2 0 2 4 A n n u a l R e p o rt
SENIOR MANAGEMENT
Bryan M. Lemley
Aubrey H. (Todd) Hall, III
Melissa T. Campbell
Jennifer T. Edgell
Tracie A. Gallahan
Krystal D. Harris
Michelle M. Gaydica
Shawn D. Stone
Aubrey H. (Todd) Hall, III
Ramsey W. Yeatts
James O. Watts, IV, Esq.
Connie C. Burnette
Elton W. Blackstock
Vivian S. Brown
Judson H. Dalton
Robert L. Finch, Jr.
Robert Hurt
Dr. Robert L. Johnson, II
Michael E. Watson
James E. Burton, IV
Chairman of the Board
Donald W. Merricks
Vice Chairman
BOARD OF DIRECTORS
I am pleased to report that Pinnacle Bankshares
Corporation, the one bank holding company for First
National Bank, delivered another solid performance in
2024 driven by strong loan growth and an expanded net
interest margin. For the year, we remained core funded
with ample liquidity, strengthened our capital position,
took advantage of opportunities to recruit key talent, and
expanded into a new market. We also realigned operational
functions to better serve our customers and support
future growth. Most importantly, our shareholders were
provided with improved returns as a result of Pinnacle’s
increased stock price and higher annual cash dividends.
I am proud of our consistency and ability to remain
relevant, competitive, and successful in an ever-changing
banking environment.
For 2024, Pinnacle generated net income of $9.2 million
and a return on average assets of .92%. Net income
decreased $584,000, or 6%, as compared to 2023, but
was consistent with the prior year excluding bank-owned
life insurance (BOLI) proceeds. Net interest income
increased $2.3 million, or 7%, due to loan growth and
improved yields on earning assets. Additionally, non-
interest income, net of BOLI, increased $499,000, or
7.5%, driven by higher fees generated from merchant card
processing and sales of secondary market mortgage loans.
Non-interest expense increased $2.1 million, or 7%, due
to higher costs and the overall growth of the Company.
As of December 31, 2024, Pinnacle had $1.04 billion
in total assets comprised primarily of $712 million in
loans, $176 million in securities, and $108 million in
cash and cash equivalents. Total loans increased $70.5
million, or 11%, during 2024, driven by a strong effort
from our Commercial Division. Our securities portfolio
declined $57.8 million, or 25%, during the year with
maturing issues utilized to fund loan growth and maintain
a strong cash position, which increased $20.6 million, or
24%, as compared to the prior year-end. Our remaining
securities portfolio is relatively short-term in nature with
49% invested in U.S. Treasury issues having an average
Dear
Shareholders,
maturity of less than a year and $58 million maturing
during the first half of 2025, providing further optionality
and opportunities for increased yields.
Total liabilities were $966 million as of year-end 2024 and
were mainly comprised of $951 million in deposits, which
increased $18.5 million, or 2%, for the year. Our total
number of deposit accounts increased 4% year over year
as we benefitted from our reputation for extraordinary
customer service, convenient branch locations, and market
disruption caused by bank mergers and consolidation.
Stockholders’ equity totaled $78.4 million as of December
31, 2024, an increase of $10 million, or 15%, compared
to the prior year-end. Correspondingly, our tangible
book value per share increased $4.39, or 14%, to $34.77
over the same time period. The improvement was driven
by profitability, a continued decline 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 with the Bank’s leverage ratio increasing to
over 9%.
I am especially pleased with our balance sheet
management over the past four years. This includes
navigating through the buildup of significant liquidity
resulting from pandemic stimulus in 2021, subsequent
inflationary pressures and rapidly increasing interest rates
that led to a banking liquidity crisis in early 2023, and
last year’s Federal Open Market Committee interest rate
cuts. Throughout this time period, we have remained
core funded, kept our cost of funds relatively low, and
expanded our net interest margin in a very challenging
environment. For 2024, our cost of funds was 1.28%,
which compares favorably to peers, while our net interest
margin expanded to 3.70%.
Our credit quality continues to be strong; however,
criticized and classified loans did increase $6 million
during 2024 to $9 million as of year-end. This
increase was driven primarily by the downgrade of two
commercial relationships due to deterioration of their
financial condition. Remediation plans are in place
and Management does not anticipate any future losses
associated with these relationships. Net charge-offs
increased during 2024 as well to $163,000, as compared
to $34,000 in 2023, but remained low as a percentage
of average loans at .02%. As of December 31, 2024, 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 0.22% and 0.15%,
respectively. Our provision for credit losses increased
$682,000 in 2024 compared to 2023, which was driven
by loan growth and our need to correspondingly build our
allowance for credit losses.
Pinnacle’s stock price ended 2024 at $31.20 per share, an
increase of $7.19, or 30%, compared to year-end 2023.
Additionally, Pinnacle paid $1.00 in cash dividends per
share in 2024, an increase of $0.15 per share, or 18%,
compared to the prior year. Total return for 2024 was
34.46%, which outpaced the S&P U.S. BMI Banks
Index’s total return of 32.92%.1 Based on the last trade
through February 28, 2025, Pinnacle’s stock price was
$31.85 per share or 92% of year-end tangible book value.
While I am pleased with the improvement in our stock
price, I would like to see it trade at a premium to book,
especially given the fact that First National Bank once
again achieved the #3 overall performance ranking per the
Performance Trust Rank-the-Banks Virginia Report as of
December 31, 2024.2
We remain adaptive and resilient
in an extremely competitive
financial services environment, while
continuing to employ a community
bank model focused on personal
relationships, taking care of our
customers, and retaining the best
employees.
1S&P Global / S&P Capital IQ
2Performance Trust Capital Partners Rank The Banks Report – VA Q42024
We periodically receive inquiries from shareholders about
the possibility of a share buyback program, since Pinnacle’s
shares have traded at a discount to book value in recent
years. While Pinnacle will evaluate all opportunities to
generate value for shareholders, our primary strategy is to
retain capital to support First National Bank’s significant
growth in recent years. In addition, Pinnacle issued
$10 million in subordinated debt in connection with its
acquisition of Virginia Bank Bankshares, Inc. in 2020,
that converts from a fixed rate to floating rate later this
year. Pinnacle may explore opportunities to refinance or
retire that debt, based on market conditions and Pinnacle’s
current and projected capital needs.
On January 2, 2025, First National Bank opened a full-
service branch at 4027 Halifax Road, South Boston,
Virginia. This is in addition to the Bank opening a
Loan Production Office, primarily for commercial
production, in South Boston during the third quarter
of 2024. We have had a great response from the
Halifax County community having generated over $16
million in new loans and almost $6 million in deposits
from the market as of year-end 2024. We look forward
to serving our new customers and further growth of
relationships.
Our Annual Meeting of Shareholders will be conducted
on Tuesday, May 13, 2025, 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 on Pinnacle’s
performance and direction.
In closing, I am pleased with Pinnacle’s position and
the improved returns provided to our shareholders. We
remain adaptive and resilient in an extremely competitive
financial services environment, while continuing to
employ a community bank model focused on personal
relationships, taking care of our customers, and retaining
the best employees. I am excited about our future and
continue to appreciate your support, confidence, and
trust.
Sincerely,
Aubrey H. Hall, III “Todd”
President & Chief Executive Officer
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, 2024.
SHARE PRICE IN 2024
$26.00
$28.00
$30.00
$32.00
$24.00
(2023)
$24.01
$31.20
0.85
0.56
0.56
0.61
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
DIVIDENDS PER SHARE
4
$1.00
PINNACLE BANKSHARES CORPORATION
AND SUBSIDIARY
Table of Contents
Company Overview
1
Results of Operations
12
Consolidated Balance Sheets
17
Consolidated Statements of Income
18
Consolidated Statements of Comprehensive Income
19
Consolidated Statements of Changes in Stockholders’ Equity
20
Consolidated Statements of Cash Flows
21
Notes to Consolidated Financial Statements
22
Management’s Report on Internal Control over Financial Reporting
61
Report of Independent Auditor
63
1
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 at 622 Broad Street in Altavista, Virginia and conducts all of its business activities through the branch offices of its
wholly-owned subsidiary bank, First National Bank (“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. Information about the Company is available under the Investor Relation tab on First National Bank's website at
www.1stnatbk.com. Information on the Bank's website is not part of, and is not incorporated into, this Annual Report.
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, Halifax, and Pittsylvania, and the Cities of
Charlottesville, Danville, and Lynchburg. The Company has a total of nineteen 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 Town of South Boston; 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. Additionally, the Bank has a commercial loan production office in the Town of South Boston. In
2025, First National Bank is celebrating its 117th year of operation.
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 has two wholly-owned subsidiaries. FNB Property Corp., a Virginia corporation, was 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). 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 market economic conditions, the
interest rate environment, and its impact on market 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. The Bank actively competes for all
types of deposits and loans with other banks and nonbank financial institutions, including savings and loan associations, finance
2
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 leverages 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 component of its competitive position in markets served. In
addition, local decision-making and the accessibility of senior management to customers also distinguishes 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.
Pinnacle's Common Stock is traded on the OTCQX platform under the symbol “PPBN.” As of March 30, 2025, there were
approximately 2,216,616 shares of Common Stock outstanding, which shares are held by approximately 467 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, 2024, Pinnacle had 183 full-time and 3 part-time employees. Pinnacle’s management believes that its
employee relations are good, although recent growth and the current competitive jobs market has made hiring new, well qualified
employees more challenging and retaining high-performing employees more important for Pinnacle's success.
