Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning.

Pinnacle Bankshares disclosed 41 risk factors in its most recent earnings report. Pinnacle Bankshares reported the most risks in the “Finance & Corporate” category.

Risk Overview Q4, 2020

Risk Distribution

56% Finance & Corporate

12% Macro & Political

10% Legal & Regulatory

7% Tech & Innovation

7% Production

7% Ability to Sell

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.

Risk Change Over Time

S&P500 Average

Sector Average

Risks removed

Risks added

Risks changed

Pinnacle Bankshares Risk Factors

New Risk (0)

Risk Changed (0)

Risk Removed (0)

No changes from previous report

The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.

The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.

Risk Highlights Q4, 2020

Main Risk Category

Finance & Corporate

With 23 Risks

Finance & Corporate

With 23 Risks

Number of Disclosed Risks

S&P 500 Average: 31

Recent Changes

0Risks added

0Risks removed

0Risks changed

Since Dec 2020

0Risks added

0Risks removed

0Risks changed

Since Dec 2020

Number of Risk Changed

S&P 500 Average: 2

See the risk highlights of Pinnacle Bankshares in the last period.

Risk Word Cloud

The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.

Risk Factors Full Breakdown - Total Risks 41

Finance & Corporate

Total Risks: 23/41 (56%)Below Sector Average

Share Price & Shareholder Rights3 | 7.3%

Share Price & Shareholder Rights - Risk 1

Pinnacle common stock currently has a limited trading market and is thinly traded which may limit the ability of shareholders to sell their shares and may increase price volatility.

Pinnacle common stock is quoted on the OTC Markets Group's OTCQX marketplace under the symbol "PPBN." Pinnacle common stock is thinly traded and has substantially less liquidity than the common stocks of many other bank holding companies. There can be no assurance that an active trading market for shares of Pinnacle common stock will develop or, if one develops, that it can be sustained. The development of a liquid public market depends on the existence of willing buyers and sellers, the presence of which is not within Pinnacle's control. Therefore, Pinnacle's shareholders may not be able to sell their shares at the volume, prices, or times that they desire. Shareholders should be financially prepared and able to hold their shares of Pinnacle common stock for an indefinite period. In addition, thinly traded stocks can be more volatile than more widely traded stocks. The price of Pinnacle common stock has been volatile in the past and several factors could cause the price to fluctuate substantially in the future. These factors include, but are not limited to, developments related to Pinnacle's business and operations, stock performance of other companies deemed to be peers, news reports of trends, concerns, irrational exuberance on the part of investors, and other issues related to the financial services industry. The value of publicly traded stocks in the financial services sector can be volatile generally, including due to declining or sustained weak economic conditions and other external factors. The price of Pinnacle common stock may fluctuate significantly in the future, and these fluctuations may be unrelated to its performance. General market declines or market volatility in the future, especially in the financial institutions sector, could adversely affect the price of Pinnacle common stock and the current market price may not be indicative of future market prices.

Share Price & Shareholder Rights - Risk 2

Future issuances of Pinnacle common stock could adversely affect the market price of Pinnacle common stock and could be dilutive.

The Pinnacle board of directors, without the approval of shareholders, could from time to time decide to issue additional shares of Pinnacle common stock or shares of preferred stock, which may adversely affect the market price of the shares of Pinnacle common stock and could be dilutive to Pinnacle shareholders. In addition, new investors may have rights, preferences and privileges that are senior to, and that could adversely affect, Pinnacle's existing shareholders. For example, preferred stock would be senior to common stock in right of dividends and as to distributions in liquidation. Because Pinnacle's decision to issue common stock or preferred stock in the future will depend on market conditions and other factors, Pinnacle cannot predict or estimate the amount, timing, or nature of its future offerings of equity securities. Thus, Pinnacle shareholders bear the risk of future offerings diluting their stock holdings, adversely affecting their rights as shareholders, and/or reducing the market price of Pinnacle common stock.

Share Price & Shareholder Rights - Risk 3

Common stock is equity and Pinnacle common stock is subordinate to any indebtedness or preferred stock of Pinnacle and effectively subordinated to all the indebtedness and other non-common equity claims against First National Bank.

Shares of the Pinnacle common stock are equity interests and do not constitute indebtedness. As such, shares of Pinnacle common stock will rank junior to all of Pinnacle's indebtedness and to other non-equity claims against Pinnacle and its assets available to satisfy claims against it, including in the event of Pinnacle's liquidation. Additionally, holders of Pinnacle common stock are subject to prior dividend and liquidation rights of holders of outstanding preferred stock, if any. Pinnacle's board of directors is authorized to issue classes or series of preferred stock without any action on the part of the holders of Pinnacle common stock, and Pinnacle is permitted to incur additional debt. Upon liquidation, lenders and holders of Pinnacle's debt securities and preferred stock would receive distributions of Pinnacle's available assets prior to holders of Pinnacle common stock. Furthermore, Pinnacle's right to participate in a distribution of assets upon First National Bank's liquidation or reorganization is subject to the prior claims of First National Bank's creditors.

