio of 4.00%.
13
Pinnacle exceeded all regulatory capital requirements that would apply under Basel III at December 31, 2023 if Pinnacle was
not subject to the Federal Reserve’s small bank holding company policy statement. Pinnacle’s CET1 and Tier 1 Risk-based Capital
Ratio was 11.91% and 10.94% as of December 31, 2023 and December 31, 2022, respectively. The Total Risk-based Capital Ratio
was 12.60% and 11.55% as of December 31, 2023 and December 31, 2022, respectively. Pinnacle’s Tier 1 Leverage Ratio was
8.10% and 7.34% as of December 31, 2023 and December 31, 2022, respectively. See Note 14 “Dividend Restrictions and Capital
Requirements” to Pinnacle’s audited consolidated financial statements, for additional information.
Pinnacle’s financial position as of December 31, 2023 reflects liquidity and capital levels management believes to be currently
adequate to support anticipated funding needs and budgeted growth. Capital ratios are 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 Pinnacle’s capital is
reviewed by management on an ongoing basis. Management seeks to maintain a capital structure that will ensure an adequate level
of capital to support anticipated asset growth and to absorb potential losses.
Forward-Looking Statements
Certain statements in this Annual Report may constitute “forward-looking statements” within the meaning of federal
securities laws. Forward-looking statements include, without limitation, projections, predictions, expectations, assumptions, or
beliefs about future events or results that are not statements of historical fact. Such statements may also include statements about
future financial and operating results, operating performance, market and industry conditions, absolute levels of and changes to
interest rates, and Pinnacle’s plans, objectives, initiatives, and expectations. Such forward-looking statements are based on various
assumptions as of the time they are made, and are inherently subject to known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements to be materially different from those expressed or implied by such
forward-looking statements.
Forward-looking statements are often accompanied by words that convey projected future events or outcomes such as
“expect,” “believe,” “estimate,” “plan,” “project,” “predict,” “anticipate,” “intend,” “will,” “would,” “should,” “may,” “view,”
“opportunity,” “potential,” “possible” “target” or words of similar meaning or other statements concerning opinions or judgment of
Pinnacle or its management about future events. Although Pinnacle believes that its expectations with respect to forward-looking
statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there
can be no assurance that actual results, performance, or achievements of Pinnacle will not differ materially from any projected future
results, performance, or achievements expressed or implied by such forward-looking statements.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other
expectations expressed in or implied by forward-looking statements or from historical performance:
changes in interest rates, inflation rates, deposit flows, loan demand and real estate values;
changes in consumer spending and saving habits that may occur, including as a result of 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 the quality or composition of the Company’s loan portfolio and the value of the collateral securing loans;
changes in macroeconomic trends and uncertainty 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;
14
increased information security risk, including cyber security risk, which may lead to potential business disruptions
or financial losses;
the introduction of new lines of business or new products and services;
changes in accounting principles, standards, rules, and interpretations, and the related impact on our financial
statements;
an increase in liquidity risk, including as driven by changed in depositor behavior and preferences and changes in
the amounts and sources of secondary liquidity that is available to Pinnacle and First National Bank;
volatility in the securities markets generally, including in the value of securities in the Pinnacle'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 factors, and the risks and uncertainties discussed in more detail in this Annual Report should be considered in
evaluating the forward-looking statements contained herein. All of the forward-looking statements made in this report are expressly
qualified by the cautionary statements contained or referred to herein. The actual results or developments anticipated may not be
realized or, even if substantially realized, they may not have the expected consequences to or effects on Pinnacle. Readers are
cautioned not to rely too heavily on the forward-looking statements contained in this report. Forward-looking statements speak only
as of the date they are made and Pinnacle undertakes any obligation to update, revise or clarify these forward-looking statements,
whether as a result of new information, future events or otherwise.
15
PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2023 and December 31, 2022
(In thousands of dollars, except share data)
Assets
Cash and cash equivalents:
Cash and due from banks
Certificates of deposits
Securities:
Available-for-sale, at fair value
Held-to-maturity, at amortized cost
Federal Reserve Bank stock, at cost
Federal Home Loan Bank stock, at cost
Loans, net of allowance for credit loss of $4,511 as of December 31, 2023 and
$3,853 as of December 31, 2022
Bank premises and equipment, net
Accrued interest receivable
Bank owned life insurance
Goodwill
Core deposit intangible
Other assets
Total assets
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand
Savings and NOW accounts
Time
Total deposits
Subordinated notes payable
Other long-term borrowings
Accrued interest payable
Other liabilities
Total liabilities
Commitments, contingencies and other matters
Stockholders' equity:
2023
2022
$
87,589 $
250
233,579
—
880
701
636,288
21,497
3,255
17,540
539
1,093
13,317
1,016,528 $
269,502 $
496,268
166,674
932,444
8,000
2,000
860
4,819
948,123
$
$
36,521
250
241,172
9,942
871
530
628,471
21,742
2,956
16,914
539
1,253
8,770
969,931
286,833
512,017
100,388
899,238
8,000
2,000
160
3,525
912,923
Common stock, $3 par value. Authorized 3,000,000 shares, issued and
outstanding 2,198,158 shares in 2023 and 2,178,486 shares in 2022
Capital surplus
Retained earnings
Accumulated other comprehensive loss, net
Total stockholders' equity
Total liabilities and stockholders' equity
6,460
11,951
62,069
(12,075 )
68,405
1,016,528 $
6,413
11,669
54,614
(15,688 )
57,008
969,931
$
See accompanying notes to consolidated financial statements.
16
PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2023 and 2022
(In thousands of dollars, except per share data)
Interest income:
Interest and fees on loans
Interest on securities:
U.S. Government agencies
States and political subdivisions (taxable)
States and political subdivisions (tax-exempt)
Other
Total interest income
Interest expense:
Interest on deposits:
Savings and NOW accounts
Time
Total interest expense
Net interest income
Provision for credit losses and unfunded commitments
Net interest income after provision for credit losses
Noninterest income:
Service charges on deposit accounts
Commissions and fees
Mortgage loan fees
Service charges on loan accounts
Other operating income
Total noninterest income
Noninterest expense:
Salaries and employee benefits
Occupancy expense
Furniture and equipment expense
Core system expense
Dealer loan expense
Office supplies and printing
Federal deposit insurance premiums
Capital stock tax
Advertising expense
Other operating expenses
Total noninterest expense
Income before income tax expense
Income tax expense
Net income
Basic net income per share
Diluted net income per share
2023
2022
$
32,412 $
25,930
5,567
535
265
3,109
41,888
4,772
3,944
8,716
33,172
70
33,102
3,508
914
223
393
2,926
7,964
15,604
1,663
1,896
3,378
483
339
606
507
274
4,530
29,280
11,786
2,024
9,762 $
4.45 $
4.45 $
3,759
539
238
1,322
31,788
408
940
1,348
30,440
190
30,250
3,513
857
625
501
1,527
7,023
14,742
1,603
1,713
2,630
601
276
596
511
218
4,347
27,237
10,036
1,794
8,242
3.78
3.78
$
$
$
See accompanying notes to consolidated financial statements.
17
PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2023 and 2022
(In thousands of dollars)
Net income
Other comprehensive income, net of related income taxes:
Unrealized gains (losses) on available-for-sale securities
Before tax
Income tax (expense) benefit
Changes in plan assets and benefit obligation of defined benefit pension
plan
Before tax
Income tax (expense) benefit
Total other comprehensive gain (loss)
Comprehensive income (loss)
2023
2022
$
9,762 $
8,242
4,949
(1,039 )
(19,311 )
4,055
(376 )
79
3,613
13,375 $
3,506
(737 )
(12,487 )
(4,245 )
$
See accompanying notes to consolidated financial statements.
18
PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2023 and December 31, 2022
(In thousands of dollars, except share and per share data)
Common Stock
Capital
Retained Comprehensive
Accumulated
Other
Balances, December 31, 2021
Net income
Other comprehensive gain
Issuance of restricted stock and
related expense
Cash dividends declared by
Bankshares ($0.61 per share)
Balances, December 31, 2022
Net income
Cumulative effect of adoption of
ASC 326
Other comprehensive loss
Issuance of restricted stock and
related expense
Cash dividends declared by
Bankshares ($0.85 per share)
Balances, December 31, 2023
Shares
2,170,311 $
Par Value Surplus Earnings Income (Loss) Total
6,388 $ 11,480 $ 47,700 $
8,242
(3,201 ) $ 62,367
8,242
(12,487 ) (12,487 )
8,175
25
189
214
2,178,486 $
6,413 $ 11,669 $ 54,614 $
(1,328 )
19,672
47
282
9,762
(443 )
(1,864 )
2,198,158 $
6,460 $ 11,951 $ 62,069 $
(1,328 )
(15,688 ) $ 57,008
9,762
3,613
(443 )
3,613
329
(1,864 )
(12,075 ) $ 68,405
See accompanying notes to consolidated financial statements.
19
PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2023 and 2022
2023
2022
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash flows from operating activities:
$
9,762 $
1,077
159
66
(76 )
641
(443 )
(365 )
329
(376 )
(1,250 )
(299 )
(6,533 )
700
919
4,311
—
—
6,127
10,000
6,433
(9 )
(171 )
(1,000 )
2,141
(7,274 )
(832 )
—
15,415
(33,080 )
66,286
(1,864 )
31,342
51,068
36,521
87,589 $
Depreciation of bank premises and equipment
Amortization of intangible assets
Amortization of unearned fees, net
Net (accretion) amortization of premiums and discounts on securities
Provision for credit losses (includes $561 for ASC 326)
Cumulative effect of adoption of ASC 326
Provision for deferred income taxes
Stock based compensation expense
Increase in cash value of bank owned life insurance
Accretion of purchased credit-impaired loans
Net increase in:
Accrued interest receivable
Other assets
Net increase in:
Accrued interest payable
Other liabilities
Net cash flows from operating activities
Cash flows from investing activities:
Purchases of available-for-sale securities
Purchases of held-to-maturity securities
Proceeds from maturities and calls of available-for-sale securities
Proceeds from maturities and calls of held-to-maturity securities
Proceeds from paydowns and maturities of available-for-sale
mortgage-backed securities
Purchase of Federal Reserve Stock
Purchase of Federal Home Loan Bank Stock
Purchase of bank owned life insurance
Proceeds from bank owned life insurance
Net increase in loans made to customers
Purchases of bank premises and equipment
Disposals of bank premises and equipment
Net cash from (used in) investing activities
Cash flows from financing activities:
Net decrease in demand, savings and NOW deposits
Net increase (decrease) in time deposits
Cash dividends paid
Net cash flows from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flows information
Cash paid during the year for:
Income taxes (net of refunds received)
Interest
$
$
Supplemental schedule of noncash investing and financing activities:
Unrealized gains (losses) on available-for-sale securities
Defined benefit plan adjustment per ASC topic Compensation-Retirement
Benefits
See accompanying notes to consolidated financial statements.
20
8,242
1,082
160
74
390
190
—
91
214
(336 )
(528 )
(1,277 )
(1,417 )
8
1,766
8,659
(152,850 )
(9,835 )
450
—
12,128
(11 )
(100 )
—
—
(80,131 )
(402 )
187
(230,564 )
(25,346 )
(13,495 )
(1,328 )
(40,169 )
(262,074 )
298,595
36,521
2,740 $
8,016
1,325
1,340
4,949
(19,312 )
(376 )
3,506
Notes to Consolidated Financial Statements
(In thousands, except ratios, share and per share data)
(1) Summary of Significant Accounting Policies and Practices
The accounting and reporting policies of the Pinnacle Bankshares Corporation and its wholly-owned subsidiary
(“Pinnacle” or the “Company”) conform to generally accepted accounting principles in the United States of America
(“GAAP”) and general practices within the banking industry. As of December 31, 2023, the most recent notification
from the OCC categorized Pinnacle and First National Bank as “well capitalized” under the regulatory framework
for prompt corrective action. There are no conditions or events since that notification that management believes
have changed Pinnacle and the First National Bank’s category.
The following is a summary of the more significant accounting policies and practices:
(a) Consolidation
The consolidated financial statements include the accounts of Pinnacle and First National Bank. All material
intercompany balances and transactions have been eliminated.
(b) Use of Estimates
In preparing the consolidated financial statements in accordance with GAAP, management is required to
make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the
consolidated balance sheets and revenues and expenses for the years ended December 31, 2023 and 2022.
Actual results could differ from those estimates. Material estimates that are particularly susceptible to
significant changes in the near term relate to the determination of the allowance for credit losses,
payments/obligations under benefit and pensions plans, other real estate owned and fair value of investments.