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. In addition, the recent change in U.S. presidential administration may lead to
3
significant changes to the existence, priorities, scope, practices, and/or staffing levels of various federal regulatory agencies, which
may have material effects on our business. We cannot predict these changes or their ultimate scope.
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
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”)”), fair lending
laws, and fair housing initiatives, the data security and cybersecurity infrastructure of the constituent organizations and the combined
organization, the applicant’s risk management programs and processes, and the applicant’s compliance with and the effectiveness
of the subject organizations in combating money laundering activities and complying with Bank Secrecy Act Requirements.
The OCC announced on October 1, 2024 that its supervisory strategies for 2025 will focus on: (a) credit; (b) allowance for
credit losses; (c) asset and liability management; (d) capital; (e) climate-related financial risks; (f) cybersecurity; (g) third-party
risks; (h) payments; (i) enterprise change management; (j) operations; (k) Bank Secrecy Act/anti-money laundering/countering the
financing of terrorism and Office of Foreign Assets Control (“OFAC”); (l) consumer compliance; (m) community reinvestment act;
and (n) fair lending. The OCC’s 2025 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 Bank Holding Company Act (“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. As a Virginia bank holding company, Pinnacle is also subject to certain provisions of
Virginia law regarding actions of interests in and control of financial institutions.
4
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
intensity of the supervision to which the Corporation and its subsidiaries are subject, have increased 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.
Proposals to change the laws, regulations, and policies governing the banking industry are frequently raised at both the state
and federal levels, and it appears that the Trump administration will seek to implement a regulatory reform agenda that is
significantly different than the agenda and policies of the preceding Biden administration. For example, the Trump administration
has issued a memorandum that effectively freezes rulemaking efforts of federal regulatory agencies, including the federal bank
regulators, and has taken actions to reduce available staffing at certain federal regulatory agencies, and has reduced the regulatory
enforcement activities of certain federal regulatory agencies. The likelihood and timing of any changes in laws and regulations, and
the impact such changes may have on Pinnacle or the Bank, are difficult to predict and subject to rapid change.
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.
5
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.
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.
6
Small Bank Holding Company. The Economic Growth, Regulatory Relief, and Consumer Protection Act (“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 Federal Deposit Insurance Act
(“FDIA”), the FDIC may terminate 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
7
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.
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 Community Reinvestment Act (“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. The legality of the
8
final CRA rule is being challenged and a preliminary injunction against enforcing new rules implementing the updated CRA
regulations has been granted. In addition, the final CRA rule may be impacted by the Trump administration’s freeze on certain new
regulations pending review. First National Bank is actively monitoring the status of the final CRA rule but cannot predict the nature
and timing of future developments that may potentially impact the final CRA rule.
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. The Office of Foreign Assets Control
(“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.
Corporate Transparency Act. On January 1, 2021, as part of the 2021 National Defense Authorization Act, Congress enacted
the Corporate Transparency Act (“CTA”), which required by January 1, 2022, that the U.S. Department of the Treasury’s Financial
Crimes Enforcement Network (“FinCEN”) issue regulations implementing reporting requirements for “reporting companies” (as
defined in the CTA) to disclose beneficial ownership interests of certain U.S. and foreign entities. The CTA imposes additional
reporting requirements on entities not previously subject to such beneficial ownership disclosure regulations and also contains
exemptions for several different types of entities, including among others: (i) certain banks, bank holding companies, and credit
unions; (ii) money transmitting businesses registered with FinCEN; and (iii) certain insurance companies. Reporting companies
subject to the CTA will be required to provide specific information with respect to beneficial owner(s) (as defined in the CTA) as
well as satisfy initial filing obligations (for newly-formed reporting companies) and submit subsequent reports when updates are
required. Non-compliance with FinCEN regulations promulgated under the CTA may result in civil fines as well as criminal
penalties. On September 29, 2022, FinCEN issued the final rule (the Reporting Rule) to implement the beneficial ownership
reporting requirements of the CTA, which was effective January 1, 2024 and would have required reporting of beneficial ownership
for entities that were formed or first registered prior to 2024 by January 1, 2025. Beginning in December 2024, U.S. federal courts
have issued preliminary injunctions against enforcement of the CTA, including a stay of the beneficial ownership reporting
requirements pending resolution of a lawsuit challenging the CTA’s constitutionality.
Pinnacle will continue to monitor regulatory developments related to the CTA, including future FinCEN rulemakings, and
will continue to assess the ultimate impact of the CTA on the Corporation and the Bank.
9
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 providing 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.
With increased focus on cybersecurity, we are continuing to monitor legislative, regulatory, and supervisory developments
related thereto. Pinnacle and First National Bank had no material cybersecurity incidents in 2024.
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, and the CFPB may be significantly
impacted by actions of the Trump administration regarding staffing at and regulatory and enforcement activities of certain federal
regulatory agencies.
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
10
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
Mortgage Disclosure Act, Real Estate Settlement Procedures Act, 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, and to reduce data reportable on certain streamlined call report submissions.
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.
11
First National Bank Full-Service and Loan Production Office Locations
Location
Address
Phone
Altavista Main Branch
(Corporate Headquarters)
622 Broad Street
Altavista, Virginia 24517
(434) 369-3000
Amherst Branch
130 South Main Street
Amherst, Virginia 24521
(434) 946-7814
Brosville Station Branch
10370 Martinsville Highway
Brosville, Virginia 24541
(434) 483-6606
Charlottesville Ivy Road Branch
2208 Ivy Road
Charlottesville, Virginia 22903
(434) 290-3498
Chatham Branch
55 North Main Street
Chatham, Virginia 24531
(434) 483-6604
Danville Airport Branch
1312 South Boston Road
Danville, Virginia 24540
(434) 483-6003
Danville Main Branch
336 Main Street,
Danville, Virginia 24541
(434) 483-6600
Downtown Lynchburg Branch
800 Main Street
Lynchburg, Virginia 24504
(434) 485-5999
Forest Branch
14417 Forest Road
Forest, Virginia 24551
(434) 534-0451
Graves Mill Road Branch
18077 Forest Road
Forest, Virginia 24521
(434) 473-6600
Lynchburg Airport Branch
14580 Wards Road
Lynchburg, Virginia 24502
(434)-237-3788
Mt. Hermon Branch
4080 Franklin Turnpike
Danville, Virginia 24540
(434) 483-6605
Odd Fellows Road Branch
3401 Odd Fellows Road
Lynchburg, Virginia 24501
(434) 333-6801
Old Forest Road Branch
3321 Old Forest Road
Lynchburg, Virginia 24501
(434) 385-4432
Riverside Branch
2600 Riverside Drive
Danville, Virginia 24540
(434) 483-6601
Rustburg Branch
1033 Village Highway
Rustburg, Virginia 24588
(434) 332-1742
South Boston Branch
4027 Halifax Road
South Boston, Virginia 24592
(434) 440-2100
South Boston Loan Production Office
97A Main Street
South Boston, VA 24592
(434) 483-6641
Timberlake Branch
20865 Timberlake Road
Lynchburg, Virginia 24502
(434) 237-7936
Vista Branch
1303 N. Main Street
Altavista, Virginia 24517
(434) 369-3001
12
Pinnacle Bankshares Corporation
Results of Operations
(In thousands, except ratios, share, and per share data)
Net Income. Pinnacle generated net income of $9,178 for 2024, which represents a $584, or 5.98%, decrease as compared
to net income of $9,762 for 2023. The decrease in net income for 2024 was driven by higher noninterest expense and provision for
credit losses, partially offset by higher net interest income. Noninterest expense increased in 2024 compared to 2023 due mainly to
higher salary and benefits, core operating system expense, and occupancy expenses. The provisions for credit losses increased in
2024 compared to 2023 due primarily to loan growth. Net interest income increased in 2024 compared to 2023 due to loan growth
and an increase in the net interest margin.
Profitability. Profitability as measured by Pinnacle’s return on average assets was 0.92% for 2024, which is an 8 basis points
decrease from the 1.00% produced in 2023. Return on average equity decreased in 2024 to 12.49%, compared to 15.69% for the
prior year.
The following table presents certain financial ratios for periods indicated.
RETURN ON AVEARGE EQUITY AND ASSETS
Year ended
December 31, 2024
Year ended
December 31, 2023
Year ended
December 31, 2022
Return on average assets
0.92 %
1.00 %
0.82 %
Return on average equity
12.49 %
15.69 %
14.62 %
Dividend payout ratio
24.10 %
19.10 %
16.11 %
Average equity to average assets
7.35 %
6.35 %
5.64 %
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-earning assets and 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 $35,448 in net interest income in 2024, which represents a $2,276, or 6.86%, increase as compared to the
$33,172 generated in 2023 as the Company benefited from higher yields on average earning assets. Interest income increased
$5,855, or 13.98%, in 2024, due to higher average assets and higher yields on earning assets, which was 4.98% in 2024 compared
to 4.44% in 2023. Interest expense increased $3,579, or 41.06%, during the same period due primarily to higher cost to fund earning
assets, which was 1.28% for 2024 compared to 0.92% in 2023.