Accounting & Financial Operations4 | 9.8%

Accounting & Financial Operations - Risk 1

Failure to maintain effective systems of internal control and disclosure controls could have a material adverse effect on Pinnacle's results of operation and financial condition.

Effective internal and disclosure controls are necessary for Pinnacle to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. First National Bank is already required to establish and maintain an adequate internal control structure over financial reporting pursuant to FDIC regulations. If Pinnacle cannot provide reliable financial reports or prevent fraud, its reputation and operating results would be harmed. As part of Pinnacle's ongoing monitoring of its controls, it may discover material weaknesses or significant deficiencies that require remediation. Pinnacle's inability to maintain the operating effectiveness of the controls described above could result in a material misstatement of Pinnacle's financial statements or other disclosures, which could have an adverse effect on its business, financial condition or results of operations. In addition, any failure to maintain effective controls in accordance with Section 404 of the Sarbanes-Oxley Act and FDIC regulations or to timely effect any necessary improvement of Pinnacle's internal and disclosure controls could, among other things, result in losses from fraud or error, harm Pinnacle's reputation or cause investors to lose confidence in its reported financial information, all of which could have a material adverse effect on its results of operation and financial condition.

Accounting & Financial Operations - Risk 2

Changes in accounting standards and management's selection of accounting methods, including assumptions and estimates, could materially affect Pinnacle's financial statements.

From time to time, the SEC and the FASB change the financial accounting and reporting standards that govern the preparation of a public bank holding company's financial statements. These changes can be hard to predict and can materially affect how Pinnacle records and reports its financial condition and results of operations. In some cases, Pinnacle could be required to apply a new or revised standard retroactively, resulting in changes to previously reported financial results, or a cumulative charge to retained earnings. In addition, management is required to use certain assumptions and estimates in preparing Pinnacle's financial statements, including determining the fair value of assets and liabilities, among other items. If the assumptions or estimates are incorrect, Pinnacle may experience unexpected material consequences.

Accounting & Financial Operations - Risk 3

Pinnacle is not obligated to pay dividends and its ability to pay dividends is limited.

Pinnacle's ability to make dividend payments on its common stock depends primarily on certain regulatory considerations and the receipt of dividends and other distributions from First National Bank. There are various regulatory restrictions on the ability of banks, such as First National Bank, to pay dividends or make other payments to their holding companies. Pinnacle is currently paying a quarterly cash dividend to holders of its common stock at a rate of $0.14 per share. Although Pinnacle has historically paid a cash dividend to the holders of its common stock, holders of its common stock are not entitled to receive dividends, and Pinnacle is not obligated to pay dividends in any particular amounts or at any particular times. Regulatory, economic and other factors may cause the Pinnacle board of directors to consider, among other things, reducing dividends paid on its common stock.

Accounting & Financial Operations - Risk 4

Pinnacle relies on dividends from First National Bank for substantially all of its revenue.

Pinnacle is a bank holding company that conducts substantially all of its operations through First National Bank. As a result, Pinnacle relies on dividends from First National Bank for substantially all of its revenues. In the event First National Bank is unable to pay dividends to Pinnacle, including pursuant to regulatory restrictions on the ability of First National Bank to pay dividends or make other payments to Pinnacle, Pinnacle may not be able to service debt, pay obligations, or pay a cash dividend to the holders of Pinnacle common stock and Pinnacle's business, financial condition and results of operations may be materially adversely affected.

Debt & Financing12 | 29.3%

Debt & Financing - Risk 1

The soundness of other financial institutions could adversely affect Pinnacle.

Pinnacle's ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. Pinnacle has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial industry. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by Pinnacle or by other institutions. Many of these transactions expose Pinnacle to credit risk in the event of default of its counterparty or client. In addition, credit risk may be exacerbated when the collateral held cannot be realized upon or is liquidated at prices insufficient to recover the full amount of the financial instrument exposure due. There is no assurance that any such losses would not materially and adversely affect results of operations.

Debt & Financing - Risk 2

Pinnacle relies substantially on deposits obtained from customers in its target markets to provide liquidity and support growth, and Pinnacle's liquidity needs could adversely affect results of operations and financial condition.