(c) Securities
Pinnacle classifies its securities in three categories: (1) debt securities that Pinnacle has the positive intent
and ability to hold to maturity are classified as “held-to-maturity securities” and reported at amortized cost;
(2) debt securities that are bought and held principally for the purpose of selling them in the near term are
classified as “trading securities” and reported at fair value, with unrealized gains and losses included in net
income; and (3) debt securities not classified as either held-to-maturity securities or trading securities are
classified as “available-for-sale securities” and reported at fair value, with unrealized gains and losses
excluded from net income and reported in accumulated other comprehensive income, a separate component
of stockholders’ equity, net of deferred taxes. Fair value is determined from quoted prices obtained and
reviewed by management. Held-to-maturity securities are stated at cost, adjusted for amortization of
premiums and accretion of discounts on a basis, which approximates the level yield method. As of December
31, 2023 and 2022, Pinnacle had no trading securities. Gains or losses on disposition are based on the net
proceeds and adjusted carrying values of the securities called or sold, using the specific identification method
on a trade date basis.
Allowance for Credit Losses - Securities: Management measures expected credit losses on held-to-maturity
debt securities on a collective basis by major security type. The Company had no held-to maturity securities
as of December 31, 2023.
For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it
intends to sell, or is more likely than not that it will be required to sell the security before recovery of its
amortized cost basis. If the Company intends to sell the security or it is more likely than not that the Company
will be required to sell the security before recovering its cost basis, the entire impairment loss would be
recognized in earnings. If the Company does not intend to sell the security and it is not more likely than not
that the Company will be required to sell the security, the Company evaluates whether the decline in fair
value has resulted from credit losses or other factors. In making this assessment, management considers the
21
extent to which fair value is less than amortized costs, any changes to the rating of the security by a rating
agency, and adverse conditions specifically related to the security, among other factors. If this assessment
indicates that a credit loss exists, the present value of cash flows expected to be collected from the security
are compared to the amortized cost basis of the security. Projected cash flows are discounted by the current
effective interest rate. If the present value of cash flows expected to be collected is less than the amortized
cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the
amount that the fair value is less than the amortized cost basis. The remaining impairment related to all other
factors, the difference between the present value of the cash flows expected to be collected and fair value, is
recognized as a charge to accumulated other comprehensive income.
Changes in the allowance for credit losses are recorded as provision for (or recapture of) credit losses. Losses
are charged against the allowance when management believes the non-collectability of an available-for-sale
or held-to-maturity security is confirmed or when either of the criteria regarding intent or requirement to sell
is met.
(d) Restricted Equity Investments
As a member of the Federal Reserve Bank (“FRB”) and the FHLB, Pinnacle is required to maintain certain
minimum investments in the common stock of the FRB and FHLB, which are carried at cost. Required levels
of investment are based upon Pinnacle’s capital and a percentage of qualifying assets.
In addition, Pinnacle is eligible to borrow from the FHLB with borrowings collateralized by qualifying assets,
primarily residential mortgage loans, and Pinnacle’s capital stock investment in the FHLB.
Management’s determination of whether these investments are impaired is based on its assessment of the
ultimate recoverability of cost rather than by recognizing temporary declines in value. The determination of
whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the
significance of any decline in net assets of the FHLB as compared to the capital stock amount for the FHLB
and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required
by law or regulation and the level of such payments in relation to the operating performance of the FHLB,
(3) the impact of legislative and regulatory changes on institutions and, accordingly, the customer base of the
FHLB, and (4) the liquidity position of the FHLB.
(e) Provision and Allowance for Credit Losses - Loans
The methodology for determining the allowance for credit losses - loans is considered a critical accounting
estimate by management because of the high degree of judgment involved, the subjectivity of the assumptions
used, and the potential for changes in the economic environment that could result in changes to the amount
of the recorded allowance for credit losses - loans. Among the material estimates required to establish the
allowance for credit losses - loans are: a reasonable and supportable forecast; a reasonable and supportable
forecast period and reversion period; value of collateral; strength of guarantors; the amount and timing of
future cash flows for loans individually evaluated; and determination of the qualitative loss factors. All of
these estimates are susceptible to significant change. The allowance for credit losses - loans is a valuation
account that is deducted from the amortized cost basis of loans to present the net amount expected to be
collected on the loans. The Bank has elected to exclude accrued interest receivable from the amortized cost
basis in their estimate of the allowance for credit losses - loans. The provision for credit losses reflects the
amount required to maintain the allowance for credit losses - loans at an appropriate level based upon
management’s evaluation of the adequacy of collective and individual loss reserves. The Company has
established systematic methodologies for the determination of the adequacy of the Company’s allowance for
credit losses - loans. The methodologies are set forth in a formal policy and take into consideration the need
for a valuation allowance for loans evaluated on a collective (pool) basis which have similar risk
characteristics as well as allowances that are tied to individual loans that do not share risk characteristics.
22
The Company increases its allowance for credit losses - loans by charging the provision for credit losses.
Losses related to specific assets are applied as a reduction of the carrying value of the assets and charged
against the allowance for credit loss reserve when management believes the uncollectability of a loan balance
is confirmed. Recoveries on previously charged off loans are credited to the allowance for credit losses-loans.
Management estimates the allowance for credit losses - loans using relevant information, from internal and
external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The
allowance for credit losses - loans is maintained at a level sufficient to provide for expected credit losses over
the life of the loan based on evaluating historical credit loss experience and adjusting historical loss
information for differences in the specific risk characteristics in the current loan portfolio. These factors
include, among others, changes in the size and composition of the loan portfolio, differences in underwriting
standards, delinquency rates, actual loss experience and current economic conditions.
The allowance for credit losses - loans is measured on a collective (pool) basis when similar risk
characteristics exist. In estimating the component of the allowance for credit losses for loans that share
common risk characteristics, loans are pooled based on loan type and areas of risk concentration. For loans
evaluated collectively, the allowance for credit losses is calculated using life of loan historical losses adjusted
for economic forecasts and current conditions.
Management uses the roll-rate method often referred to as "migration analysis" to calculate the allowance for
credit losses - loans. Roll rates are determined by predicting credit losses by segmentation of the loan
portfolio. An assessment of the roll rate is made (the percentage of balances of the number of accounts which
move from one delinquency stage to the next). Once a roll rate is determined for each segment, it is applied
to the balance in each category to estimate the amount that will migrate to the next category. The total
migrations across all categories are aggregated to determine the estimate of credit losses.
For loans evaluated collectively, management uses qualitative factors such as changes in lending policies and
procedures, changes in national and local economic conditions, changes in the concentrations of credit,
changes in experience of lenders and the loan department, and other factors as may apply in its allowance for
credit loss calculation. Each qualitative factor is evaluated and applied to each segment of loan in Pinnacle’s
portfolio and a percentage of each loan is reserved as allowance. Loans are charged against the allowance
for credit losses when management believes the principal is uncollectible.
Loans that do not share risk characteristics with other loans in the portfolio are individually evaluated for
impairment and are not included in the collective evaluation. Factors involved in determining whether a loan
should be individually evaluated include, but are not limited to, the financial condition of the borrower and
the value of the underlying collateral. Expected credit losses for loans evaluated individually are measured
based on the present value of expected future cash flows discounted at the loan’s original effective interest
rate or when the Bank determines that foreclosure is probable, the expected credit loss is measured based on
the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. As a practical
expedient, the Bank measures the expected credit loss for a loan using the fair value of the collateral, if
repayment is expected to be provided substantially through the operation or sale of the collateral when the
borrower is experiencing financial difficulty based on the Bank’s assessment as of the reporting date.
In both cases, if the fair value of the collateral is less than the amortized cost basis of the loan, the Bank will
recognize an allowance as the difference between the fair value of the collateral, less costs to sell (if
applicable) at the reporting date and the amortized cost basis of the loan. If the fair value of the collateral
exceeds the amortized cost basis of the loan, any expected recovery added to the amortized cost basis will be
limited to the amount previously charged-off. Subsequent changes in the expected credit losses for loans
evaluated individually are included within the provision for credit losses in the same manner in which the
expected credit loss initially was recognized or as a reduction in the provision that would otherwise be
reported.
23
While management uses available information to recognize losses on loans, future additions to the allowance
for credit losses may be necessary based on changes in economic conditions or Pinnacle’s recent loss
experience. It is reasonably possible that management’s estimate of loan losses and the related allowance
may change materially in the near term. However, the amount of change that is reasonably possible cannot
be estimated. In addition, various regulatory agencies, as an integral part of their examination process,
periodically review Pinnacle’s allowance for credit losses. Such agencies may require Pinnacle to recognize
additions to the allowance for credit losses based on their judgments about information available to them at
the time of their examinations.
Loans are charged against the allowance when, in management’s opinion, they are deemed doubtful, although
Pinnacle usually continues to aggressively pursue collection. Pinnacle considers a number of factors to
determine the need for and timing of charge-offs including the following: whenever any commercial loan
becomes past due for 120 days for any scheduled principal or interest payment and collection is considered
unlikely; whenever foreclosure on real estate collateral or liquidation of other collateral does not result in full
payment of the obligation and the deficiency or some portion thereof is deemed uncollectible, the
uncollectible portion shall be charged-off; whenever any installment loan becomes past due for 120 days and
collection is considered unlikely; whenever any repossessed vehicle remains unsold for 60 days after
repossession; whenever a bankruptcy notice is received on any installment loan and review of the facts results
in an assessment that all or most of the balance will not be collected, the loan will be placed in non-accrual
status; whenever a bankruptcy notice is received on a small, unsecured, revolving installment account; and
whenever any other small, unsecured, revolving installment account becomes past due for 180 days.
Loans are generally placed in non-accrual status when the collection of principal and interest is 90 days or
more past due unless the obligation relates to a consumer or residential real estate loan or is both well-secured
and in the process of collection. All interest accrued, but not collected, for loans that are placed on nonaccrual
or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-
basis or cost-recovery method, until qualifying for return to accrual. Generally, loans are returned to accrual
status when all the principal and interest amounts contractually due are brought current and future payments
are reasonably assured, which usually requires a minimum of six months of sustained repayment
performance.
An allowance for credit losses - unfunded loan commitments is maintained at a level that, in the opinion of
management, is adequate to absorb expected credit losses associated with the contractual life of the Bank’s
commitments to lend funds under existing agreements such as letters or lines of credit. The Bank uses a
methodology for determining the allowance for credit losses-unfunded loan commitments that applies the
same segmentation and loss rate to each pool as the funded exposure adjusted for probability of funding.
Draws on unfunded loan commitments that are considered uncollectible at the time funds are advanced are
charged to the allowance for credit losses on off-balance sheet exposures. Changes in the allowance for credit
losses-unfunded loan commitments are recognized as provision for (or recapture of) credit loss expense and
added to the allowance for credit losses - unfunded loan commitments, which is included in other liabilities
in the Consolidated Balance Sheets.
(f) Loans Acquired
Loans acquired in business combinations are recorded at their fair value at the acquisition date. Establishing
the fair value of acquired loans involves a significant amount of judgment, including determining the credit
discount based upon historical data adjusted for current economic conditions and other factors. If any of these
assumptions are inaccurate actual credit losses could vary significantly from the credit discount used to
calculate the fair value of the acquired loans. Acquired loans are evaluated upon acquisition and classified as
either purchased credit-deteriorated or purchased non-credit-deteriorated. Purchased credit-deteriorated
(PCD) loans have experienced more than insignificant credit deterioration since origination. For PCD loans,
an allowance for credit losses is determined at the acquisition date using the same methodology as other loans.
The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The
loan’s fair value is grossed up for the allowance for credit losses and becomes its initial amortized cost basis.
24
The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount
or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the
allowance for credit losses are recorded through a provision for credit losses.
For purchased non-credit-deteriorated loans, the difference between the fair value and unpaid principal
balance of the loan at the acquisition date is amortized or accreted to interest income over the life of the loan.
While credit discounts are included in the determination of the fair value for non-credit-deteriorated loans,
since these discounts are expected to be accreted over the life of the loans, they cannot be used to offset the
allowance for credit losses that must be recorded at the acquisition date. As a result, an allowance for credit
losses is determined at the acquisition date using the same methodology as other loans and is recognized as a
provision for credit losses. Any subsequent deterioration (improvement) in credit quality is recognized by
recording (recapturing) a provision for credit losses.
(g) Loan Origination and Commitment Fees and Certain Related Direct Costs
Loan origination and commitment fees and certain direct loan origination costs charged by Pinnacle are
deferred and the net amount amortized as an adjustment of the related loan’s yield. Pinnacle amortizes these
net amounts over the contractual life of the related loans or, in the case of demand loans, over the estimated
life. Fees related to standby letters of credit are recognized over the commitment period.
(h) Bank Premises and Equipment
Bank premises and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed
by the straight-line and declining-balance methods over the estimated useful lives of the assets. Depreciable
lives include 15 years for land improvements, 39 years for buildings, and 3 to 7 years for equipment, furniture
and fixtures. The cost of assets retired and sold and the related accumulated depreciation are eliminated from
the accounts and the resulting gains or losses are included in determining net income. Expenditures for
maintenance and repairs are charged to expense as incurred, and improvements and betterments are
capitalized.