The net interest spread increased to 3.10% in 2024 from 3.05% in 2023. In 2024, Pinnacle’s earning asset yield increased
more than the cost of interest-bearing deposits causing a higher interest rate spread. Pinnacle’s earning yield was 54 basis points
higher in 2024 than in 2023 and the cost of interest-bearing deposits was 49 basis points higher in 2024 than in 2023.
Pinnacle’s net interest margin increased to 3.70% in 2024 from 3.52% in 2023. The higher net interest margin was due to
higher yields from loans and investments as a result of the higher interest rate environment in 2024. Higher loan volume, upward
loan and investment repricing, and loans made at higher rates in 2024 led to an increase in asset yields partially offset by the increase
in time deposits at higher 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 2025, 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.
13
Provision for Credit Losses. Pinnacle’s provision for credit losses was $752 for 2024 representing a $682, or 974.29%,
increase as compared to $70 for 2023. Asset quality remained strong in 2024 with the Company experiencing only $163, or .02%
of average assets, in net chargeoffs for the year as compared to incurring $34 in net chargeoffs from charged off loans for 2023.
Pinnacle's nonperforming loans were $1,582 as of December 31, 2024, a slight increase compared to $1,557 as of December 31,
2023. Due to the increase in loan volume, the Company's nonperforming loans-to-total loans ratio decreased to 0.22% as of
December 31, 2024, from 0.24% as of the prior year-end. 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 decreased $85, or 1.07%, in 2024 to $7,879 from $7,964 in 2023. The slight decrease
was mainly due to a $538 decrease in BOLI returns and a $106 decrease in interchange fees included in service charges and fees
from deposit accounts. These increases were partially offset by a $153 increase in fees generated from the sale of mortgage loans,
a $126 increase in merchant card fees, a $98 increase in other recoveries, a $63 increase in non-sufficient fund and other deposit
service charges included in service charges on deposit accounts, a $58 increase in service charges on loan accounts, and a $53
increase in insurance and investment sales commissions. Excluding BOLI proceeds, noninterest income increased $499, 7.5%, year-
over-year.
Noninterest Expense. Noninterest expense for 2024 increased $2,137, or 7.30%, to $31,417 as compared to $29,280 for 2023.
The increase was mainly due to a $758 increase in salary and benefits, a $401 increase in core operating system expenses, a $213
increase in occupancy expense, a $210 in other losses, a $133 increase dealer loan expenses, and a $71 increase in loan fees paid.
Income Tax Expense. Income taxes on 2024 earnings amounted to $1,980, resulting in an effective tax rate of 17.75%,
compared to $2,024, and an effective tax rate of 17.17% in 2023. The income tax rate increased in 2024 due to a decrease of $584
in nontaxable BOLI benefit proceeds.
Assets. Total assets as of December 31, 2024, were $1,043,994, up $27,465, or 2.70% from $1,016,528 as of December 31,
2023. The principal components of Pinnacle’s assets as of December 31, 2024, were $108,213 in cash and cash equivalents,
$711,918 in total gross loans, and $175,816 in investment securities.
Cash and Cash Equivalents. Cash and cash equivalents as of December 31, 2024, totaled $108,213 which is an increase of
$20,624, or 23.55%, from $87,589, as of December 31, 2023, This increase was driven by maturing securities and an increase in
deposits exceeding loan growth, which resulted in Pinnacle's continued strong liquidity position.
Securities. Pinnacle’s securities 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 non-callable agency bonds. The mortgage-backed securities
include mortgage-backed security pools that are diverse as to interest rates. Pinnacle has not invested in derivatives.
Securities as of December 31, 2024, totaled $175,816, a decrease of $57,763, or 24.73%, from $233,579 as of December 31,
2023, due primarily to $56,615 in maturities and no purchases during 2024 as the Company sought to preserve its liquidity position,
fund loan growth and benefit from rates paid on Federal funds sold. All securities were classified as Available-for-sale investments
as of December 31, 2024, and 2023.
Loans. Total loans as of December 31, 2024, totaled $711,918, an increase of $70,481, or 10.99%, from $641,437, as of
December 31, 2023, with the increase driven by higher volumes of commercial real estate, residential real estate, and commercial
loans. Pinnacle’s net loans were $706,024 as of December 31, 2024, an increase of $69,736, or 10.96%, from $636,288 as of
December 31, 2023. Loan demand grew in 2024 due to new markets, new personnel, and mergers of competitors. Pinnacle’s ratio
of net loans to total deposits was 78.87% as of December 31, 2024, compared to 68.24% as of December 31, 2023.
Allowance for Credit Losses. The allowance for credit losses was $5,084 as of December 31, 2024, which represented 0.71%
of total loans outstanding. In comparison, the allowance for credit losses was $4,511, or 0.70% of total loans outstanding as of
December 31, 2023. Pinnacle's ASC 326 current expected credit loss ("CECL") adjustment was $561 ($443 net of tax) as of January
1, 2023.
14
Bank Premises and Equipment. Bank premises and equipment increased $1,405, or 6.54%, in 2024 due to the purchase and
renovation of the South Boston Branch and improvements made to several branches including our Mt. Hermon and Danville Airport
facilities. Pinnacle was leasing the Downtown Lynchburg, Amherst, and Charlottesville branches as well as the South Boston loan
production office as of December 31, 2024.
Liabilities. Total liabilities as of December 31, 2024, were $965,608, up $17,484, or 1.84%, from $948,123, as of December
31, 2023. The increase in liabilities was driven by an increase in total deposits which mainly occurred in the fourth quarter of 2024.
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 $18,475, or 1.98%, to $950,919 as of December 31, 2024, from $932,444 at December 31, 2023.
Noninterest-bearing demand deposits decreased $6,668, or 2.47%, and represented 27.64% of total deposits as of December 31,
2024, compared to 28.90% as of December 31, 2023. Savings and NOW accounts increased $1,473, or 0.30%, and represented
52.34% of total deposits as of December 31, 2024, compared to 53.22% as of December 31, 2023. Time deposits increased $23,670,
or 14.20%, and represented 20.02% of total deposits as of December 31, 2024, compared to 17.87% as of December 31, 2023, as a
result of customers preferring time deposit accounts due to higher interest rates offered. Pinnacle had no brokered deposits as of
December 31, 2024, and December 31, 2023.
Average deposits were $913,898 for 2024, an increase of $8,035, or 0.89%, compared to $905,683 in average deposits for
2023. For 2024, average demand deposits were $262,351, or 28.71% of average deposits compared to $281,108, or 31.04% of
average deposits in 2023. Average interest-bearing deposits were $651,547, or 71.29% of average deposits for 2024 compared to
$624,575 or 68.96% of average deposits, in 2023. Deposit growth was minimal through the first three quarters of 2024. Pinnacle
experienced much of its deposit growth in the last quarter of 2024, which was primarily driven by deposits in newer markets and of
public entities.
Equity. Total stockholders’ equity as of December 31, 2024, was $78,386 and consisted primarily of $69,035 in retained
earnings. In comparison, as of December 31, 2023, total stockholders’ equity was $68,405. The $9,981 increase in stockholders’
equity resulted primarily from net income of $9,178 and a $2,712 decrease in Pinnacle's unrealized accumulated other
comprehensive losses on its available for sale securities portfolio and its retirement plans, less dividends paid to shareholders of
$2,212. Dividends paid to shareholders were $1.00 per share paid in 2024 up from $0.85 per share paid in 2023. 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%.
15
Pinnacle exceeded all regulatory capital requirements that would apply under Basel III at December 31, 2024, 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 11.83% and 11.91% as of December 31, 2024, and December 31, 2023, respectively. The Total Risk-based Capital Ratio
was 12.54% and 12.60% as of December 31, 2024, and December 31, 2023, respectively. Pinnacle’s Tier 1 Leverage Ratio was
8.52% and 8.10% as of December 31, 2024, and December 31, 2023, 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, 2024, 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 conditions, as well as conditions within the financial markets;
changes in general economic conditions, including unemployment levels, inflation, supply chain disruptions, and
slowdowns in economic growth;
changes in general market conditions, including disruptions due to pandemics or significant health hazards, severe
weather conditions, natural disasters, terrorist activities, financial crises, political crises, war and other military
conflicts (including the ongoing military conflicts between Russia and Ukraine and in the Middle East), or other
major events, or the prospect of these events;
changes in average loan yields and average costs of interest-bearing deposits;
financial services industry conditions, including bank failures or concerns involving liquidity;
attracting, hiring, training, motivating, and retaining qualified employees;
16
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;
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;
cyber threats, attacks, or events;
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.