Pinnacle's business strategies are based on access to funding from local customer deposits. Deposit levels may be affected by a number of factors, including interest rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available to customers on alternative investments and general economic conditions. If Pinnacle's deposit levels fall, Pinnacle could lose a relatively low-cost source of funding and its interest expense would likely increase as it obtains alternative funding to replace lost deposits. Another primary source of funds to Pinnacle is loan repayments. While scheduled loan repayments are a relatively stable source of funds, they are subject to the ability of borrowers to repay the loans. The ability of borrowers to repay loans can be adversely affected by a number of factors, including, but not limited to, changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, availability of, and/or access to, sources of refinancing, business closings or lay-offs, inclement weather, natural disasters and international instability. Pinnacle may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations. Such sources include Federal Home Loan Bank of Atlanta advances, sales of securities and loans, federal funds lines of credit from correspondent banks and borrowings from the Federal Reserve Discount Window, as well as additional out-of-market time deposits and brokered deposits. While Pinnacle believes that these sources are currently adequate, there can be no assurance they will be sufficient to meet future liquidity demands. Pinnacle may be required to slow or discontinue loan growth, capital expenditures or other investments or liquidate assets should such sources not be adequate.

Debt & Financing - Risk 3

Consumers may increasingly decide not to use banks to complete their financial transactions, which could have a material adverse impact on Pinnacle's financial condition and operations.

Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards. Consumers can also complete transactions such as paying bills or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as "disintermediation," could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on Pinnacle's financial condition and results of operations.

Debt & Financing - Risk 4

Pinnacle may experience increased delinquencies and credit losses, which could have a material adverse effect on Pinnacle's capital, financial condition and results of operations.

Like other lenders, Pinnacle faces the risk that our customers will not repay their loans. A customer's failure to repay us is usually preceded by missed monthly payments. In some instances, however, a customer may declare bankruptcy prior to missing payments, and, following a borrower filing bankruptcy, a lender's recovery of the credit extended is often limited. Since many of Pinnacle's loans are secured by collateral, Pinnacle may attempt to seize the collateral if and when a customer defaults on a loan. However, the value of the collateral may not equal the amount of the unpaid loan, and Pinnacle may be unsuccessful in recovering the remaining balance from the customer. The resolution of nonperforming assets, including the initiation of foreclosure proceedings, requires significant commitments of time from management, which can be detrimental to the performance of their other responsibilities, and exposes us to additional legal costs.

Debt & Financing - Risk 5

Pinnacle's allowance for loan losses may be insufficient to absorb incurred losses in Pinnacle's loan portfolio, and any increases in the ALL may have a material adverse effect on Pinnacle's financial condition and results of operations.

Pinnacle maintains an allowance for loan losses ("ALL"), which is a reserve established through a provision for loan losses charged to expense, that represents Pinnacle's best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. Elevated levels of loan delinquencies and bankruptcies in Pinnacle's market area generally and among its customers specifically, can be precursors of future charge-offs and may require increases to the ALL. Higher charge-off rates, delays in the foreclosure process or in obtaining judgments against defaulting borrowers or an increase in Pinnacle's ALL may hurt Pinnacle's overall financial performance if it is unable to increase revenue to compensate for these losses, may increase Pinnacle's cost of funds, and could materially adversely affect Pinnacle's business, results of operations and financial condition. The level of the ALL reflects management's evaluation of the level of loans outstanding, the level of non-performing loans, historical loan loss experience, delinquency trends, underlying collateral values, the amount of actual losses charged to the reserve in a given period and our assessment of present and anticipated economic conditions. The determination of the appropriate level of the ALL inherently involves a high degree of subjectivity and requires Pinnacle to make significant estimates of current credit risks and future trends, all of which may undergo material changes. The ALL may not be sufficient to cover actual loan losses and future provisions for loan losses could materially and adversely affect Pinnacle's operating results. Pinnacle's banking regulators, as an integral part of their examination process, periodically review the ALL and may require Pinnacle to increase its ALL by recognizing additional provisions for loan losses charged to expense, or to decrease the ALL by recognizing loan charge-offs, net of recoveries. Any such required additional provisions for loan losses or charge-offs could have a material adverse effect on Pinnacle's financial condition and results of operations. Additionally, the measure of Pinnacle's ALL is dependent on the adoption and interpretation of accounting standards. In June 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." Under this ASU, the current incurred loss credit impairment methodology will be replaced with the current expected credit loss, or CECL model, a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Accordingly, the implementation of the CECL model will change Pinnacle's current method of providing ALL and may result in material changes in Pinnacle's accounting for credit losses on financial instruments. The CECL model may create more volatility in Pinnacle's level of ALL. If Pinnacle is required to materially increase its level of ALL for any reason, such increase could adversely affect its business, financial condition, and results of operations. The amendment is effective for fiscal years beginning after 2022.