(i) Bank Owned Life Insurance
Pinnacle has purchased life insurance policies on certain current and past key employees and directors where
the insurance policy benefits and ownership are retained by the employer. Bank owned life insurance is
recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is
the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
Income from these policies and changes in the net cash surrender value are recorded within noninterest
income within Other Operating Income.
(j) Goodwill and Other Intangible Assets
Business combinations are accounted for using the acquisition method of accounting. Identifiable intangible
assets are recognized separately and are amortized over their estimated useful lives, which for Pinnacle has
generally been ten years. Goodwill is recognized in business combinations to the extent that the price paid
exceeds the fair value of the net assets acquired, including any identifiable intangible assets. Goodwill is not
amortized and is subject to fair value impairment tests on at least an annual basis.
Pinnacle performs a goodwill impairment analysis on an annual basis as of December 31st. Additionally,
Pinnacle performs a goodwill impairment evaluation on an interim basis when events or circumstances
indicate impairment potentially exists. During 2023 and 2022, Pinnacle reviewed its goodwill for impairment
and determined that goodwill is not impaired. Management will continue to monitor the relationship of
Pinnacle’s market capitalization to both its book value and tangible book value, which management attributes
25
to factors that are both Company-specific and that affect the financial services industry-wide, and to evaluate
the carrying value of goodwill.
(k) Other Real Estate Owned
Foreclosed properties consist of properties acquired through foreclosure or deed in lieu of foreclosure. At
time of foreclosure, the properties are recorded at the fair value less costs to sell. Subsequently, these
properties are carried at the lower of cost or fair value less estimated costs to sell. Losses from the acquisition
of property in full or partial satisfaction of loans are charged against the allowance for credit losses.
Subsequent write-downs, if any, are charged to expense. Gains and losses on the sales of foreclosed properties
are included in determining net income in the year of the sale.
(l)
Impairment or Disposal of Long-Lived Assets
Pinnacle’s long-lived assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
used, such as bank premises and equipment, is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount
of the asset exceeds the fair value of the asset. Assets to be disposed of, such as foreclosed properties, are
reported at the lower of the carrying amount or fair value less costs to sell.
(m) Pension Plan
Pinnacle maintains a noncontributory defined benefit pension plan, which covers substantially all of its
employees. The net periodic pension expense includes a service cost component, interest on the projected
benefit obligation, a component reflecting the actual return on plan assets, the effect of deferring and
amortizing certain actuarial gains and losses, and the amortization of any unrecognized net transition
obligation on a straight-line basis over the average remaining service period of employees expected to receive
benefits under the plan. Pinnacle’s funding policy is to make annual contributions in amounts necessary to
satisfy the Internal Revenue Service’s funding standards, to the extent that they are tax deductible.
Accounting Standards for defined benefit plans require a business entity to recognize the overfunded or
underfunded status of a single-employer defined benefit postretirement plan as an asset or liability in its
statement of financial position and to recognize changes in that funded status in comprehensive income in the
year in which the changes occur. Accounting standards also require a business entity to measure the funded
status of a plan as of the date of its year-end statement of financial position, with limited exceptions.
(n) Revenue Recognition
Pinnacle recognizes revenue from contracts with customers. Noninterest revenue streams such as service
charges on deposit accounts and commissions and fees are recognized in accordance with Accounting
Standards Codification (“ASC”) Topic 606. Topic 606 does not apply to revenue associated with financial
instruments, including revenue from loans, securities and mortgage banking. In addition, certain noninterest
income streams such as financial guarantees, derivatives, and certain credit card fees are outside the scope of
the guidance. Noninterest revenue streams within the scope of Topic 606 are discussed below.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of monthly service fees, overdraft and nonsufficient funds fees,
and VISA debit card interchange fees. Pinnacle’s performance obligation for monthly service fees is
generally satisfied, and the related revenue recognized, over the period in which the service is provided.
26
Payment for service charges on deposit accounts is primarily received immediately or at the end of each
month through a direct charge to customers’ accounts. Overdraft and nonsufficient funds fees and other
deposit account related fees are transactional based, and therefore, Pinnacle’s performance obligation is
satisfied, and related revenue recognized, at a point in time when the service is delivered. Debit card fees are
primarily comprised of interchange fee income. Interchange fees are earned whenever Pinnacle’s debit cards
are processed through the Visa network. Pinnacle’s performance obligation for interchange fee income is
satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is
typically received immediately or in the following month. Interchange income for vendors using terminals
Pinnacle has sold and commissions from VISA related to Pinnacle’s principal status are also included in other
operating income. Pinnacle’s performance obligation is satisfied, and the related revenue recognized, when
the commissions or fees are earned and are generally based on a percentage of activity.
Commissions and Fees
Commissions and fees consist of commissions received on investment products and insurance policies sales.
For insurance sales referred to Bankers Insurance LLC, Pinnacle retains a certain percentage of the policy
premium for each policy sold. For investment products sales through LPL financial LLC, revenue to Pinnacle
consists of advisory account fees, commissions from sales of mutual funds and other investments.
Commissions and fees that total $914 and $857 for 2023 and 2022, respectively, on the consolidated
statements of income includes $190 and $172 in loan late fees that are out-of-scope of Topic 606.
Other Operating Income
Included in other operating income are various transaction based revenue streams such as wire transfer fees,
foreign ATM fees, ACH origination fees, cashier check fees and miscellaneous services provided such as
assistance with balancing a customer’s checking account or making copies. Each of these fees are
transactional based, and therefore, Pinnacle’s performance obligation is satisfied, and related revenue
recognized, at a point in time when the service is delivered.
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of
Topic 606, for 2023 and 2022, respectively:
Non-interest Income
In-scope of Topic 606:
Service charges on deposit accounts
Commissions and fees
Other operating income
Non-interest Income (in-scope of Topic 606)
Non-interest Income (out-of-scope of Topic 606)
(o) Net Income per Share
Years Ended December 31,
2023
2022
$
$
$
3,508 $
724
1,030
5,262 $
2,702
7,964 $
3,513
685
987
5,185
1,839
7,024
Basic net income per share excludes dilution and is computed 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 that are not anti-dilutive were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of Pinnacle.
27
The following is a reconciliation of the numerators and denominators of the basic and diluted net income per
share computations for the periods indicated:
Year ended December 31, 2023
Basic net income per share
Effect of dilutive stock options
Diluted net income per share
Year ended December 31, 2022
Basic net income per share
Effect of dilutive stock options
Diluted net income per share
Shares
Net income
(numerator) (denominator)
$
9,762
—
$
9,762
Net income
(numerator) (denominator)
$
2,192,839 $
1,923
2,194,762 $
Shares
8,242
—
8,242
2,177,680 $
2,870
2,180,550 $
$
Per share
amount
4.45
4.45
Per share
amount
3.78
3.78
(p) Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand,
amounts due from banks (with original maturities of three months or less), and federal funds sold. Generally,
federal funds are purchased and sold for one-day periods.
(q) Comprehensive Income
ASC Topic 220, Comprehensive Income, requires Pinnacle to classify items of “Other Comprehensive
Income” (such as net unrealized gains (losses) on available-for-sale securities) by their nature in a financial
statement and present the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of financial position. Pinnacle’s
other comprehensive income consists of net income, and net unrealized gains (losses) on securities available-
for-sale, net of income taxes, and adjustments relating to its defined benefit plan, net of income taxes.
(r) Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, establishes a framework for using fair value. It
defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants as of the measurement date.
In accordance with Fair Value Measurements and Disclosures, Pinnacle groups its financial assets and
financial liabilities in three levels, based on the markets in which the assets and liabilities are traded and the
reliability of the assumptions used to determine fair value. The most significant instruments that Pinnacle
measures at fair value are available-for-sale securities. As of December 31, 2022, all available-for-sale
securities fell into Level 2 fair value hierarchy and remained at Level 2 as of December 31, 2023. Valuation
methodologies for the fair value hierarchy are as follows:
Level 1 – Valuations are based on quoted prices for identical assets and liabilities traded in active exchange
markets, such as the New York Stock Exchange.
Level 2 – Valuations for assets and liabilities are obtained from readily available pricing sources via
independent providers for market transactions involving similar assets or liabilities, model-based valuation
techniques, or other observable inputs.
28
Level 3 – Valuations for assets and liabilities that are derived from other valuation methodologies, including
option pricing models, discounted cash flow models and similar techniques, and are not based on market
exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and
projections in determining fair value assigned to such assets and liabilities.
(s) Stock-based Compensation
Restricted stock awards compensation cost is based on the fair value of the award, which is the closing price
of Pinnacle's common stock on the date of the grant. Restricted stock awards issued by Pinnacle typically
have vesting periods with service conditions. Compensation cost is recognized as expense over the vesting
period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the
requisite service period. Because of the insignificant amount of forfeitures Pinnacle has experienced,
forfeitures are recognized as they occur.
(t) Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and
commercial letters of credit, issued to meet customer financing needs. The face amount for these items
represents the exposure to loss, before considering customer collateral or ability to repay. Such financial
instruments are recorded when they are funded.
(u) Current Accounting Developments
For each of the accounting pronouncements that affect Pinnacle, Pinnacle elected to follow the rule that allows
companies engaging in an initial public offering as an Emerging Growth Company to follow the private
company implementation dates.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial
Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.
This ASU clarifies and improves areas of guidance related to the recently issued standards on credit losses,
hedging, and recognition and measurement including improvements resulting from various TRG Meetings.
The amendments are effective for private companies for fiscal years beginning after December 15, 2022.
Early adoption is permitted. ASU 2019-04 did not have a material impact on Pinnacle's consolidated financial
statements.
In May 2019, the FASB issued ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted
Transition Relief. The amendments in this ASU provide entities that have certain instruments within the
scope of Subtopic 326-20 with an option to irrevocably elect the fair value option in Subtopic 825-10, applied
on an instrument-by-instrument basis for eligible instruments, upon the adoption of Topic 326. The fair value
option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option
should subsequently measure those instruments at fair value with changes in fair value flowing through
earnings. The amendments are effective for fiscal years beginning after December 15, 2022, and interim
periods within those fiscal years. The amendments should be applied on a modified-retrospective basis by
means of a cumulative-effect adjustment to the opening balance of retained earnings balance in the balance
sheet. Early adoption is permitted. ASU 2019-05 did not have a material impact on Pinnacle's consolidated
financial statements.
In March 2022, the FASB issued ASU 2022-02 Financial Instruments—Credit Losses (Topic 326): Troubled
Debt Restructurings and Vintage Disclosures. For creditors that have adopted CECL, the amendments in this
ASU: (i) eliminate the previous recognition and measurement guidance for TDRs, (ii) require new disclosures
for loan modifications when a borrower is experiencing financial difficulty (the “Modification Disclosures”)
and (iii) require disclosures of current period gross charge-offs by year of origination in the vintage
disclosures (the “Gross Charge-off Vintage Disclosures”). The Modification Disclosures apply to the
29
following modification types: principal forgiveness, interest rate reductions, other-than-insignificant payment
delays, term extensions, or a combination thereof. Creditors will be required to disclose the following by loan
class: (i) amounts and relative percentages of each modification type, (ii) the financial effect of each
modification type, including the amount of principal forgiveness and reduction in weighted average interest
rate, (iii) the performance of the loan in the 12 months following the modification and (iv) qualitative
information discussing how the modifications factored into the determination of the Allowance for Credit
Losses ("ACL"). Pinnacle adopted ASU 2022-02 as of January 1, 2023 and elected to apply the modified
retrospective transition method for ACL recognition and measurement. As a result of adopting this ASU,
Pinnacle did not experience any material change to its ACL related to loans previously modified as a TDR
and, therefore, did not experience a material cumulative effect adjustment to retained earnings as of December
31, 2023.
On January 1, 2023, Pinnacle adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss
methodology with an expected loss methodology that is referred to as the current expected credit loss
(“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the
financial
reasonable
supportable forecasts and generally applies to financial assets measured at amortized cost, including loan
receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as
unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the
net amount expected to be collected by using an allowance for credit losses.
experience,
conditions,
historical
current
using
asset
and
In addition, CECL made changes to the accounting for available-for-sale debt securities. One such change is
to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt
securities if management does not intend to sell and does not believe that it is more likely than not they will
be required to sell.
Pinnacle adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023, using
the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet
credit exposures. The transition adjustment of the adoption of CECL included an increase in the allowance
for credit losses on loans of $561 ($443 net of deferred income taxes), which is presented as a reduction to
net loans outstanding, and no increase in the allowance for credit losses on unfunded loan commitments,
which is recorded within Other Liabilities. Pinnacle recorded a net decrease to retained earnings of $443 as
of January 1, 2023, for the cumulative effect of adopting CECL, which reflects the transition adjustments
noted above, net of the applicable deferred tax assets recorded. Results for reporting periods beginning after
January 1, 2023, are presented under CECL while prior period amounts continue to be reported in accordance
with previously applicable accounting standards (“Incurred Loss”).