17
PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2024 and December 31, 2023
(In thousands of dollars, except share data)
2024
2023
Assets
Cash and cash equivalents:
Cash and due from banks
$
108,213 $
87,589
Certificates of deposits
250
250
Securities:
Available-for-sale, at fair value
175,816
233,579
Federal Reserve Bank stock, at cost
889
880
Federal Home Loan Bank stock, at cost
733
701
Loans, net of allowance for credit loss of $5,084 as of December 31, 2024
and $4,511 as of December 31, 2023
706,024
636,288
Bank premises and equipment, net
22,902
21,497
Accrued interest receivable
3,243
3,255
Bank owned life insurance
16,941
17,540
Goodwill
539
539
Core deposit intangible
933
1,093
Other assets
7,511
13,317
Total assets
$
1,043,994 $
1,016,528
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand
$
262,834 $
269,502
Savings and NOW accounts
497,741
496,268
Time
190,344
166,674
Total deposits
950,919
932,444
Subordinated notes payable
8,000
8,000
Other long-term borrowings
2,000
2,000
Accrued interest payable
1,588
860
Other liabilities
3,101
4,819
Total liabilities
965,608
948,123
Commitments, contingencies and other matters
Stockholders' equity:
Common stock, $3 par value. Authorized 3,000,000 shares, issued and
outstanding 2,212,270 shares in 2024 and 2,198,158 shares in 2023
6,501
6,460
Capital surplus
12,214
11,951
Retained earnings
69,035
62,069
Accumulated other comprehensive loss, net
(9,364 )
(12,075 )
Total stockholders' equity
78,386
68,405
Total liabilities and stockholders' equity
$
1,043,994 $
1,016,528
See accompanying notes to consolidated financial statements.
18
PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2024 and 2023
(In thousands of dollars, except per share data)
2024
2023
Interest income:
Interest and fees on loans
$
37,830
$
32,412
Interest on securities:
U.S. Government agencies
4,596
5,567
States and political subdivisions (taxable)
515
535
States and political subdivisions (tax-exempt)
268
265
Other
4,534
3,109
Total interest income
47,743
41,888
Interest expense:
Interest on deposits:
Savings and NOW accounts
5,781
4,772
Time
6,514
3,944
Total interest expense
12,295
8,716
Net interest income
35,448
33,172
Provision for credit losses and unfunded commitments
752
70
Net interest income after provision for credit losses
34,696
33,102
Noninterest income:
Service charges and fees from deposit accounts
3,465
3,508
Commissions and fees
967
914
Mortgage loan fees
376
223
Service charges and fees from loan accounts
451
393
Other operating income
2,620
2,926
Total noninterest income
7,879
7,964
Noninterest expense:
Salaries and employee benefits
16,362
15,604
Occupancy expense
1,688
1,663
Furniture and equipment expense
2,084
1,896
Core system expense
3,779
3,378
Dealer loan expense
616
483
Office supplies and printing
273
339
Federal deposit insurance premiums
580
606
Capital stock tax
521
507
Advertising expense
284
274
Other operating expenses
5,230
4,530
Total noninterest expense
31,417
29,280
Income before income tax expense
11,158
11,786
Income tax expense
1,980
2,024
Net income
$
9,178
$
9,762
Basic net income per share
$
4.15
$
4.45
Diluted net income per share
$
4.15
$
4.45
See accompanying notes to consolidated financial statements.
19
PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2024 and 2023
(In thousands of dollars)
2024
2023
Net income
$
9,178 $
9,762
Other comprehensive income, net of related income taxes:
Unrealized gains on available-for-sale securities
Before tax
3,125
4,949
Income tax expense
(650 )
(1,039 )
Changes in plan assets and benefit obligation of defined benefit pension
plan
Before tax
914
(376 )
Income tax (expense) benefit
(192 )
79
Changes in plan assets and benefit obligation of supplemental executive
retirement plan
Before tax
(615 )
—
Income tax benefit
129
—
Total other comprehensive gain
2,711
3,613
Comprehensive income
$
11,889 $
13,375
See accompanying notes to consolidated financial statements.
20
PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2024 and December 31, 2023
(In thousands of dollars, except share and per share data)
Accumulated
Other
Common Stock
Capital Retained Comprehensive
Shares
Par Value
Surplus Earnings
Income (Loss)
Total
Balances, December 31, 2022
2,178,486 $
6,413 $ 11,669 $
54,614 $
(15,688 ) $ 57,008
Net income
9,762
9,762
Cumulative effect of adoption of
ASC 326, net of deferred taxes
(443 )
(443 )
Other comprehensive gain
3,613
3,613
Issuance of restricted stock and
related expense
19,672
47
282
329
Cash dividends declared by
Bankshares ($0.85 per share)
(1,864 )
(1,864 )
Balances, December 31, 2023
2,198,158 $
6,460 $ 11,951 $
62,069 $
(12,075 ) $ 68,405
Net income
9,178
9,178
Other comprehensive gain, net
of deferred taxes
2,711
2,711
Issuance of restricted stock and
related expense
14,112
41
263
304
Cash dividends declared by
Bankshares ($1.00 per share)
(2,212 )
(2,212 )
Balances, December 31, 2024
2,212,270 $
6,501 $ 12,214 $
69,035 $
(9,364 ) $ 78,386
See accompanying notes to consolidated financial statements.
21
PINNACLE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2024 and 2023
2024
2023
Cash flows from operating activities:
Net income
$
9,178
$
9,762
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation of bank premises and equipment
1,075
1,077
Amortization of intangible assets
160
159
Amortization of unearned fees, net
172
66
Net accretion of premiums and discounts on securities
(34 )
(76 )
Provision for credit losses (includes $561 for ASC 326 in 2023)
752
641
Cumulative effect of adoption of ASC 326
-
(443 )
Provision for deferred income taxes
276
(365 )
Stock based compensation expense
304
329
Increase in cash value of bank owned life insurance
(453 )
(376 )
Accretion of purchased credit-impaired loans
(391 )
(1,250 )
Net (increase) decrease in:
Accrued interest receivable
12
(299 )
Other assets
4,039
(6,533 )
Net increase (decrease) in:
Accrued interest payable
728
700
Other liabilities
(1,419 )
919
Net cash flows from operating activities
14,399
4,311
Cash flows from investing activities:
Proceeds from maturities and calls of available-for-sale securities
56,615
6,127
Proceeds from maturities and calls of held-to-maturity securities
—
10,000
Proceeds from paydowns and maturities of available-for-sale mortgage-backed securities
4,308
6,433
Purchase of Federal Reserve Stock
(9 )
(9 )
Purchase of Federal Home Loan Bank Stock
(32 )
(171 )
Purchase of bank owned life insurance
—
(1,000 )
Proceeds from bank owned life insurance
1,829
2,141
Net increase in loans made to customers
(70,269 )
(7,274 )
Purchases of bank premises and equipment
(2,480 )
(832 )
Net cash from (used in) investing activities
(10,038 )
15,415
Cash flows from financing activities:
Net decrease in demand, savings and NOW deposits
(5,195 )
(33,080 )
Net increase in time deposits
23,670
66,286
Cash dividends paid
(2,212 )
(1,864 )
Net cash flows from financing activities
16,263
31,342
Net increase in cash and cash equivalents
20,624
51,068
Cash and cash equivalents, beginning of year
87,589
36,521
Cash and cash equivalents, end of year
$
108,213
$
87,589
Supplemental disclosure of cash flows information
Cash paid during the year for:
Income taxes (net of refunds received)
$
1,850
$
2,740
Interest
11,567
8,016
Supplemental schedule of noncash investing and financing activities:
Unrealized gains on available-for-sale securities
3,125
4,949
Defined benefit plan adjustment per ASC topic Compensation-Retirement Benefits
914
(376 )
See accompanying notes to consolidated financial statements.
22
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, 2024, 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, 2024 and 2023.
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, 2024 and 2023, 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, 2024 and 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
23
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 (“AOCI”).
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.
24
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.
25
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 credit 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.
26
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 2024 and 2023, 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
27
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
consolidated balance sheets 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 and Fees from Deposit Accounts
Service charges and fees from 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.
28
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 Bearing Insurance Group, LLC, Pinnacle receives a certain percentage of the
insurance agency's commission for each policy sold. For investment products sales through LPL financial
LLC, revenue to Pinnacle consists of advisory account fees and commissions from sales of mutual funds and
other investments. Fees and commissions that total $967 and $914 for 2024 and 2023, respectively, on the
consolidated statements of income includes $172 and $190 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 2024 and 2023, respectively:
Years Ended December 31,
2024
2023
Non-interest Income
In-scope of Topic 606:
Service charges and fees from deposit accounts
$
3,465
$
3,508
Commissions and fees
794
724
Other operating income
1,241
1,030
Non-interest Income (in-scope of Topic 606)
$
5,500
$
5,262
Non-interest Income (out-of-scope of Topic 606)
2,379
2,702
$
7,879
$
7,964
(o)
Net Income per Share
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.
29
The following is a reconciliation of the numerators and denominators of the basic and diluted net income per
share computations for the periods indicated:
Net income
Shares
Per share
Year ended December 31, 2024
(numerator) (denominator)
amount
Basic net income per share
$
9,178
2,211,828 $
4.15
Effect of dilutive stock options
—
—
Diluted net income per share
$
9,178
2,211,828 $
4.15
Net income
Shares
Per share
Year ended December 31, 2023
(numerator) (denominator)
amount
Basic net income per share
$
9,762
2,192,839
$
4.45
Effect of dilutive stock options
—
1,923
Diluted net income per share
$
9,762
2,194,762
$
4.45
(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 its consolidated balance sheets. 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, 2023, all available-for-sale
securities fell into Level 2 fair value hierarchy and remained at Level 2 as of December 31, 2024. 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.
30
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 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
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
asset
using
historical
experience,
current
conditions,
and
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
31
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.
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.
(2)
Restrictions on Cash
Per Federal Reserve regulations, the average reserve requirement for the week including December 31, 2024, and
the week of December 31, 2023, has been $0.
32
(3)
Securities
The amortized costs, gross unrealized gains, gross unrealized losses and fair values for securities as of December
31, 2024, and 2023 are as follows:
2024
Gross
Gross
Amortized unrealized unrealized
Fair
Available-for-Sale
costs
gains
losses
values
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies
$
88,838
—
(2,412)
86,426
Obligations of states and political subdivisions
39,002
—
(5,314)
33,688
Mortgage-backed securities – government
59,793
1
(4,092)
55,702
Total available-for-sale
$ 187,633
1
(11,818)
175,816
2023
Gross
Gross
Amortized unrealized unrealized
Fair
Available-for-Sale
costs
gains
losses
values
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies
$ 144,641
—
(4,674)
139,967
Obligations of states and political subdivisions
39,712
12
(5,384)
34,340
Mortgage-backed securities – government
64,169
—
(4,897)
59,272
Total available-for-sale
$ 248,522
12
(14,955)
233,579
Pinnacle had no held-to-maturity securities as of December 31, 2024 and 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, 2024:
Less than 12
months
More than 12
months
Total
Gross
Gross
Gross
Gross
Fair unrealized
Fair
unrealized
Fair
unrealized
Description of Securities
value
losses
value
losses
value
losses
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies
$
—
—
86,426
2,412
86,426
2,412
Obligations of states and political subdivisions
1,051
5
32,637
5,309
33,688
5,314
Mortgage-backed securities-government
413
1
55,289
4,091
55,702
4,092
Total
$ 1,464
6
174,352
11,812
175,816
11,818
33
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, 2024, the securities included 4 bonds that had continuous losses for less than
12 months and 113 bonds that had continuous losses for more than 12 months. There were no realized gains or
losses in 2024.
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:
Less than 12
months
More than 12
months
Total
Gross
Gross
Gross
Gross
Fair
unrealized
Fair
unrealized
Fair
unrealized
Description of Securities
value
losses
value
losses
value
losses
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies
$
—
—
139,967
4,674
139,967
4,674
Obligations of states and political subdivisions
2,760
23
30,377
5,361
33,137
5,384
Mortgage-backed securities-government
2,193
41
57,057
4,856
59,250
4,897
Total
$
4,953
64
227,401
14,891
232,354
14,955
For 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 or losses in 2023.
The amortized costs and fair values of available-for-sale and held-to-maturity securities as of December 31, 2024,
and December 31, 2023, 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.
2024
Available-for-Sale
Held-to-Maturity
Amortized
Fair
Amortized
Fair
costs
values
costs
values
Due in one year or less
$
62,977
62,578
—
—
Due after one year through five years
41,056
38,116
—
—
Due after five years through ten years
20,973
17,214
—
—
Due after ten years
2,834
2,206
—
—
127,840
120,114
—
—
Mortgage-backed securities
59,793
55,702
—
—
Totals
$
187,633
175,816
—
—
2023
Available-for-Sale
Held-to-Maturity
Amortized
Fair
Amortized
Fair
costs
values
costs
values
Due in one year or less
$
56,602
56,142
—
—
Due after one year through five years
97,132
92,483
—
—
Due after five years through ten years
23,677
20,250
—
—
Due after ten years
6,942
5,432
—
—
184,353
174,307
—
—
Mortgage-backed securities
64,169
59,272
—
—
Totals
$
248,522
233,579
—
—
34
Securities with amortized costs of approximately $56,627 (fair value of $55,008) as of December 31, 2024, were
pledged as collateral for public deposits. Also, securities with amortized costs of approximately $35,276 (fair value
of $34,191) as of December 31, 2024, were pledged as collateral for the Federal Reserve's term funding program.
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 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, 2024, and 2023, follows:
2024
2023
Real estate loans:
Residential-mortgage
$
198,412
$
175,888
Residential-construction
18,778
10,810
Commercial
250,737
219,885
Loans to individuals for household, family
and other consumer expenditures
129,944
132,844
Commercial and industrial loans
114,047
102,010
Total loans, gross
711,918
641,437
Less unearned income and fees
(810)
(638)
Loans, net of unearned income and fees
711,108
640,799
Less allowance for credit losses
(5,084)
(4,511)
Loans, net
$
706,024
$
636,288
In the normal course of business, First National Bank has made loans to executive officers and directors. As of
December 31, 2024, loans and extensions of credit to executive officers and directors totaled $805 as compared to
$586 as of December 31, 2023. During 2024, one loan for $359 was made to a current director prior to the director
being elected. 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 $691,255 as of December 31, 2024, and $579,056 as
of December 31, 2023.
Loans in the amount of $42,980 were pledged as collateral for Pinnacle’s available FHLB line of credit as of
December 31, 2024.
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 as of December 31, 2024.
35
Allowance for Credit Losses and Recorded Investment in Loans
For the Year Ended December 31, 2024
Commercial
Commercial
Real Estate
Consumer
Residential
Total
Allowance for Credit Losses:
Beginning balance
$ 944
1,570
824
1,173
4,511
Charge-offs
(42)
—
(327)
(15)
(384)
Recoveries
11
—
197
13
221
Provision for credit losses
63
342
101
230
736
Ending Balance
$ 976
1,912
795
1,401
5,084
Allowance:
Ending balance: individually
evaluated
160
200
—
—
360
Ending balance: collectively
evaluated
816
1,712
795
1,401
4,724
Ending balance: loans
acquired with deteriorated
credit quality
$ —
—
—
—
—
Commercial
Commercial
Real Estate Consumer Residential
Total
Loans:
Total loans ending balance
$
114,047
250,737
129,944
217,190
711,918
Ending balance: individually evaluated
160
534
24
1,024
1,742
Ending balance: collectively evaluated
113,886
249,994
129,917
216,079
709,876
Ending balance: loans acquired with
deteriorated credit quality
1
209
3
87
300
The following table summarizes the activity related to allowance for credit losses as of December 31, 2023.
36
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
$
400
1,389
1,096
968
3,853
Adjustment to allowance for adoption
of ASU 2016-13
(81 )
783
(477 )
376
601
Charge-offs
(12 )
—
(273 )
(29 )
(314 )
Recoveries
13
—
259
8
280
(Recovery of) provision for credit
losses
624
(602 )
219
(150 )
91
Ending Balance
$
944
1,570
824
1,173
4,511
Allowance:
Ending balance: individually evaluated for
impairment
373
35
—
—
408
Ending balance: collectively evaluated for
impairment
571
1,535
824
1,173
4,103
Ending balance: loans acquired with
deteriorated
credit quality
$
—
—
—
—
—
Commercial
Commercial
Real Estate Consumer Residential
Total
Loans:
Total loans ending balance
$
102,010
219,885
132,844
186,698
641,437
Ending balance: individually evaluated for
impairment
421
535
12
1,319
2,287
Ending balance: collectively evaluated for
impairment
101,584
218,986
132,819
185,071
638,460
Ending balance: loans acquired with
deteriorated credit quality
5
364
13
308
690
The allowance for credit losses-unfunded loan commitments, included in Other liabilities on the Consolidated
Balance Sheets, totaled $139 as of December 31, 2024, and was $122 as of December 31, 2023.
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.