Pinnacle adopted ASC 326 using the prospective transition approach for PCD assets that were previously
classified as purchased credit impaired (“PCI”) under ASC 310-30. In accordance with the standard,
management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On
January 1, 2023, the amortized cost basis of PCD assets were adjusted to reflect the addition of $41 to establish
the allowance for credit losses. The remaining interest-related discount of approximately $1,940 began being
accrued into interest income at the effective interest rate as of January 1, 2023.
Regarding PCD assets, the Company elected to disaggregate the former PCI pools and no longer considers
these pools to be the unit of account; contractually delinquent PCD loans will be reported as nonaccrual loans
using the same criteria as other loans.
Pinnacle adopted ASC 326 using the prospective transition approach for debt securities for which other-than-
temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company
did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC
326, the Company determined that an allowance for credit losses on available-for-sale securities was not
deemed material.
30
(2) Restrictions on Cash
Per Federal Reserve regulations, the average reserve requirement for the week including December 31, 2023 and
the week of December 31, 2022 has been $0.
(3) Securities
The amortized costs, gross unrealized gains, gross unrealized losses and fair values for securities as of December
31, 2023 and 2022 are as follows:
2023
Gross
Gross
Available-for-Sale
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies
Obligations of states and political subdivisions
Mortgage-backed securities – government
Total available-for-sale
Amortized unrealized unrealized
gains
losses
costs
Fair
values
$ 144,641
39,712
64,169
$ 248,522
—
12
—
12
(4,674 )
(5,384 )
(4,897 )
(14,955 )
139,967
34,340
59,272
233,579
Pinnacle had no held-to-maturity securities as of December 31, 2023.
2022
Gross
Gross
Available-for-Sale
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies
Obligations of states and political subdivisions
Mortgage-backed securities – government
Total available-for-sale
Held-to-Maturity
U.S. Treasury securities and obligations of
Amortized unrealized unrealized
gains
losses
costs
Fair
values
$ 149,447
40,620
70,996
$ 261,063
—
2
1
3
(7,698 )
(6,876 )
(5,320 )
(19,894 )
141,749
33,746
65,677
241,172
2022
Gross
Gross
Amortized unrealized
unrealized
costs
gains
losses
Fair
values
U.S. Government corporations and agencies
$
9,942
—
(29 )
9,913
31
The following table shows the gross unrealized losses and fair value of Pinnacle’s securities, aggregated by security
category and length of time that individual securities have been in a continuous unrealized loss position, as of
December 31, 2023:
Description of Securities
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies
Obligations of states and political subdivisions
Mortgage-backed securities-government
Total
Less than 12
months
More than 12
months
Total
Fair
value
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
Gross
Fair
value
Gross
unrealized
losses
$ —
2,760
2,193
$ 4,953
— 139,967
30,377
23
41
57,057
64 227,401
4,674 139,967
33,137
5,361
4,856
59,250
14,891 232,354
4,674
5,384
4,897
14,955
Pinnacle does not consider the unrealized losses other-than-temporary losses based on the volatility of the securities
market price involved, the credit quality of the securities, and Pinnacle’s ability, if necessary, to hold the securities
until maturity. As of December 31, 2023, the securities included 6 bonds that had continuous losses for less than
12 months and 122 bonds that had continuous losses for more than 12 months. There were no realized gains and
losses in 2023.
The following table shows the gross unrealized losses and fair value of Pinnacle’s securities, aggregated by security
category and length of time that individual securities have been in a continuous unrealized loss position, as of
December 31, 2022:
Description of Securities
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies
Obligations of states and political subdivisions
Mortgage-backed securities-government
Total
Less than 12
months
More than 12
months
Total
Fair
value
Gross
unrealized
losses
Gross
unrealized
losses
Gross
Fair
value
Gross
unrealized
losses
Fair
value
$ 112,363
10,589
26,702
$ 149,654
3,728 39,299
521 21,839
1,718 38,929
5,967 100,067
3,999 151,662
32,428
6,354
3,603
65,631
13,956 249,721
7,727
6,875
5,321
19,923
For 2022, the securities included 60 bonds that had continuous losses for less than 12 months and 73 bonds that had
continuous losses for more than 12 months. There were no realized gains or losses in 2022.
The amortized costs and fair values of available-for-sale and held-to-maturity securities as of December 31, 2023
and December 31, 2022, by contractual maturity, are shown below. Actual maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment
penalties.
32
2023
Available-for-Sale
Fair
values
Amortized
costs
Held-to-Maturity
Amortized
costs
Fair
values
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed securities
Totals
$
$
56,602
97,132
23,677
6,942
184,353
64,169
248,522
56,142
92,483
20,250
5,432
174,307
59,272
233,579
2022
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed securities
Totals
Available-for-Sale
Fair
values
Amortized
costs
Held-to-Maturity
Amortized
costs
Fair
values
$
$
5,693
131,994
38,916
13,464
190,067
70,996
261,063
5,496
126,307
33,690
10,002
175,495
65,677
241,172
9,942
—
—
—
9,942
—
9,942
9,913
—
—
—
9,913
—
9,913
Securities with amortized costs of approximately $66,647 (fair value of $63,924) as of December 31, 2023, were
pledged as collateral for public deposits. Also, securities with amortized costs of approximately $38,134 (fair value
of $36,213) as of December 31, 2023 were pledged as collateral for the Federal Reserve's term funding program.
Securities with amortized costs of approximately $47,932 (fair value of $44,767) as of December 31, 2022, were
pledged as collateral for public deposits and no securities were pledged for the Federal Reserve's term funding
program.
(4) Loans, Allowance for Credit Losses and Credit Quality
A summary of loans as of December 31, 2023 and December 31, 2022 follows:
Real estate loans:
Residential-mortgage
Residential-construction
Commercial
Loans to individuals for household, family
and other consumer expenditures
Commercial and industrial loans
Total loans, gross
Less unearned income and fees
Loans, net of unearned income and fees
Less allowance for credit losses
Loans, net
2023
2022
175,888 $
10,810
219,885
132,844
102,010
641,437
(638 )
640,799
(4,511 )
636,288 $
170,534
11,281
211,224
136,338
103,519
632,896
(572 )
632,324
(3,853 )
628,471
$
$
33
In the normal course of business, First National Bank has made loans to executive officers and directors. As of
December 31, 2023, loans and extensions of credit to executive officers and directors totaled $586 as compared to
$1,165 as of December 31, 2022. During 2023, one new consumer loan for $30 was made to a director. The loan
was made in the ordinary course of business on substantially the same terms and conditions, including interest rates
and collateral, as those prevailing at the same time for comparable transactions with unrelated persons, and, in the
opinion of management and the Board, do not involve more than normal risk of collectability or present other
unfavorable features.
The fair value of loans, net of unearned income and fees, was $579,056 as of December 31, 2023 and $573,472 as
of December 31, 2022.
Loans in the amount of $38,674 were pledged as collateral for Pinnacle’s available FHLB line of credit as of
December 31, 2023.
The following section presents information on Pinnacle’s allowance for credit losses and recorded investment in
loans. The total allowance reflects management’s estimate of credit losses inherent in the loan portfolio at the
balance sheet date. While portions of the allowance are attributed to specific portfolio segments, the entire
allowance is available to absorb credit losses inherent in the total loan portfolio. The following table summarizes
the activity related to allowance for credit losses under the CECL methodology.
Allowance for Credit Losses and Recorded Investment in Loans
For the Year Ended December 31, 2023
Commercial
Commercial Real Estate
Consumer Residential Total
Allowance for Credit Losses:
Beginning balance
Adjustment to allowance for adoption of
ASU 2016-13
Charge-offs
Recoveries
(Recovery of) provision for credit losses
$
$
Ending Balance
$
Allowance:
Ending balance: individually evaluated
Ending balance: collectively evaluated
Ending balance: loans acquired with
deteriorated
credit quality
400
1,389
1,096
968
3,853
(81 )
(12 )
13
624
944
373
571
783
—
—
(602 )
1,570
(477 )
(273 )
259
219
824
376
(29 )
8
(150 )
1,173
601
(314 )
280
91
4,511
35
1,535
—
824
—
1,173
408
4,103
$
—
—
—
—
—
Loans:
Total loans ending balance
Ending balance: individually evaluated
Ending balance: collectively evaluated
Ending balance: loans acquired with
deteriorated credit quality
Commercial
Commercial Real Estate
Consumer Residential Total
$
102,010
421
101,584
219,885
535
218,986
132,844
12
132,819
186,698 641,437
2,287
185,071 638,460
1,319
5
364
13
308
690
34
Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan
losses under the incurred loss methodology. The following tables are disclosures related to the allowance
for loan losses in prior periods.
Allowance for Loan Losses and Recorded Investment in Loans
For the Year Ended December 31, 2022
Commercial
Commercial Real Estate Consumer Residential Total
Allowance for Loan Losses:
Beginning balance
Charge-offs
Recoveries
(Recovery of) provision for loan losses
Ending Balance
$
$
311
(13 )
9
93
400
1,440
—
—
(51 )
1,389
793
(221 )
284
240
1,096
1,119
(24 )
16
(143 )
968
3,663
(258 )
309
139
3,853
Allowance:
Ending balance: individually evaluated for
impairment
Ending balance: collectively evaluated for
impairment
Ending balance: loans acquired with
deteriorated
credit quality
—
200
—
—
200
400
1,189
1,096
968
3,653
$
—
—
—
—
—
Loans:
Total loans ending balance
Ending balance: individually evaluated for
impairment
Ending balance: collectively evaluated for
impairment
Ending balance: loans acquired with
deteriorated credit quality
Commercial
Commercial Real Estate Consumer Residential Total
$
103,519
211,224
136,338
181,815 632,896
18
780
15
745
1,558
103,341
206,740
136,311
178,304 624,696
160
3,704
12
2,766
6,642
The allowance for credit losses - unfunded loan commitments, included in Other liabilities on the Consolidated
Balance Sheets, totaled $122 as of December 31, 2023 and was $142 as of December 31, 2022.
Pinnacle utilizes a risk rating matrix to assign a risk grade to each of its loans. A description of the general
characteristics of the risk grades is as follows:
Pass – These loans have minimal or acceptable credit risk.
Special Mention – These loans have potential weaknesses that deserve management’s close attention. If left
uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at
some future date.
35
Substandard – These loans are inadequately protected by the net worth or paying capacity of the obligor or
collateral pledged, if any. Loans classified as substandard must have a well-defined weakness, or weaknesses,
which jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct probability
that Pinnacle will sustain some loss if the deficiencies are not corrected.
Doubtful – These loans have all of the weakness inherent in one classified as substandard with the added
characteristic that the weaknesses make collection liquidation in full, on the basis of the currently existing
facts, conditions and values, highly questionable and improbable.