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,
37
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, 2024
Commercial
Credit Exposure
Commercial
Real Estate
Consumer Residential
Total
Pass
$
112,942
245,474
129,645
216,454
704,515
Special Mention
692
4,756
12
429
5,889
Substandard
413
507
287
307
1,514
Doubtful
—
—
—
—
—
Total
$
114,047
250,737
129,944
217,190
711,918
Credit Quality Indicators
As of December 31, 2023
Commercial
Credit Exposure
Commercial
Real Estate
Consumer Residential
Total
Pass
$
101,637
219,837
132,707
185,766
639,947
Special Mention
—
—
23
597
620
Substandard
373
48
114
335
870
Doubtful
—
—
—
—
—
Total
$
102,010
219,885
132,844
186,698
641,437
38
The following table presents the Company’s recorded investment in loans by credit quality indicators by year of
origination as of December 31, 2024 and 2023:
2024 Loans by Year of Origination
2020
2021
2022
2023
2024 Prior
Total
Total Recorded Investment
$ 51,936
106,432
139,641
106,920
194,446
112,543
711,918
Total Current period gross chargeoff
—
—
—
—
—
—
—
Commercial
Pass
$
6,610
26,823
20,888
16,540
21,796
20,287
112,944
Special Mention
20
—
671
—
—
—
691
Substandard
—
—
—
—
93
319
412
Total
6,630
26,823
21,559
16,540
21,889
20,606
114,047
Current period gross chargeoff
—
—
—
42
—
—
42
Commercial Real Estate
Pass
$ 22,712
46,084
54,138
27,823
56,685
38,032
245,474
Special Mention
370
—
—
412
—
3,974
4,756
Substandard
—
—
—
507
—
—
507
Total
23,082
46,084
54,138
28,742
56,685
42,006
250,737
Current period gross chargeoff
—
—
—
—
—
—
—
Consumer
Pass
$
5,915
7,410
33,726
31,024
49,367
2,203
129,645
Special Mention
—
10
—
—
—
2
12
Substandard
11
45
157
—
74
—
287
Total
5,926
7,465
33,883
31,024
49,441
2,205
129,944
Current period gross chargeoff
22
21
77
138
60
9
327
Residential
Pass
$ 16,232
26,060
30,061
30,614
66,431
47,056
216,454
Special Mention
—
—
—
—
—
429
429
Substandard
66
—
—
—
—
241
307
Total
16,298
26,060
30,061
30,614
66,431
47,726
217,190
Current period gross chargeoff
—
—
—
—
—
15
15
39
2023 Loans by Year of Origination
2019
2020
2021
2022
2023
Prior
Total
Total Recorded Investment
$ 37,600
64,612
118,476
178,069
136,645
106,035
641,437
Total Current period gross
chargeoff
—
—
—
—
—
—
—
Commercial
Pass
3,283
8,300
27,079
26,909
19,778
16,288
101,637
Special Mention
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
373
373
Total
3,283
8,300
27,079
26,909
19,778
16,661
102,010
Current period gross chargeoff
—
9
—
—
3
—
12
Commercial Real Estate
Pass
12,372
24,605
48,250
58,014
28,344
48,252
219,837
Special Mention
—
—
—
—
—
—
—
Substandard
—
—
—
48
—
—
48
Total
12,372
24,605
48,250
58,062
28,344
48,252
219,885
Current period gross chargeoff
—
—
—
—
—
—
—
Consumer
Pass
4,988
11,663
12,685
52,579
44,221
6,571
132,707
Special Mention
8
—
15
—
—
—
23
Substandard
—
—
—
111
—
3
114
Total
4,996
11,663
12,700
52,690
44,221
6,574
132,844
Current period gross chargeoff
9
14
80
118
15
37
273
Residential
Pass
16,751
19,976
30,447
40,408
44,302
33,882
185,766
Special Mention
198
399
597
Substandard
—
68
—
—
—
267
335
Total
16,949
20,044
30,447
40,408
44,302
34,548
186,698
Current period gross chargeoff
—
—
—
—
1
28
29
The following table represents an age analysis of Pinnacle’s past due loans:
Age Analysis of Past Due Loans
As of December 31, 2024
Non-
Recorded
30-59
60-89
Greater Total
accrual
Total
Investment
Days
Days
Than
Past
Total
with no
Non-
90 Days and
Past Due Past Due 90 Days
Due
Current Loans Allowance accrual Accruing
Commercial $
1
—
—
1
114,046
114,047
—
—
—
Commercial
real estate
70
—
—
70
250,667
250,737
—
534
—
Consumer
110
27
—
137
129,807
129,944
24
24
—
Residential
—
473
—
473
216,717
217,190
1,024
1,024
—
Total
$
181
500
—
681
711,237
711,918
1,048
1,582
—
40
Age Analysis of Past Due Loans
As of December 31, 2023
Non-
Recorded
30-59
60-89
Greater Total
accrual Total Investment
Days
Days
Than Past
Total
with no Non- 90 Days and
Past Due Past Due 90 Days Due Current Loans Allowance accrual
Accruing
Commercial
$
1
—
—
1
102,009
102,010
—
—
—
Commercial real
estate
28
—
—
28
219,857
219,885
—
535
—
Consumer
72
—
—
72
132,772
132,844
12
12
—
Residential
88
84
—
172
186,526
186,698
1,010
1,010
—
Total
$
189
84
—
273
641,164
641,437
1,022
1,557
—
The following table presents information on Pinnacle’s individually evaluated loans and their related allowance for
credit losses:
Individually Evaluated Loans
As of December 31, 2024
Unpaid
Average
Interest
Recorded
Principal
Related
Recorded
Income
Investment
Balance
Allowance Investment Recognized
With no related allowance recorded:
Commercial
$
—
—
—
24
—
Commercial real estate
—
—
—
185
—
Consumer
24
24
—
14
5
Residential
1,133
1,133
—
1,226
32
With related allowance recorded:
Commercial
$
319
319
160
346
35
Commercial real estate
534
534
200
535
—
Consumer
—
—
—
—
—
Residential
—
—
—
—
—
Total:
Commercial
319
319
160
370
35
Commercial real estate
534
534
200
720
—
Consumer
24
24
—
14
5
Residential
$
1,133
$
1,133
—
1,226
32
Total
$
2,010
2,010
360
2,330
72
41
Individually Evaluated Loans
For the Year Ended December 31, 2023
Unpaid
Average
Interest
Recorded
Principal
Related
Recorded
Income
Investment
Balance
Allowance Investment Recognized
With no related allowance recorded:
Commercial
$
48
48
—
290
—
Commercial real estate
—
—
—
370
4
Consumer
12
12
—
14
1
Residential
1,319
1,319
—
1,295
39
With related allowance recorded:
Commercial
$
373
373
373
187
37
Commercial real estate
535
535
35
626
—
Consumer
—
—
—
—
—
Residential
—
—
—
—
—
Total:
Commercial
421
421
373
477
37
Commercial real estate
535
535
35
996
4
Consumer
12
12
—
14
1
Residential
$
1,319
$
1,319
—
1,295
39
Total
$
2,287
2,287
408
2,782
81
The following presents information on Pinnacle’s nonaccrual loans:
Loans on Nonaccrual Status
As of December 31, 2024 and 2023
2024
2023
Commercial
$
—
$
—
Commercial real estate
534
535
Consumer
24
12
Residential
1,024
1,010
Total
$
1,582
$
1,557
The Company did not modify any loans for borrowers experiencing financial difficulty during 2024. Accordingly,
the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during
2024 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.
Pinnacle had one loan modifications totaling $109 as of December 31, 2024 compared to 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.
42
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, 2024 and 2023.
The following tables present loan modifications as of December 31, 2024 and December 31, 2023:
December 31, 2024
Accrual
Non-Accrual
Loan
Status
Status
Modifications
Commercial
$
—
—
—
Commercial real estate
—
—
—
Consumer
—
—
—
Residential
109
—
109
Total
$
109
—
109
December 31, 2023
Accrual
Non-Accrual
Loan
Status
Status
Modifications
Commercial
$
—
—
—
Commercial real estate
48
—
48
Consumer
—
—
—
Residential
309
—
309
Total
$
357
—
357
For 2024 and 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, 2024 and 2023:
2024
2023
Land improvements
$
939
$
783
Buildings
21,656
20,847
Equipment, furniture and fixtures
10,120
9,254
32,715
30,884
Less accumulated depreciation
(15,036)
(13,962)
17,679
16,922
Land
4,648
4,258
Construction in progress
575
317
Bank premises and equipment, net
$
22,902
$
21,497
43
(6) Goodwill and Other Intangible Assets
The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets
as of December 31, 2024 and December 31, 2023 and the carrying amount of unamortizable intangible assets as of the
same dates.
December 31, 2024
December 31, 2023
Gross Carrying
Accumulated
Gross Carrying
Accumulated
Amount
Amortization
Amount
Amortization
Amortizable Intangible Assets:
Core Deposit Intangible
$
1,600
667
$
1,600
507
Unamortizable Intangible Assets:
Goodwill
$
539
$
539
Amortization expense of all other intangible assets totaled $0 for the years ended December 31, 2024 and 2023,
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, 2029 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.
Estimated
Amortization
Expense
2025
$
160
2026
160
2027
160
2028
160
2029
160
Thereafter
133
Total
$
933
(7) Deposits
A summary of deposits as of December 31, 2024 and December 31, 2023:
2024
2023
Noninterest-bearing demand deposits
$
262,834
$
269,502
Interest-bearing:
Savings and money market accounts
366,019
358,452
NOW accounts
131,722
137,816
Time deposits – under $250,000
163,135
145,512
Time deposits – $250,000 and over
27,209
21,162
Total interest-bearing deposits
688,085
662,942
Total deposits
$
950,919
$
932,444
44
In the normal course of business, First National Bank has received deposits from executive officers and directors.
As of December 31, 2024 and December 31, 2023, deposits from executive officers and directors were
approximately $10,144 and $17,750, 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 $761,821 as of December 31, 2024 and $757,115 as of December 31, 2023.
(8) Borrowings
As of December 31, 2024 and December 31, 2023, Pinnacle’s available borrowing limit with the FHLB was
approximately $245,712 and $245,712, respectively. Pinnacle had $0 in borrowings from the FHLB outstanding
at December 31, 2024 and 2023. Additionally, Pinnacle has liquidity borrowing capabilities with three
correspondent banks totaling $48,000 with $0 outstanding as of December 31, 2024.
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.
During 2020, Pinnacle borrowed $2,000 under a fixed-to-floating rate promissory note due 2030 (the “Promissory
Note”). 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 $607 and $550 in 2024 and 2023, respectively.
45
The components of net pension benefit cost under the plan for the year ended December 31, 2024, and 2023 is
summarized as follows:
Change in Benefit Obligation
2024
2023
Benefit obligation at beginning of year
$
14,754
$
13,321
Service cost
830
723
Interest cost
677
626
Actuarial income (loss)
(644 )
1,098
Benefits paid
(182 )
(1,014 )
Benefit obligation at end of year
$
15,435
$
14,754
Change in Plan Assets
Fair value of plan assets at beginning of year
12,898
12,352
Actual return on plan assets
1,228
1,560
Employer contribution
2,000
—
Benefits paid
(181 )
(1,014 )
Projected fair value of plan assets at end of year
15,945
12,898
Funded Status at the End of the Year
509
(1,856 )
Amounts Recognized in the Balance Sheet
Other liabilities, accrued pension
509
(1,856 )
Amounts Recognized in Accumulated Other
Comprehensive
Income Net of Tax Effect
Unrecognized actuarial (loss)/gain
684
(221 )
Prior service cost
(119)
(128 )
Income tax effect
(119)
74
Benefit obligation included in accumulated other
comprehensive income
$
446
$
(275 )
Funded Status
Benefit obligation
(15,435 )
(14,754 )
Fair value of assets
$
15,945
$
12,898
Unrecognized net actuarial gain/(loss)
(684)
220
Unrecognized prior service cost
119
128
Funded Status at December 31
$
(55 )
$
(1,508 )
Pension Benefits
Weighted Average Assumptions as of December 31, 2024 and 2023 :
2024
2023
Discount rate used for net periodic pension cost
4.75 %
4.95 %
Discount rate used for disclosure
5.45 %
4.75 %
Expected long-term return on plan assets used for net periodic pension cost
7.25 %
7.25 %
Rate of compensation increase for disclosure
3.00 %
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 $505.
46
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, 2024, and 2023 is
summarized as follows:
Pension Benefits
2024
2023
Service cost
$
830 $
723
Interest cost
677
626
Expected return on plan assets
(968 )
(847 )
Amortization of Prior Service Cost
9
9
Recognized net loss due to settlement
—
—
Recognized net actuarial loss
—
—
Net pension benefit cost
$
548 $
511
Gross gain (loss) recognized in other comprehensive
income
(914 )
376
Total Recognized in Net Pension Benefit Cost and
Other Comprehensive Income
$
(366 ) $
887
Projected Benefit Payments
The projected benefit payments under the plan are summarized as follows for the years ending December 31:
2025
$
1,797
2026
697
2027
383
2028
462
2029
373
2030-2034
9,150
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 37% fixed income and 63% 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.
47
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, 2024, and 2023.
The following table presents the fair value of the assets, by asset category, as of December 31, 2024, and 2023.
2024
2023
Mutual funds-fixed income
$
5,900
$
5,159
Mutual funds-equity
10,045
7,739
Total assets at fair value
$
15,945
$
12,898
The following table sets forth by level, within the fair value hierarchy, the assets carried at fair value as of December
31, 2024 and 2023.
Assets at Fair Value as of December 31, 2024
Level 1
Level 2
Level 3
Total
Mutual funds-fixed income
$
5,900
—
—
5,900
Mutual funds-equity
10,045
—
—
10,045
Total assets at fair value
$
15,945
—
—
15,945
Assets at Fair Value as of December 31, 2023
Level 1
Level 2
Level 3
Total
Mutual funds-fixed income
$
5,159
—
—
5,159
Mutual funds-equity
7,739
—
—
7,739
Total assets at fair value
$
12,898
—
—
12,898
First National Bank maintains a supplemental executive employee retirement plan ("SERP") that cover its Chief
Executive Officer. Benefits are computed based on employees’ average final compensation and years of credited
service. Pension expenses amounted to approximately $43 in 2024.
48
The components of net SERP benefit cost under the plan for the year ended December 31, 2024, is summarized as
follows:
Change in Benefit Obligation
2024
Benefit obligation at beginning of year
$
—
Service cost
21
Interest cost
22
Actuarial income (loss)
—
Benefits paid
—
Increase in obligation due to plan amendment
615
Settlement Gain
—
Benefit obligation at end of year
$
658
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
(658 )
Amounts Recognized in the Balance Sheet
Other liabilities, accrued pension
(658 )
Amounts Recognized in Accumulated Other
Comprehensive
Income Net of Tax Effect
Unrecognized actuarial (loss)/gain
—
Prior service cost
615
Income tax effect
(129 )
Benefit obligation included in accumulated other
comprehensive income
$
486
Funded Status
Benefit obligation
(658 )
Fair value of assets
$
—
Unrecognized net actuarial gain/(loss)
—
Unrecognized prior service cost
615
Funded Status at December 31
$
(43 )
SERP Benefits
Weighted Average Assumptions as of December 31, 2024:
2024
Discount rate used for net periodic pension cost
4.85 %
Discount rate used for disclosure
5.50 %
Rate of compensation increase for disclosure
3.00 %
Rate on compensation increase for net periodic pension cost
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 SERP cost over the next fiscal year
is $153.
49
The components of net SERP benefit cost under the plan for the years ended December 31, 2024 is summarized as
follows:
SERP Benefits
2024
Projected benefit obligation, beginning of year
$
—
Service cost
21
Interest cost
22
Actuarial (gain)/loss
—
Benefits paid
—
Increase in obligation due to plan amendment
—
Settlement (gain)/loss
—
Projected benefit obligation, end of year
$
43
Gross gain recognized in other comprehensive
income
615
Total Recognized in Net Pension Benefit Cost and
Other Comprehensive Income
$
658
Projected Benefit Payments
The projected benefit payments under the plan are summarized as follows for the years ending December 31:
2025
$
1
2026
2
2027
4
2028
7
2029
11
2030-2034
230
Contributions
Pinnacle contributed $1,000 to its pension plan on December 16, 2024 and $1,000 on January 17, 2024.
Pinnacle also has a 401(k) plan under which Pinnacle matches employee contributions to the plan. In 2024 and
2023, 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, 2024, and
$318 during the year ended December 31, 2023.
(10) Income Taxes
Income tax expense attributable to income before income tax expense for the years ended December 31, 2024, and
2023 is summarized as follows:
2024
2023
Current
$
1,704
$
2,293
Deferred
276
(269)
Total income tax expense
$
1,980
$
2,024
50
Reported income tax expense for the years ended December 31, 2024, and 2023 differed from the amounts
computed by applying the U.S. Federal income tax rate of 21% for 2024 and 2023 to income before income tax
expense as a result of the following:
2024
2023
Computed at statutory Federal tax rate
$
2,343
$
2,475
Increase (reduction) in income tax expense
resulting from:
Tax-exempt interest
(126)
(111)
Disallowance of interest expense
18
13
Other, net
(255)
(353)
Reported income tax expense
$
1,980
$
2,024
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, 2024, and 2023 are as follows:
2024
2023
Deferred tax assets:
Loans, principally due to allowance for credit losses
$
1,068
$
947
Defined benefit plan valuation adjustments
11
73
Accrued pension
12
317
Net unrealized losses on available-for-sale
securities
2,482
3,138
Other
184
189
Total gross deferred tax assets
3,757
4,664
Deferred tax liabilities:
Bank premises and equipment, due to differences
in depreciation
(1,385)
(1,347)
Defined benefit plan valuation adjustments
—
—
Other
(286)
(236)
Total gross deferred tax liabilities
(1,671)
(1,583)
Net deferred tax asset (included in Other assets in Consolidated Balance
Sheets)
$
2,086
$
3,081
Pinnacle did not recognize any interest or penalties related to income tax during the years ended December 31, 2024
and 2023. 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 2020 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.
51
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:
Contract amounts at
December 31,
2024
2023
Commitments to extend credit
$
131,806
$
126,518
Standby letters of credit
$
6,983
$
6,072
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
is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary
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
properties. The Company’s allowance for credit losses - unfunded loan commitments was $139 and $122, at
December 31, 2024 and 2023, 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, 2024 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.
52
(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 2024 was $344.
Pinnacle entered into a lease of the Amherst branch facility in 2009 with an entity in which a prior director of
Pinnacle has a 50% ownership interest. 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.
December 31, 2024
Short-term lease liability (included in Other liabilities on Consolidated
Balance Sheets)
$
311
Long-term lease liability (included in Other liabilities on Consolidated
Balance Sheets)
$
957
Right-of-use assets (included in Other assets on Consolidated Balance
Sheets)
$
1,234
Weighted average remaining lease term
4.09 years
Weighted average discount rate
1.80%
The following are future minimum lease payments as required under the agreements:
Year
Payments
2025
$
331
2026
335
2027
333
2028
191
2029
125
Thereafter
—
Total
$
1,315
Less: present value discount
(47)
Total lease liabilities
$
1,268
53
(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
2024 and 2023, dividends from the subsidiary Bank totaled $2,966 and $2,653, 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
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.
54
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, 2024 and 2023,
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, 2024
Pinnacle
Consolidated
First
National Bank
Amount
Ratio
Amount
Ratio
Total Risk-Based Capital Ratio (to Risk Weighted
Assets)
$
92,432
12.54% $
99,377
13.52%
CET 1 Risk Based Capital Ratio (to Risk Weighted
Assets)
$
87,210
11.83% $
94,155
12.81%
Tier 1 Risk-Based Capital Ratio (to Risk Weighted
Assets)
$
87,210
11.83% $
94,155
12.81%
Tier 1 Leverage Capital Ratio (to Average Assets)
$
87,210
8.52% $
94,155
9.21%
Regulatory Capital Ratios as of December 31, 2023
Pinnacle
Consolidated
First
National Bank
Amount
Ratio
Amount
Ratio
Total Risk-Based Capital Ratio (to Risk Weighted
Assets)
$
84,572
12.60% $
91,494
13.67%
CET 1 Risk Based Capital Ratio (to Risk Weighted
Assets)
$
79,939
11.91% $
86,861
12.98%
Tier 1 Risk-Based Capital Ratio (to Risk Weighted
Assets)
$
79,939
11.91% $
86,861
12.98%
Tier 1 Leverage Capital Ratio (to Average Assets)
$
79,939
8.10% $
86,861
8.82%
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, 2024, and December 31, 2023.