The following table illustrates Pinnacle’s credit quality indicators:
Credit Quality Indicators
As of December 31, 2023
Credit Exposure
Pass
Special Mention
Substandard
Doubtful
Total
Credit Exposure
Pass
Special Mention
Substandard
Doubtful
Total
Commercial
Commercial Real Estate
$
101,637
—
373
—
102,010
$
Consumer Residential Total
219,837
—
48
—
219,885
132,707
23
114
—
132,844
185,766 639,947
620
870
—
186,698 641,437
597
335
—
Credit Quality Indicators
As of December 31, 2022
Commercial
Commercial Real Estate
$
103,012
—
507
—
103,519
$
Consumer Residential Total
210,128
299
797
—
211,224
136,164
45
129
—
136,338
180,502 629,806
1,028
2,062
—
181,815 632,896
684
629
—
36
The following table presents the Company’s recorded investment in loans by credit quality indicators by year of
origination as of December 31, 2023:
Loans by Year of Origination
Total Recorded Investment
Total Current period gross
chargeoff
2019
2020
2021
$ 37,600
64,612
118,476
2022
2023
178,069 136,645
Prior
106,035 641,437
Total
—
—
—
—
—
—
—
Commercial
Pass
Special Mention
Substandard
Total
Current period gross chargeoff
3,283
—
—
3,283
—
8,300
—
—
8,300
9
Commercial Real Estate
Pass
Special Mention
Substandard
Total
Current period gross chargeoff
12,372
—
—
12,372
—
24,605
—
—
24,605
—
27,079
—
—
26,909 19,778
16,288 101,637
—
373
27,079 26,909 19,778 16,661 102,010
12
—
373
—
—
—
—
—
—
—
3
—
—
48,250 58,014 28,344 48,252 219,837
—
48
48,250 58,062 28,344 48,252 219,885
—
—
—
—
48
—
—
—
—
—
—
Consumer
Pass
Special Mention
Substandard
Total
Current period gross chargeoff
4,988
8
—
4,996
9
11,663
—
—
11,663
14
12,685
15
—
12,700
80
—
111
52,579 44,221
—
—
52,690 44,221
15
118
—
3
6,571 132,707
23
114
6,574 132,844
273
37
30,447 40,408 44,302 33,882 185,766
597
335
34,548 186,698
29
40,408 44,302
1
30,447
—
399
267
—
28
—
—
—
Residential
Pass
Special Mention
Substandard
Total
Current period gross chargeoff
16,751
198
—
16,949
—
19,976
68
20,044
—
37
The following table represents an age analysis of Pinnacle’s past due loans:
Age Analysis of Past Due Loans
As of December 31, 2023
30-59
Days
Greater Total
Past
Than
Past Due Past Due 90 Days Due
60-89
Days
Commercial $
Commercial
real estate
Consumer
Residential
Total
$
1
28
72
88
189
—
—
—
84
84
—
—
—
—
—
Total
Current Loans
1 102,009 102,010
28 219,857 219,885
72 132,772 132,844
172 186,526 186,698
273 641,164 641,437
Non-
Total
accrual
with no
Non-
Allowance accrual Accruing
Recorded
Investment
90 Days and
—
—
—
12
1,010
1,022
535
12
1,010
1,557
—
—
—
—
—
Age Analysis of Past Due Loans
As of December 31, 2022
30-59
Days
60-89
Days
Greater Total
Than
Past
Past Due Past Due 90 Days Due
Total
Current Loans
74 103,445 103,519
—
Commercial $
Commercial
real estate
Consumer
Residential
Total
$
74
100
204
384
762
—
—
20
58
78
100 211,124 211,224
—
224 136,114 136,338
—
221
663 181,152 181,815
221 1,061 631,835 632,896
Non-
Total
accrual
with no
Non-
Allowance accrual Accruing
Recorded
Investment
90 Days and
95
95
—
15
734
844
717
15
734
1,561
—
—
—
221
221
The Company did not modify any loans for borrowers experiencing financial difficulty during 2023. Accordingly,
the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during
2023 that subsequently defaulted. A default on a modified loan is defined as being past due 90 days or being out of
compliance with the modification agreement. The following table presents information on Pinnacle’s individually
evaluated loans and their related allowance for credit losses:
38
Individually Evaluated Loans
As of December 31, 2023
Unpaid
Recorded Principal
Investment Balance
Average
Related
Recorded
Allowance Investment Recognized
Interest
Income
$
$
$
$
48
—
12
1,319
373
535
—
—
421
535
12
1,319 $
2,287
48
—
12
1,319
373
535
—
—
421
535
12
1,319
2,287
—
—
—
—
373
35
—
—
373
35
—
—
408
290
370
14
1,295
187
626
—
—
477
996
14
1,295
2,782
—
4
1
39
37
—
—
—
37
4
1
39
81
Impaired Loans
For the Year Ended December 31, 2022
Unpaid
Recorded Principal
Investment Balance
Average
Related
Recorded
Allowance Investment Recognized
Interest
Income
$
$
$
$
95
740
15
1,271
—
717
—
—
95
1,457
15
1,271
2,838
95
740
15
1,271
—
717
—
—
95
1,457
15
1,271
2,838
—
—
—
—
—
200
—
—
—
200
—
—
200
195
756
29
1,303
—
359
—
—
195
1,115
29
1,303
2,642
—
36
—
29
—
25
—
—
—
61
—
29
90
With no related allowance recorded:
Commercial
Commercial real estate
Consumer
Residential
With related allowance recorded:
Commercial
Commercial real estate
Consumer
Residential
Total:
Commercial
Commercial real estate
Consumer
Residential
Total
With no related allowance recorded:
Commercial
Commercial real estate
Consumer
Residential
With related allowance recorded:
Commercial
Commercial real estate
Consumer
Residential
Total:
Commercial
Commercial real estate
Consumer
Residential
Total
39
The following presents information on Pinnacle’s nonaccrual loans:
Loans in Nonaccrual Status
As of December 31, 2023 and 2022
Commercial
Commercial real estate
Consumer
Residential
Total
2023
2022
— $
535
12
1,010
1,557 $
95
717
15
734
1,561
$
$
Pinnacle had three loan modifications totaling $357 as of December 31, 2023.
Pinnacle offers a variety of modifications to borrowers. The modification categories offered can generally be
described in the following categories.
Rate Modification is a modification in which the interest rate is changed.
Term Modification is a modification in which the maturity date, timing of payments or frequency of payments is
changed.
Interest Only Modification is a modification in which the loan is converted to interest only payments for a period
of time.
Payment Modification is a modification in which the dollar amount of the payment is changed, other than an interest
only modification described above.
Combination Modification is any other type of modification, including the restructuring of two or more loan terms
through the use of multiple categories above.
There were no additional commitments to extend credit related to these loan modifications that were outstanding
as of December 31, 2023.
40
The following tables present loan modifications as of December 31, 2023 and troubled debt restructures as of
December 31, 2022:
Commercial
Commercial real estate
Consumer
Residential
Total
Commercial
Commercial real estate
Consumer
Residential
Total
December 31, 2023
Accrual
Status
Non-Accrual
Status
Loan
Modifications
—
48
—
309
357
—
—
—
—
—
—
48
—
309
357
December 31, 2022
Accrual
Status
Non-Accrual
Status
Total
Troubled Debt
Restructuring
—
740
—
316
1,056
—
—
—
—
—
—
740
—
316
1,056
$
$
$
$
For 2023, Pinnacle had no new loan modifications and no loans with modifications that experienced payment
defaults.
(5) Bank Premises and Equipment
Bank premises and equipment, net was comprised of the following as of December 31, 2023 and 2022:
Land improvements
Buildings
Equipment, furniture and fixtures
Less accumulated depreciation
Land
Construction in progress
Bank premises and equipment, net
2023
2022
783 $
20,847
9,254
30,884
(13,962 )
16,922
4,258
317
21,497 $
783
20,706
8,834
30,323
(12,884 )
17,439
4,258
45
21,742
$
$
41
(6) Goodwill and Other Intangible Assets
The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible
assets as December 31, 2023 and December 31, 2022 and the carrying amount of unamortizable intangible assets
as of the same dates.
December 31, 2023
Gross Carrying Accumulated
Amortization
Amount
December 31, 2022
Gross Carrying
Amount
Accumulated
Amortization
Amortizable Intangible Assets:
Core Deposit Intangible
Unamortizable Intangible Assets:
Goodwill
$
$
1,600
507 $
1,600
347
539
$
539
Amortization expense of all other intangible assets totaled $0 for the years ended December 31, 2023 and 2022,
respectively.
The following table presents the estimated amortization expense schedule related to acquisition-related amortizable
intangible assets for each of the five calendar years ending December 31, 2028 and the estimated amount
amortizable thereafter. These estimates are subject to change in future periods to the extent management determines
it is necessary to adjust the carrying value or estimated useful lives of amortizable intangible assets.
2024
2025
2026
2027
2028
Thereafter
Total
(7) Deposits
A summary of deposits as of December 31, 2023 and December 31, 2022:
Noninterest-bearing demand deposits
Interest-bearing:
Savings and money market accounts
NOW accounts
Time deposits – under $250,000
Time deposits – $250,000 and over
Total interest-bearing deposits
Total deposits
42
Estimated
Amortization
Expense
$
$
160
160
160
160
160
293
1,093
2023
2022
$
269,502 $
286,833
358,452
137,816
145,512
21,162
662,942
932,444 $
355,927
156,090
92,448
7,940
612,405
899,238
$
In the normal course of business, First National Bank has received deposits from executive officers and directors.
As of December 31, 2023 and December 31, 2022, deposits from executive officers and directors were
approximately $17,750 and $20,980, respectively. All such deposits were received in the ordinary course of
business on substantially the same terms and conditions, including interest rates, as those prevailing at the same
time for comparable transactions with unrelated persons.
The fair value of deposits was $757,115 as of December 31, 2023 and $688,824 as of December 31, 2022.
(8) Borrowings
As of December 31, 2023 and December 31, 2022, Pinnacle’s available borrowing limit with the FHLB was
approximately $245,712 and $246,398, respectively. Pinnacle had $0 in borrowings from the FHLB outstanding at
December 31, 2023. Additionally, Pinnacle has liquidity borrowing capabilities with three correspondent banks
totaling $48,000 with $0 outstanding as of December 31, 2023.
As of September 21, 2020 Pinnacle completed a private placement of $8,000 in fixed-to-floating rate subordinated
notes due 2030 (the “Notes”). The Notes have been structured to qualify as Tier 2 capital under bank regulatory
guidelines in the future. The proceeds from the sale of the Notes were utilized to fund a portion of the cash
consideration paid by Pinnacle in connection with its merger with Virginia Bank and to provide optionality for
various growth opportunities and for general corporate purposes. The Notes bear interest at 5.25% per annum,
beginning September 18, 2020 to, but excluding September 30, 2025, payable quarterly in arrears. From September
30, 2025 to, but excluding September 30, 2030, or up to an early redemption date, the interest rate shall reset
quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financing Rate
(“SOFR”) plus 513 basis points, payable quarterly in arrears. Beginning on September 30, 2025 through maturity,
the Notes may be redeemed, at Pinnacle’s option and subject to any required regulatory approval, on any scheduled
interest payment date. The Notes will mature on September 30, 2030.
Pinnacle borrowed $2,000 under a fixed-to-floating rate promissory note due 2030 (the “Promissory Note”) in the
fourth quarter of 2020. The Promissory Note bears interest at 5.25% per annum, beginning December 18, 2020 to
but excluding December 31, 2025, payable quarterly in arrears. From December 31, 2025 to but excluding
December 31, 2030, or up to an early redemption date, the interest rate shall reset quarterly to an interest rate per
annum equal to the then current three-month SOFR plus 515 basis points, payable quarterly in arrears. The
Promissory Note will mature on December 31, 2030.
(9) Employee Benefit Plans
First National Bank maintains a noncontributory defined benefit pension plan that covers substantially all of its
employees. Benefits are computed based on employees’ average final compensation and years of credited service.
Pension expenses amounted to approximately $550 and $1,122 in 2023 and 2022, respectively.
43
The components of net pension benefit cost under the plan for the year ended December 31, 2023 and 2022 is
summarized as follows:
Change in Benefit Obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial income
Benefits paid
Settlement Gain
Benefit obligation at end of year
Change in Plan Assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Benefits paid
Projected fair value of plan assets at end of year
Funded Status at the End of the Year
Amounts Recognized in the Balance Sheet
Other liabilities, accrued pension
Amounts Recognized in Accumulated Other
Comprehensive
Income Net of Tax Effect
Unrecognized actuarial (loss)/gain
Prior service cost
Income tax effect
Benefit obligation included in accumulated other
comprehensive income
Funded Status
Benefit obligation
Fair value of assets
Unrecognized net actuarial gain/(loss)
Unrecognized prior service cost
Funded Status at December 31
Weighted Average Assumptions as of December 31, 2023 and 2022 :
Discount rate used for net periodic pension cost
Discount rate used for disclosure
Expected long-term return on plan assets used for net periodic pension cost
Rate of compensation increase for disclosure
$
$
$
$
$
2023
2022
$
13,321
723
626
1,098
(1,014 )
—
14,754
$
12,352
1,560
—
(1,014 )
12,898
(1,856 )
20,886
1,298
509
(7,285 )
(1,882 )
(205 )
13,321
15,519
(3,285 )
2,000
(1,882 )
12,352
(969 )
(1,856 )
(969 )
(221 )
(128 )
74
164
(137 )
(6 )
(275 ) $
21
(14,754 )
12,898
$
220
128
(1,508 ) $
(13,321 )
12,352
(164 )
137
(996 )
Pension Benefits
2023
2022
4.95 %
4.75 %
7.25 %
3.00 %
2.60 %
4.95 %
7.25 %
3.00 %
The estimated portion of prior service cost and net transition obligation included in accumulated other
comprehensive income that will be recognized as a component of net periodic pension cost over the next fiscal year
is $548.
44
Pinnacle selects the expected long-term rate-of-return-on-assets assumption in consultation with its investment
advisors and actuary. This rate is intended to reflect the average rate of return expected to be earned on the funds
invested or to be invested to provide plan benefits. Historical performance is reviewed especially with respect to
real rates of return (net of inflation) for the major asset classes held or anticipated to be held by the trust, and for
the trust itself. Undue weight is not given to recent experience, which may not continue over the measurement
period, and higher significance is placed on current forecasts of future long-term economic conditions.
Because assets are held in a qualified trust, anticipated returns are not reduced for taxes. Further, solely for this
purpose, the plan is assumed to continue in force and not terminate during the period during which assets are
invested. However, consideration is given to the potential impact of current and future investment policy, cash flow
into and out of the trust, and expenses (both investment and non-investment) typically paid from plan assets (to the
extent such expenses are not explicitly estimated within periodic cost).
The components of net pension benefit cost under the plan for the years ended December 31, 2023 and 2022 is
summarized as follows:
Service cost
Interest cost
Expected return on plan assets
Amortization of Prior Service Cost
Recognized net loss due to settlement
Recognized net actuarial loss
Net pension benefit cost
Gross gain recognized in other comprehensive
income
Total Recognized in Net Pension Benefit Cost and
Other Comprehensive Income
Projected Benefit Payments
$
$
Pension Benefits
2023
2022
723 $
626
(847 )
9
—
—
511 $
1,299
509
(1,031 )
9
247
75
1,108
376
(3,506 )
$
887 $
(2,398 )
The projected benefit payments under the plan are summarized as follows for the years ending December 31:
2024
2025
2026
2027
2028
2029-2033
$
$
1,031
928
748
436
550
4,403
Plan Asset Allocation
Plan assets are held in a pooled pension trust fund administered by the Virginia Bankers Association. The pooled
pension trust fund is sufficiently diversified to maintain a reasonable level of risk without imprudently sacrificing
return, with a targeted asset allocation of 38% fixed income and 62% equities. The Investment Manager selects
investment fund managers with demonstrated experience and expertise, and funds with demonstrated historical
performance, for the implementation of the pension plan’s investment strategy. The Investment Manager will
consider both actively and passively managed investment strategies and will allocate funds across the asset classes
to develop an efficient investment structure.
45
It is the responsibility of the Virginia Bankers Association to administer the investments of the pooled pension trust
fund within reasonable costs, being careful to avoid sacrificing quality. These costs include, but are not limited to,
management and custodial fees, consulting fees, transaction costs and other administrative costs.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of
any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of
observable inputs and minimize the use of unobservable inputs. Following is a description of the valuation
methodologies used for assets measured at fair value.
Mutual funds-fixed income and equity funds: Valued at the net asset value of shares held at year-end.
Cash and equivalents: Valued at cost which approximates fair value.
The preceding methods described may produce a fair value calculation that may not be indicative of net realizable
value or reflective of future fair values. Furthermore, although Pinnacle believes its valuation methods are
appropriate and consistent with other market participants, the use of different methodologies or assumptions to
determine fair value of certain financial instruments could result in a different fair value measurement as of
December 31, 2023 and 2022.
The following table presents the fair value of the assets, by asset category, as of December 31, 2023 and 2022.
Mutual funds-fixed income
Mutual funds-equity
Total assets at fair value
2023
2022
5,159 $
7,739
12,898 $
4,694
7,658
12,352
$
$
The following table sets forth by level, within the fair value hierarchy, the assets carried at fair value as of December
31, 2023 and 2022.
Mutual funds-fixed income
Mutual funds-equity
Total assets at fair value
Mutual funds-fixed income
Mutual funds-equity
Total assets at fair value
Contributions
Assets at Fair Value as of December 31, 2023
Total
Level 3
Level 2
—
—
—
—
—
—
5,159
7,739
12,898
Assets at Fair Value as of December 31, 2022
Total
Level 3
Level 2
Level 1
$
5,159
7,739
12,898
$
Level 1
$
4,694
7,658
12,352
$
—
—
—
—
—
—
4,694
7,658
12,352
Pinnacle contributed $1,000 to its pension plan on January 17, 2024 and $2,000 on December 30, 2022.
Pinnacle also has a 401(k) plan under which Pinnacle matches employee contributions to the plan. In 2023 and
2022, Pinnacle matched 100% of the first 1% of salary deferral and 50% of the next 5% of salary deferral to the
401(k) plan. The amount expensed for the 401(k) plan was $318 during the year ended December 31, 2023 and
$299 during the year ended December 31, 2022.
46
(10) Income Taxes
Income tax expense attributable to income before income tax expense for the years ended December 31, 2023 and
2022 is summarized as follows:
Current
Deferred
Total income tax expense
2023
2022
2,293 $
(269 )
2,024 $
1,782
12
1,794
$
$
Reported income tax expense for the years ended December 31, 2023 and 2022 differed from the amounts computed
by applying the U.S. Federal income tax rate of 21% for 2023 and 2022 to income before income tax expense as a
result of the following:
Computed at statutory Federal tax rate
Increase (reduction) in income tax expense
resulting from:
Tax-exempt interest
Disallowance of interest expense
Other, net
Reported income tax expense
2023
2022
$
2,475 $
2,108
(111 )
13
(353 )
2,024 $
(108 )
2
(208 )
1,794
$
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred
tax liabilities as of December 31, 2023 and 2022 are as follows:
Deferred tax assets:
Loans, principally due to allowance for credit losses
Defined benefit plan valuation adjustments
Accrued pension
Net unrealized losses on available-for-sale
securities
Other
Total gross deferred tax assets
Deferred tax liabilities:
Bank premises and equipment, due to differences
in depreciation
Defined benefit plan valuation adjustments
Other
Total gross deferred tax liabilities
Net deferred tax asset
2023
2022
947 $
73
317
3,138
189
4,664
(1,347 )
—
(236 )
(1,583 )
3,081 $
765
—
209
4,177
108
5,259
(1,053 )
(5 )
(473 )
(1,531 )
3,728
$
$
47
First National Bank has determined that a valuation allowance for the gross deferred tax assets is not necessary as
of December 31, 2023 and 2022, since realization of the entire gross deferred tax assets can be supported by the
amounts of taxes paid during the carry back periods available under current tax laws.
Pinnacle did not recognize any interest or penalties related to income tax during the years ended December 31, 2023
and 2022. Pinnacle does not have an accrual for uncertain tax positions as deductions taken and benefits accrued
are based on widely understood administrative practices and procedures and are based on clear and unambiguous
tax law. Tax returns for all years from 2019 and thereafter are subject to future examination by tax authorities.
(11) Financial Instruments with Off-Balance-Sheet Risk
Pinnacle is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include mortgage sale lock commitments,
commitments to extend credit and standby letters of credit. These instruments may involve, to varying degrees,
credit risk in excess of the amount recognized in the balance sheets. The contract amounts of these instruments
reflect the extent of involvement First National Bank has in particular classes of financial instruments.
Credit risk is defined as the possibility of sustaining a loss because the other parties to a financial instrument fail to
perform in accordance with the terms of the contract. Pinnacle’s maximum exposure to credit loss under
commitments to extend credit and standby letters of credit is represented by the contractual amount of these
instruments. Pinnacle uses the same credit policies in making commitments and conditional obligations as it does
for on-balance-sheet instruments.
Pinnacle requires collateral to support financial instruments when it is deemed necessary. First National Bank
evaluates such customers’ creditworthiness on a case-by-case basis. The amount of collateral obtained upon
extension of credit is based on management’s credit evaluation of the counterparty. Collateral may include deposits
held in financial institutions, U.S. Treasury securities, other marketable securities, real estate, accounts receivable,
inventory, and property, plant and equipment.
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit
Standby letters of credit
Contract amounts at
December 31,
2023
2022
$
$
126,518 $
6,072 $
123,304
6,535
In the ordinary course of business, Pinnacle may enter into mortgage rate lock commitments that are subsequently
funded by Pinnacle. Pinnacle then sells the mortgage loan to a secondary market bank that had underwritten the
mortgage loan before Pinnacle funded the loan. The secondary market bank pays a fee that was agreed upon on the
lock commitment date to Pinnacle and buys the loan within five days of the initial funding by Pinnacle.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash requirements. Each client’s creditworthiness
if deemed necessary
is evaluated on a case-by-case basis. The amount of collateral obtained,
upon extension of credit, is based on management’s credit evaluation of the client. Collateral held varies, but may
include accounts receivable, inventory, property, plant and equipment, and income producing commercial
48
properties. The Company’s allowance for credit losses - unfunded loan commitments was $122 and $142, at
December 31, 2023 and 2022, respectively.
Standby letters of credit are conditional commitments issued by First National Bank to guarantee the performance
of a customer to a third party. These guarantees are primarily issued to support public and private borrowing
arrangements, including bond financing and similar transactions. Unless renewed, substantially all of Pinnacle’s
standby letters of credit commitments as of December 31, 2023 will expire within one year. Management does not
anticipate any material losses as a result of these transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers.
(12) Leases
Pinnacle's leases are recorded under ASC Topic 842 “Leases.” The right-of-use assets and lease liabilities are
included in other assets and other liabilities, respectively, in the Consolidated Balance Sheets. Lease liabilities
represent Pinnacle's obligation to make lease payments and are presented at each reporting date as the net present
value of the remaining contractual cash flows. Cash flows are discounted at the Pinnacle's incremental borrowing
rate in effect at the commencement date of the lease. Right-of-use assets represent Pinnacle’s right to use the
underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent,
initial direct costs and any incentives received from the lessor. Pinnacle currently leases three of its operating
locations under long-term leases (greater than 12 months). These locations are classified as operating leases.
Generally, operating leases provide for one or more renewal options on the same basis as current rental terms.
Certain leases require increased rentals under cost-of-living escalation clauses. The lease agreements do not provide
for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring
additional financial obligations. Lease expense for all leases in 2023 was $379.
Pinnacle entered into a lease of the Amherst branch facility, with an entity in which a prior director of Pinnacle has
a 50% ownership interest, in 2009. The original term of the lease is twenty years and may be renewed at Pinnacle’s
option for two additional terms of five years each. Pinnacle’s current rental payment under the lease is currently
$178 annually.
The following table represents information about Pinnacle's leases.
Short-term lease liability (included in Other liabilities on Consolidated
Balance Sheets)
Long-term lease liability (included in Other liabilities on Consolidated
Balance Sheets)
Right-of-use assets (included in Other assets on Consolidated Balance
Sheets)
Weighted average remaining lease term
Weighted average discount rate
$
$
$
December 31, 2023
274
1,046
1,291
4.97 years
1.54 %
49
The following are future minimum lease payments as required under the agreements:
Year
2024
2025
2026
2027
2028
Thereafter
Total
Less: present value discount
Total lease liabilities
Payments
292
272
275
278
148
106
1,371
(51 )
1,320
$
$
$
(13) Concentrations of Credit Risk and Contingencies
Pinnacle grants commercial, residential and consumer loans to customers primarily in the central and southern
regions of Virginia. As a whole, the portfolio is affected by general economic conditions in the central and southern
regions of Virginia.
Pinnacle’s commercial and real estate loan portfolios are diversified, with no significant concentrations of credit
other than the geographic focus on the central and southern regions of Virginia. The installment loan portfolio
consists of consumer loans primarily for automobiles and other personal property. Overall, Pinnacle’s loan portfolio
is diversified and is not concentrated within a single industry or group of industries, the loss of any one or more of
which would generate a materially adverse impact on the business of Pinnacle.
Pinnacle has established operating policies relating to the credit process and collateral in loan originations. Loans
to purchase real and personal property are generally collateralized by the related property. Credit approval is
primarily based on the creditworthiness of the borrower, the ability to repay and the value of the collateral pledged.
At times, Pinnacle may have cash and cash equivalents at a financial institution in excess of insured limits. Pinnacle
places its cash and cash equivalents with high credit quality financial institutions whose credit rating and financial
condition are monitored by management to minimize credit risk.
In the ordinary course of business, various claims and lawsuits are brought by and against Pinnacle. In the opinion
of management, there is no pending or threatened proceeding in which an adverse decision could result in a material
adverse change in Pinnacle’s consolidated financial condition or results of operations.
(14) Dividend Restrictions and Capital Requirements
Pinnacle’s principal source of funds for dividend payments is dividends received from its subsidiary Bank. For
2023 and 2022, dividends from the subsidiary Bank totaled $2,653 and $2,058, respectively.
Substantially all of Pinnacle’s retained earnings consist of undistributed earnings of its subsidiary Bank, which are
restricted by various regulations administered by federal banking regulatory agencies. Under applicable federal
laws, the Comptroller of the Currency restricts, without prior approval, the total dividend payments of First National
Bank in any calendar year to the net profits of that year, as defined, combined with the retained net profits for the
two preceding years.
Pinnacle and First National Bank are subject to various regulatory capital requirements administered by the federal
bank regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly
50
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Pinnacle’s
consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, Pinnacle and First National Bank must meet specific capital guidelines that involve quantitative
measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting
practices. Pinnacle and First National Bank’s capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Beginning January 1, 2015, Pinnacle and First National Bank became subject to the Basel III Capital Rules. In
addition, a new ratio, Common Equity Tier 1 or “CET 1” Risk-Based Capital Ratio, is now measured and monitored.