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, 2024,
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.
55
(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, 2024 and December 31, 2023, 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.
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
56
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,
2024, and December 31, 2023, 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, 2024, and December 31, 2023. As of December 31, 2024,
and December 31, 2023, Pinnacle carried no Level 3 securities for which fair value would be determined
using unobservable inputs.
Loans
For 2024 and 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, 2024, and 2023, substantially all loans individually evaluated were
evaluated based on the fair value of the collateral.
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, 2024 and 2023.
57
The following tables present information about certain assets and liabilities measured at fair value:
Fair Value Measurements on December 31, 2024
Description
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)
Available-for-sale securities
$
175,816
175,816
—
175,816
—
Individually evaluated loans
(nonrecurring)
$
2,010
2,010
—
—
2,010
Fair Value Measurements on December 31, 2023
Description
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)
Available-for-sale securities
$
233,579
233,579
—
233,579
—
Individually evaluated loans
(nonrecurring)
$
2,287
2,287
—
—
2,287
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, 2024 and 2023:
Level 3 Assets
Year Ended
December 31, 2024
Individually
Evaluated
loans
Other Real
Estate
Owned
Balance, beginning of the year
$
2,287
—
Purchases, sales, issuances, and settlements (net)
(277)
—
Balance, end of year
$
2,010
—
Level 3 Assets
Year Ended
December 31, 2023
Individually
Evaluated
Loans
Other Real
Estate
Owned
Balance, beginning of the year
$
2,838
—
Purchases, sales, issuances, and settlements (net)
(551 )
—
Balance, end of year
$
2,287
—
58
(16) Parent Company Financial Information
Condensed financial information of Pinnacle (“Parent”) is presented below:
Condensed Balance Sheets
December 31,
Assets
2024
2023
Cash due from subsidiary
$
24
$
41
Investment in subsidiary, at equity
86,251
76,413
Other assets
2,264
2,067
Total assets
$
88,539
$
78,521
Liabilities and stockholders' equity
Notes payable
$
10,000
$
10,000
Other liabilities
153
116
Total liabilities
$
10,153
$
10,116
Stockholders' equity
Common stock of $3 par value, authorized 3,000,000 shares; issued and
outstanding 2,212,270 shares in 2024 and 2,198,158 in 2023
$
6,501
$
6,460
Capital surplus
12,213
11,951
Retained earnings
69,035
62,069
Accumulated other comprehensive loss, net
(9,363)
(12,075)
Total stockholders' equity
$
78,386
$
68,405
Total liabilities and stockholders' equity
$
88,539
$
78,521
Condensed Statements of Income
Years ended
December 31,
2024
2023
Income:
Dividends from subsidiary
$
2,966
$
2,652
Equity in undistributed net income of subsidiary
5,071
5,915
Total Income
8,037
8,567
Expenses:
Interest accrued on subordinated debt
420
420
Interest on long-term borrowings
105
105
Other expenses
314
304
Income before income tax benefit
7,198
7,738
Applicable income tax benefit
1,980
2,024
Net income
$
9,178
$
9,762
59
Condensed Statements of Cash Flows
Years ended
December 31,
2024
2023
Cash flows from operating activities:
Net income
$
9,178
$
9,762
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of adoption of ASC 326
—
(443)
Equity in undistributed net income of subsidiary
(5,071)
(5,915)
Increase in other assets
(197)
(175)
Net cash flows from operating activities
3,910
3,229
Cash flows from investing activities:
Increase in investment of subsidiary
(1,752)
(1,382)
Net cash used in investing activities
(1,752)
(1,382)
Cash flows from financing activities
Cash dividends paid
(2,212)
(1,864)
Increase (decrease) in other liabilities
37
26
Net cash flows used in financing activities
(2,175)
(1,838)
Net increase (decrease) in cash from subsidiary
(17)
9
Cash due from subsidiary, beginning of year
41
32
Cash due from subsidiary, end of year
$
24
$
41
(17) Stock Based Compensation
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.
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, 2024, no options were exercisable under the 2004 Plan as they expired 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, 2024, the 2004 Plan has expired and no additional awards may be granted under this plan.
On April 1, 2024, 11,250 shares of restricted stock were granted to employees pursuant to the 2014 plan. 10,750
shares will vest on May 1, 2027 and 500 of the shares granted were forfeited due to termination of employment.
On May 1, 2023, 16,000 shares of restricted stock were granted to employees pursuant to the 2014 Plan. 14,250 of
the shares granted will vest on May 1, 2026 and 1,750 of the shares granted were forfeited due to termination of
employment. On May 1, 2022, 9,700 shares of restricted stock were granted to employees pursuant to the 2014
Plan. 7,200 of the shares granted will vest on May 1, 2025, vesting was accelerated for 1,000 of the shares granted
vested in 2023 due to a retirement and 1,500 of the shares granted were forfeited due to termination of employment.
60
On January 14, 2025, 4,346 shares of restricted stock were granted to Pinnacle's Directors in lieu of cash for 2024
director fees. 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, 2024, no options for shares were exercisable under the 2024 or 2014 Plans.
On May 14, 2024, shareholders approved the 2024 Incentive Stock Plan (the “2024 Plan”), pursuant to which
Pinnacle’s Board of Directors may grant stock options and other equity-based awards to officers and key employees.
The 2024 Plan authorizes grants of up to 200,000 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.
On September 3, 2024, 335 shares of restricted stock were granted to an employee pursuant to the 2024 plan. These
shares will vest on May 1, 2027.
Pinnacle expensed $238 in 2024 in compensation expense as a direct result of granting, 12,525 shares of restricted
stock to employees in 2021, 9,700 shares of restricted stock to employees in 2022, 16,000 shares of restricted stock
to employees in 2023, and 11,585 shares of restricted stock to employees in 2024. Pinnacle expects to expense $219
in 2025, $134 in 2026 and $34 in 2027 on such restricted stock.
Stock option activity during the years ended December 31, 2024, and 2023 is as follows:
Number
of
Shares
Weighted
Average
Exercise
Price
Balance as of December 31, 2022
10,000
$
15.70
Forfeited
—
—
Exercised
2,000
22.29
Granted
—
—
Balance as of December 31, 2023
8,000
$
15.70
Forfeited
1,500
—
Exercised
6,500
$
23.17
Granted
—
—
Balance as of December 31, 2024
—
$
—
The following table summarizes information about stock options outstanding as of December 31, 2023:
Options Outstanding
Options Exercisable
Weighted-
Average
Remaining
Weighted-
Weighted-
Number
Contractual
Average
Number
Average
Exercise
Outstanding
Life
Exercise
Exercisable at
Exercise
Price
at 12/31/23
(in years)
Price
12/31/2023
Price
$
15.70
8,000
0.1
$
15.70
8,000
$
15.70
(18) Subsequent Events
Pinnacle has evaluated all other subsequent events for potential recognition and/or disclosure in the December 31,
2024, consolidated financial statements through March 31, 2025, the date the consolidated financial statements
were available to be issued.
61
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, 2024. 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, 2024.
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, 2024, 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, 2024, 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.
62
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, 2024, has been audited by Cherry Bekaert LLP, an independent public accounting
firm, as stated in their report dated March 28, 2025.
Pinnacle Bankshares Corporation
Aubrey H. (Todd) Hall, III
President and Chief Executive Officer
March 26, 2025
Bryan M. Lemley
Secretary, Treasurer & Chief Financial Officer
March 26, 2025
63
cbh.com
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Pinnacle Bankshares Corporation and Subsidiary
Altavista, Virginia
Opinion on the Financial Statements
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,
2024 and 2023, and the related consolidated statements of income, comprehensive income, changes in
stockholders’ equity, and cash flows for each of 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
consolidated financial position of the Company as of December 31, 2024 and 2023, and the results of its
consolidated operations and its consolidated 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.
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.
64
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 25, 2025
65
cbh.com
Report of Independent Auditor
To the Board of Directors
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 Federal Financial Institutions Examination Council instructions for Consolidated Reports of Condition and
Income (Call Report) and with the instructions to the Parent Company Only Financial Statements for Small Bank
Holding Companies (FR Y-9SP), as of December 31, 2024 and 2023, based on criteria established in the Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2024 and 2023, based on criteria established in Internal Control-
Integrated Framework (2013) issued by COSO.
We also have audited, in accordance with auditing standards generally accepted in the United States of America,
the accompanying consolidated financial statements of the Company, and our report dated March 25, 2025
expressed an unmodified opinion.
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 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 auditing standards generally accepted in the United States of America will always detect a material weakness
when it exists.
In performing an audit of internal control over financial reporting in accordance with auditing standards generally
accepted in the United States of America, 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.
66
Pinnacle Bankshares Corporation and Subsidiary
Page 2 of 2
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. Because management’s assessment and our audit were conducted to meet the reporting requirements
of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), our audit of the
Company’s internal control over financial reporting included controls over the preparation of financial statements
in accordance with accounting principles generally accepted in the United States of America, with the Federal
Financial Institutions Examination Council Instructions for Consolidated Reports of Condition and Income
(Call Report) of First National Bank, and with the instructions to the Parent Company Only Financial
Statements for Small Bank Holding Companies (Form FR Y-9SP) for Pinnacle Bankshares Corporation.
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 25, 2025
622 Broad Street
Post Office Box 29
Altavista, Virginia 24517
(434) 369-3000