Pinnacle and First National Bank's actual regulatory capital amounts and ratios as of December 31, 2023 and 20221,
are listed below. The disclosure below reflects Pinnacle’s consolidated capital as determined under regulations that
apply to bank holding companies that are not small bank holding companies and minimum capital requirements
that would apply to Pinnacle if it were not subject to the Statement (as defined below):
Regulatory Capital Ratios as of December 31, 2023
Total Risk-Based Capital Ratio (to Risk Weighted
Assets)
CET 1 Risk Based Capital Ratio (to Risk Weighted
Assets)
Tier 1 Risk-Based Capital Ratio (to Risk Weighted
Assets)
Tier 1 Leverage Capital Ratio (to Average Assets)
Regulatory Capital Ratios as of December 31, 2022
Total Risk-Based Capital Ratio (to Risk Weighted
Assets)
CET 1 Risk Based Capital Ratio (to Risk Weighted
Assets)
Tier 1 Risk-Based Capital Ratio (to Risk Weighted
Assets)
Tier 1 Leverage Capital Ratio (to Average Assets)
Pinnacle
Consolidated
First
National Bank
Amount
Ratio
Amount
Ratio
$ 84,572
12.60 % $ 91,494
13.67 %
$ 79,939
11.91 % $ 86,861
12.98 %
$ 79,939
$ 79,939
11.91 % $ 86,861
8.10 % $ 86,861
12.98 %
8.82 %
Pinnacle
Consolidated
First
National Bank
Amount
Ratio
Amount
Ratio
$ 76,152
11.55 % $ 83,071
12.63 %
$ 72,157
10.94 % $ 79,076
12.03 %
$ 72,157
10.94 % $ 79,076
12.03 %
$ 72,157
7.34 % $ 79,076
8.06 %
The Basel III Capital Rules limit capital distributions and certain discretionary bonus payments if the banking
organization does not hold a “capital conservation buffer” consisting of 2.50% of CET1 capital, Tier 1 capital and
total capital to risk weighted assets in addition to the amount necessary to meet minimum risk-based capital
requirements. Basel III requires (i) a minimum ratio of CET1 capital to risk weighted assets of at least 4.50%, plus
a 2.50% capital conservation buffer, (ii) a minimum ratio of Tier 1 capital to risk weighted assets of at least 6.00%,
plus the capital conservation buffer, (iii) a minimum ratio of total capital to risk weighted assets of at least 8.00%,
plus the 2.50% capital conservation buffer and (iv) a minimum leverage ratio of 4.00%.
First National Bank was considered “well capitalized” as of December 31, 2023 and December 31, 2022.
In August 2018, the Board of Governors of the Federal Reserve System updated the Small Bank Holding Company
Policy Statement (the “Statement”). The Statement, among other things, exempts qualifying bank holding
companies with consolidated assets of less than $3 billion from reporting consolidated regulatory capital ratios and
from minimum regulatory capital requirements. Pinnacle expects that it will be treated as a small bank holding
company and will not be subject to regulatory capital requirements on a consolidated basis. At December 31, 2023,
51
Pinnacle’s regulatory capital ratios exceeded all minimum capital requirements that would have applied to Pinnacle
if it were not a small bank holding company.
(15) Disclosures about Fair Value of Financial Instruments
GAAP requires Pinnacle to disclose estimated fair values of its financial instruments.
The following methods and assumptions were used to estimate the approximate fair value of each class of financial
instrument for which it is practicable to estimate that value.
(a) Securities
The fair value of securities is estimated based on bid prices as quoted on national exchanges or bid quotations
received from securities dealers. The fair value of certain state and municipal securities is not readily available
through market sources other than dealer quotations; so fair value estimates are based on quoted market prices
of similar instruments, adjusted for differences between the quoted instruments and the instruments being
valued.
(b) Loans
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated
by type such as commercial, real estate - residential, real estate - commercial, loans to individuals and other
loans. Each loan category is further segmented into fixed and adjustable-rate interest terms.
The fair value of fixed rate loans is calculated by discounting scheduled cash flows through the estimated
maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan
as well as estimates for prepayments. The estimate of maturity is based on Pinnacle’s historical experience
with repayments for each loan classification, modified, as required, by an estimate of the effect of current
economic and lending conditions.
(c) Deposits
The fair value of demand deposits, NOW accounts, and savings deposits is the amount payable on demand.
The fair value of fixed maturity time deposits, certificates of deposit is estimated by discounting scheduled
cash flows through the estimated maturity using the rates currently offered for deposits or borrowings of
similar remaining maturities.
(d) Commitments to Extend Credit and Standby Letters of Credit
The only amounts recorded for commitments to extend credit and standby letters of credit are the deferred
fees arising from these unrecognized financial instruments. These deferred fees are not deemed significant as
of December 31, 2023 and December 31, 2022, and as such, the related fair values have not been estimated.
Fair value estimates are made at a specific point in time, based on relevant market information and
information about the financial instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time Pinnacle’s entire holdings of a particular financial instrument.
Because no market exists for a significant portion of Pinnacle’s financial instruments, fair value estimates are
based on judgments regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
52
Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting
to estimate the value of anticipated funding needs and the value of assets and liabilities that are not considered
financial instruments. Significant assets that are not considered financial assets include deferred tax assets
and premises and equipment and other real estate owned. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on fair value estimates and have
not been considered in the estimates.
(e) Fair Value Methodologies
The following is a description of valuation methodologies used for assets and liabilities recorded at fair value.
Available-for-Sale Securities
Available-for-sale securities are recorded at fair value on a recurring basis. Fair value measurement is based
upon quoted prices, if available, and would in such case be included as a Level 1 asset. As of December 31,
2023 and December 31, 2022, Pinnacle currently carried no Level 1 securities. If quoted prices are not
available, valuations are obtained from readily available pricing sources from independent providers for
market transactions involving similar assets or liabilities. Pinnacle’s principal market for these securities is
the secondary institutional markets, and valuations are based on observable market data in those markets.
These would be classified as Level 2 assets. Pinnacle’s entire available-for-sale securities portfolio was
classified as Level 2 securities at December 31, 2023 and December 31, 2022. As of December 31, 2023 and
December 31, 2022, Pinnacle carried no Level 3 securities for which fair value would be determined using
unobservable inputs.
Loans
For 2023, Pinnacle did not record loans at fair value on a recurring basis. However, from time to time, loans
are individually evaluated and a specific allowance for credit losses may be established for that loan. Loans
for which it is probable that payment of interest and principal will not be made in accordance with the
contractual terms of the loan agreement are individually evaluated. The fair value of impaired loans is
estimated using one of several methods, including collateral value, market value of a similar debt, liquidation
value and discounted cash flows. Loans individually evaluated not requiring an allowance represent loans at
which fair value of the expected repayments or collateral exceed the recorded investments in such loans. As
of December 31, 2023, substantially all loans individually evaluated were evaluated based on the fair value
of the collateral.
For 2022, loans for which it was probable that payment of interest and principal will not be made in
accordance with the contractual terms of the loan agreement was considered impaired. Once a loan was
identified as individually impaired, management measured impairment in accordance with ASC Topic 360,
Impairment of a Loan. The fair value of impaired loans was estimated using one of several methods,
including collateral value, market value of a similar debt, liquidation value and discounted cash flows. Those
impaired loans not requiring an allowance represented loans at which fair value of the expected repayments
or collateral exceeded the recorded investments in such loans. As of December 31, 2022, substantially all of
the impaired loans were evaluated based on the fair value of the collateral. In accordance with Impairment
of a Loan, impaired loans where an allowance is established based on the fair value of the collateral required
classification in the fair value hierarchy. When the fair value of the collateral was based on an observable
market price or a current appraised value, Pinnacle recorded the impaired loan as a nonrecurring Level 2
asset. When an appraised value was not available or management determined the fair value of the collateral
was further impaired below the appraised value and there was no observable market price, Pinnacle recorded
the impaired loan as a nonrecurring Level 3 asset. For substantially all of Pinnacle‘s impaired loans as of
December 31, 2022, the valuation methodology utilized by Pinnacle was collateral based measurements such
as a real estate appraisal and the primary unobservable input was adjustments for differences between the
53
comparable real estate sales. The discount to reflect current market conditions and ultimately collectability
ranged from 0% to 25% for each of the respective periods.
Other Real Estate Owned
Other real estate owned is adjusted to fair value less estimated selling costs upon transfer of the loans to
foreclosed assets. Subsequently, other real estate owned is carried at the lower of carrying value or fair value
less estimated selling costs. Fair value is based upon independent market prices, appraised values of the
collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is
based on observable market price or a current appraised value, Pinnacle records the foreclosed asset as a
nonrecurring Level 2 asset. When an appraised value is not available or management determines the fair
value of the collateral is further impaired below the appraised value and there is no observable market price,
Pinnacle records the other real estate owned as a nonrecurring Level 3 asset. There were no other real estate
owned properties as of December 31, 2023.
The following tables present information about certain assets and liabilities measured at fair value:
Fair Value Measurements on December 31, 2023
Total
Carrying
Amount in
The
Consolidated
Balance
Sheet
Assets/Liabilities
Measured at
Fair
Value
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
233,579 $
2,287 $
233,579 $
2,287 $
— $
— $
233,579 $
— $
—
2,287
Fair Value Measurements on December 31, 2022
Description
Available-for-sale securities
Individually evaluated loans
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
— $ 241,172 $
— $
— $
Significant
Unobservable
Inputs
(Level 3)
—
2,838
Description
Available-for-sale securities
$
Impaired loans (nonrecurring) $
Total
Carrying
Amount in
The
Consolidated
Balance
Sheet
Assets/Liabilities
Measured at
Fair
Value
241,172 $
2,838 $
241,172 $
2,838 $
54
The following table sets forth a summary of changes in the fair value of Pinnacle’s nonrecurring Level 3
assets for the period ended December 31, 2023 and 2022:
Level 3 Assets
Year Ended
December 31, 2023
Other
Real
Estate
Owned
Individually
evaluated
loans
$
$
2,838
(551 )
2,287
Level 3 Assets
Year Ended
December 31, 2022
Other
Real
Estate
Owned
Impaired
Loans
$
$
2,530
308
2,838
—
—
—
—
—
—
Balance, beginning of the year
Purchases, sales, issuances, and settlements (net)
Balance, end of year
Balance, beginning of the year
Purchases, sales, issuances, and settlements (net)
Balance, end of year
(16) Parent Company Financial Information
Condensed financial information of Pinnacle (“Parent”) is presented below:
Condensed Balance Sheets
Assets
Cash due from subsidiary
Investment in subsidiary, at equity
Other assets
Total assets
Liabilities and stockholders' equity
Notes payable
Other liabilities
Total liabilities
Stockholders' equity
Common stock of $3 par value, authorized 3,000,000 shares; issued and
outstanding 2,198,158 shares in 2023 and 2,178,486 in 2022
Capital surplus
Retained earnings
Accumulated other comprehensive loss, net
Total stockholders' equity
Total liabilities and stockholders' equity
55
December 31,
2023
2022
41 $
76,413
2,067
78,521 $
10,000 $
116
10,116 $
6,460 $
11,951
62,069
(12,075 )
68,405 $
78,521 $
32
65,174
1,892
67,098
10,000
90
10,090
6,414
11,668
54,614
(15,688 )
57,008
67,098
$
$
$
$
$
$
$
Condensed Statements of Income
Income:
Dividends from subsidiary
Equity in undistributed net income of subsidiary
Total Income
Expenses:
Interest accrued on subordinated debt
Interest on long-term borrowings
Other expenses
Income before income tax benefit
Applicable income tax benefit
Net income
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of adoption of ASC 326
Equity in undistributed net income of subsidiary
Increase in other assets
Net cash flows from operating activities
Cash flows from investing activities:
Increase in investment of subsidiary
Net cash used in investing activities
Cash flows from financing activities
Cash dividends paid
Increase (decrease) in other liabilities
Net cash flows used in financing activities
Net increase (decrease) in cash from subsidiary
Cash due from subsidiary, beginning of year
Cash due from subsidiary, end of year
(17) Stock Based Compensation
Years ended
December 31,
2023
2022
$
$
2,652 $
5,915
8,567
420
105
304
7,738
2,024
9,762 $
2,058
5,107
7,165
420
105
192
6,448
1,794
8,242
Years ended
December 31,
2023
2022
$
9,762 $
8,242
(443 )
(5,915 )
(175 )
3,229
(1,382 )
(1,382 )
(1,864 )
26
(1,838 )
9
32
41 $
—
(5,107 )
(152 )
2,983
(1,642 )
(1,642 )
(1,328 )
(15 )
(1,343 )
(2 )
34
32
$
Pinnacle’s 2004 Incentive Stock Plan (the “2004 Plan”), pursuant to which Pinnacle’s Board of Directors may grant
stock options and other equity-based awards to officers and key employees, was approved by shareholders on April
13, 2004 and became effective as of May 1, 2004. The 2004 Plan authorized grants of up to 100,000 shares of
Pinnacle’s authorized, but unissued common stock. All stock options were granted with an exercise price equal to
the stock’s fair market value at the date of the grant. As of December 31, 2014, the 2004 Plan has expired and no
additional awards may be granted under this plan.
56
Stock options granted under the 2004 Plan generally have 10-year terms, vest at the rate of 25% per year, and
become fully exercisable four years from the date of grant.
As of December 31, 2023, options for 8,000 shares were exercisable at an exercise price of $15.70 per share under
the 2004 Plan and expire on February 11, 2024.
On April 8, 2014, shareholders approved the 2014 Incentive Stock Plan (the “2014 Plan”), pursuant to which
Pinnacle’s Board of Directors may grant stock options and other equity-based awards to officers and key employees.
The 2014 Plan authorizes grants of up to 150,000 shares of Pinnacle’s authorized, but unissued common stock. All
stock options are granted with an exercise price equal to the stock’s fair market value at the date of the grant. As
of December 31, 2023, there were 32,810 shares available for grant under the 2014 Plan.
On May 1, 2023, 16,000 shares of restricted stock were granted to employees pursuant to the 2014 Plan. 15,500 of
the shares granted will vest on May 1, 2026 and 500 of the shares granted were forfeited due termination of
employment. On May 1, 2022, 9,700 shares of restricted stock were granted to employees pursuant to the 2014
Plan. 8,200 of the shares granted will vest on May 1, 2025, 1,000 of the shares granted vested in 2023 due to a
retirement and 500 of the shares granted were forfeited due to termination of employment.
On January 9, 2024, 3,538 shares of restricted stock were granted to Pinnacle’s Directors in lieu of cash for 2023
director fees. On January 12, 2023, 5,547 shares of restricted stock were granted to Pinnacle’s Directors in lieu of
cash for 2022 director fees.
As of December 31, 2022, no options for shares were exercisable under the 2014 Plan.
Pinnacle expensed $0 in 2023 and 2022 in compensation expense as a direct result of the issuance of the 24,000
incentive stock options with tandem stock appreciation rights in 2014. There were no unvested stock options in
2023.
Pinnacle expensed $238 in 2023 in compensation expense as a direct result of granting 7,100 shares of restricted
stock to employees in 2020, 12,525 shares of restricted stock to employees in 2021, 9,700 shares of restricted stock
to employees in 2022, and 16,000 shares of restricted stock to employees in 2023. Pinnacle expects to expense $236
in 2024, $152 in 2025 and $69 in 2026 on such restricted stock.
Stock option activity during the years ended December 31, 2023 and 2022 is as follows:
Number
of
Shares
Weighted
Average
Exercise
Price
10,000 $
—
—
—
10,000 $
—
2,000 $
—
8,000 $
15.70
—
—
—
15.70
—
22.29
—
15.70
Balance as of December 31, 2021
Forfeited
Exercised
Granted
Balance as of December 31, 2022
Forfeited
Exercised
Granted
Balance as of December 31, 2023
57
The following table summarizes information about stock options outstanding as of December 31, 2023:
Options Outstanding
Weighted-
Average
Remaining
Contractual
Number
Exercise
Price
Outstanding
at 12/31/23
Life
(in years)
Weighted-
Average
Exercise
Price
Options Exercisable
Number
Exercisable at
12/31/2023
Weighted-
Average
Exercise
Price
$
15.70
8,000
0.1 $
15.70
8,000 $
15.70
The following table summarizes information about stock options outstanding as of December 31, 2022:
Options Outstanding
Weighted-
Average
Remaining
Contractual
Number
Exercise
Price
Outstanding
at 12/31/22
Life
(in years)
Weighted-
Average
Exercise
Price
Options Exercisable
Number
Exercisable at
12/31/2022
Weighted-
Average
Exercise
Price
$
15.70
10,000
1.1 $
15.70
10,000 $
15.70
(18) Subsequent Events
Pinnacle has evaluated all other subsequent events for potential recognition and/or disclosure in the December 31,
2023 consolidated financial statements through March 31, 2024, the date the consolidated financial statements were
available to be issued.
58
Management’s Report on Internal Control over Financial Reporting
Management Report
In this management report, the following subsidiary institutions of the Pinnacle Bankshares Corporation (the Company) that are
subject to Part 363 are included in the statement of management's responsibilities; the report on management's assessment of
compliance with the Federal laws and regulations pertaining to insider loans and the Federal and, if applicable, State laws and
regulations pertaining to dividend restrictions; and the report on management's assessment of internal control over financial
reporting: First National Bank.
Statement of Management’s Responsibilities
The management of Pinnacle Bankshares Corporation (the Company) is responsible for preparing the Company's annual
consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; for
establishing and maintaining an adequate internal control structure and procedures for financial reporting, including controls over
the preparation of regulatory financial statements in accordance with instructions for the Parent Company Only Financial Statements
for Small Bank Holding Companies (Form FR Y-9SP); and for complying with the Federal laws and regulations pertaining to insider
loans and the federal and, if applicable, state laws and regulations pertaining to dividend restrictions.
Management’s Assessment of Compliance with Designated Laws and Regulations
The management of the Company has assessed the Company's compliance with the Federal laws and regulations pertaining to insider
loans and the Federal and, if applicable, state laws and regulations pertaining to dividend restrictions during the fiscal year that
ended on December 31, 2023. Based upon its assessment, management has concluded that the Company complied with the Federal
laws and regulations pertaining to insider loans and the Federal and, if applicable, state laws and regulations pertaining to dividend
restrictions during the fiscal year that ended on December 31, 2023.
Management’s Assessment of Internal Control over Financial Reporting
The Company's internal control over financial reporting is a process effected by those charged with governance, management and
other personnel, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
reliable financial statements in accordance with accounting principles generally accepted in the United States of America and
financial statements for regulatory reporting purposes, i.e., FR Y-9SP. The Company's internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United
States of America and financial statements for regulatory reporting purposes, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable
assurance regarding prevention, or timely detection and correction of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent, or detect and correct misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management is responsible for establishing and maintaining effective internal control over financial reporting including controls
over the preparation of regulatory financial statements. Management assessed the effectiveness of the Company's internal control
over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the Parent
Company Only Financial Statements for Small Bank Holding Companies (Form FR Y-9SP), as of December 31, 2023, based on
the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—
Integrated Framework in 2013. Based upon its assessment, management has concluded that, as of December 31, 2023, the
Company’s internal control over financial reporting, including controls over the preparation of regulatory financial statements in
accordance with the Parent Company Only Financial Statements for Small Bank Holding Companies (Form FR Y-9SP), is effective
based on the criteria established in Internal Control—Integrated Framework issued in 2013.
59
Management’s assessment of the effectiveness of internal control over financial reporting, including controls over the preparation
of regulatory financial statements in accordance with the Parent Company Only Financial Statements for Small Bank Holding
Companies (Form FR Y-9SP), as of December 31, 2023, has been audited by Cherry Bekaert LLP, an independent public accounting
firm, as stated in their report dated March 14, 2024.
Pinnacle Bankshares Corporation
Aubrey H. (Todd) Hall, III
President and Chief Executive Officer
March 14, 2024
Bryan M. Lemley
Secretary, Treasurer & Chief Financial Officer
March 14, 2024
60
Report of Independent Auditor
To the Board of Directors and Stockholders
Pinnacle Bankshares Corporation and Subsidiary
Altavista, Virginia
Opinion
We have audited the accompanying consolidated financial statements of Pinnacle Bankshares Corporation and Subsidiary
(collectively, the “Company”), which comprise the consolidated balance sheets as of December 31, 2023 and 2022 and the related
consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the years then
ended, and the related notes to the consolidated financial statements.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in
accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical
responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Emphasis of Matter
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for credit losses
on financial instruments as of January 1, 2023, due to the adoption of Accounting Standards Update 2016-13, Financial Instruments
– Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended. Our opinion is not modified with
respect to this matter.
Responsibilities of Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of
internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events,
considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one
year after the date that the consolidated financial statements are available to be issued.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance but is not absolute assurance and, therefore, is not a guarantee that an audit conducted in
accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements, including omissions, are
considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made
by a reasonable user based on the consolidated financial statements.
61
In performing an audit in accordance with generally accepted auditing standards, we:
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Accordingly, no such opinion is expressed.
Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made
by management, as well as evaluate the overall presentation of the consolidated financial statements.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt
about the Company’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audits.
Rockville, Maryland
March 14, 2024
62
Report of Independent Auditor
To the Board of Directors of
Pinnacle Bankshares Corporation and Subsidiary
Altavista, Virginia
Opinion on Internal Control over Financial Reporting
We have audited Pinnacle Bankshares Corporation and Subsidiary’s (collectively, the “Company”) internal control over financial
reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for the Part
363 Federal Deposit Insurance Act (FDI Act), as of December 31, 2023, based on criteria established in the Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion,
Pinnacle Bankshares Corporation and Subsidiary maintained, in all material respects, effective internal control over financial
reporting as of December31, 2023, based on COSO.
We also have audited, in accordance with auditing standards generally accepted in the United States of America (“GAAS”), the
accompanying consolidated financial statements of Pinnacle Bankshares Corporation and Subsidiary, and our report dated March
14, 2024 expressed an unmodified opinion.
Basis for Opinion
We conducted our audit in accordance with GAAS. Our responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of Internal Control over Financial Reporting section of our report. We are required to be independent
of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our
audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for Internal Control over Financial Reporting
Management is responsible for designing, implementing, and maintaining effective internal control over financial reporting, and for
its assessment about the effectiveness of internal control over financial reporting, included in the accompanying the Company’s
Management Report on Internal Control Over Financial Reporting.
Auditor’s Responsibilities for the Audit of Internal Control over Financial Reporting
Our objectives are to obtain reasonable assurance about whether effective internal control over financial reporting was maintained,
in all material respects, and to issue an auditor’s report that includes our opinion on internal control over financial reporting.
Reasonable assurance is a high level of assurance but is not absolute assurance and, therefore, is not a guarantee that an audit of
internal control over financial reporting conducted in accordance with GAAS will always detect a material weakness when it exists.
In performing an audit of internal control over financial reporting in accordance with GAAS, we:
Exercise professional judgment and maintain professional skepticism throughout the audit.
Obtain an understanding of internal control over financial reporting, assess the risks that a material weakness exists, and
test and evaluate the design and operating effectiveness of internal control over financial reporting based on the assessed
risk.
63
Definition and Inherent Limitations of Internal Control over Financial Reporting
An institution’s internal control over financial reporting is a process effected by those charged with governance, management, and
other personnel, designed to provide reasonable assurance regarding the preparation of reliable financial statements in accordance
with accounting principles generally accepted in the United States of America. An institution’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the institution; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in
the United States of America, and that receipts and expenditures of the institution are being made only in accordance with
authorizations of management and those charged with governance; and (3) provide reasonable assurance regarding prevention, or
timely detection and correction of unauthorized acquisition, use, or disposition of the institution’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent, or detect and correct, misstatements.
Also, projections of any assessment of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Rockville, Maryland
March 14, 2024
64
BOARD OF DIRECTORS
CORPORATE INFORMATION
James E. Burton, IV, Chairman
Donald W. Merricks, Vice Chairman
Aubrey H. (Todd) Hall, III
Elton W. Blackstock
Vivian S. Brown
Connie C. Burnette
Judson H. Dalton
Robert L. Finch, Jr.
Robert Hurt
Dr. Robert L. Johnson, II
L. Frank King, Jr.
Carroll E. Shelton
C. Bryan Stott
Michael E. Watson
James O. Watts, IV, Esq.
EXECUTIVE OFFICERS OF
PINNACLE BANKSHARES CORPORATION
Aubrey H. (Todd) Hall, III
President & Chief Executive Officer
Bryan M. Lemley, Secretary
Treasurer & Chief Financial Officer
SENIOR MANAGEMENT OF
FIRST NATIONAL BANK
Aubrey H. (Todd) Hall, III
President & Chief Executive Officer
Bryan M. Lemley
Executive Vice President & Chief Financial Officer
Melissa T. Campbell
Senior Vice President & Chief Retail Officer
Corporate Offices
622 Broad Street
PO Box 29
Altavista, VA 24517
434-369-3000
1stnatbk.com
Investor Relations
Bryan M. Lemley
bryanlemley@1stnatbk.com
434-477-5882
Stock Transfer Agent
Computershare
201-680-3626
118 Fernwood Ave
Edison, NJ 08837
Computershare.com/investor
Independent Auditors
Cherry Bekaert, LLP
200 South 10th Street, Suite 900
Richmond, VA 23219
Annual Meeting of Shareholders
The Annual Meeting of Shareholders will be held at:
Virginia Technical Institute
201 Ogden Road
Altavista, VA 24517
11:00 AM Eastern Time
May 14, 2024
Only shareholders of record at the close of business
on March 21, 2024, the record date, will be entitled
to vote at the Annual Meeting.
Allison G. Daniels
Senior Vice President & Chief Operating Officer
We refer you to the 2024 Proxy Statement for further
information.
Common Stock
OTCQX: PPBN
Jennifer T. Edgell
Senior Vice President & Chief Credit Officer
Tracie A. Gallahan
Senior Vice President and Chief Revenue Officer
Krystal D. Harris
Senior Vice President & Chief Human
Resources Officer
James M. Minear
Senior Vice President and Chief Lending Officer
(Northern Market)
Shawn D. Stone
Senior Vice President and Chief Lending Officer
(Southern Market)
622 Broad Street
Post Office Box 29
Altavista, Virginia 24517
(434) 369-3000