Debt & Financing - Risk 6

Pinnacle's credit standards and its on-going credit assessment processes might not protect it from significant credit losses.

Pinnacle assumes credit risk by virtue of making loans and extending loan commitments and letters of credit. Pinnacle manages credit risk through a program of underwriting standards, heightened review of certain credit decisions, and a continuous quality assessment process of credit already extended. Pinnacle's exposure to credit risk is managed through the use of consistent underwriting standards that emphasize local lending while avoiding highly leveraged transactions and excessive industry and other concentrations. Pinnacle's credit administration function employs risk management techniques to help ensure that problem loans are promptly identified. While these procedures are designed to provide Pinnacle with the information needed to implement policy adjustments where necessary and to take appropriate corrective actions, there can be no assurance that such measures will be effective in avoiding undue credit risk.

Debt & Financing - Risk 7

Pinnacle's concentration in loans secured by real estate may increase its future credit losses, which would negatively affect Pinnacle's financial results.

Pinnacle offers a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, home equity, consumer and other loans. Credit risk and credit losses can increase if its loans are concentrated to borrowers who, as a group, may be uniquely or disproportionately affected by economic or market conditions. As of December 31, 2020, approximately 60.16% of Pinnacle's loans are secured by real estate, both residential and commercial, substantially all of which are located in its market area. A major change in the region's real estate market, resulting in a deterioration in real estate values, or in the local or national economy, including changes caused by rising interest rates, could adversely affect Pinnacle's customers' ability to pay these loans, which in turn could adversely impact Pinnacle. Risk of loan defaults and foreclosures are inherent in the banking industry, and Pinnacle tries to limit its exposure to this risk by carefully underwriting and monitoring its extensions of credit. Pinnacle cannot fully eliminate credit risk, and as a result credit losses may occur in the future.

Debt & Financing - Risk 8

A portion of Pinnacle's loan portfolio consists of commercial real estate loans, which are viewed as having a higher risk of default.

As of December 30, 2020, approximately 28.35% of Pinnacle's loans are secured by commercial real estate. The real estate consists primarily of non-owner-operated properties and other commercial properties. These types of loans are generally viewed as having a higher risk of default than residential real estate loans. They are also typically larger than residential real estate loans and consumer loans and depend on cash flows from the owner's business or the property to service the debt. It may be more difficult for commercial real estate borrowers to repay their loans in a timely manner, as commercial real estate borrowers' abilities to repay their loans frequently depends on the successful rental of their properties. Cash flows may be affected significantly by general economic conditions, and a downturn in the local economy or in occupancy rates in the local economy where the property is located could increase the likelihood of default. Pinnacle's banking regulators generally give commercial real estate lending greater scrutiny, and may require banks with higher levels of commercial real estate loans to implement improved underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for losses and capital as a result of commercial real estate lending growth and exposures, which could have a material adverse effect on Pinnacle's results of operations.

Debt & Financing - Risk 9

A portion of Pinnacle's loan portfolio consists of construction and land development loans, and a decline in real estate values and economic conditions would adversely affect the value of these loans and the collateral securing these loans.

As of December 30, 2020, approximately 3.82% of Pinnacle's loans were construction and land development loans. Construction financing typically involves a higher degree of credit risk than financing on improved, owner-occupied real estate and improved, income producing real estate. Risk of loss on a construction or land development loan is largely dependent upon the accuracy of the initial estimate of the property's value at completion of construction or development, the marketability of the property, and the bid price and estimated cost (including interest) of construction or development. If the estimate of construction or development costs proves to be inaccurate, Pinnacle may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of the value proves to be inaccurate, we may be confronted, at or prior to the maturity of the loan, with a project whose value is insufficient to assure full repayment. When lending to builders and developers, the cost breakdown of construction or development is provided by the builder or developer. Although Pinnacle's underwriting criteria are designed to evaluate and minimize the risks of each construction or land development loan, there can be no guarantee that these practices will have safeguarded against material delinquencies and losses to Pinnacle. In addition, construction and land development loans are dependent on the successful completion of the projects they finance. Loans secured by vacant or unimproved land are generally riskier than loans secured by improved property. These loans are more susceptible to adverse conditions in the real estate market and local economy.

Debt & Financing - Risk 10

Pinnacle is subject to interest rate risk and fluctuations in interest rates which may negatively affect Pinnacle's financial performance.

Pinnacle's profitability depends in substantial part on its net interest margin, which is the difference between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits and borrowings divided by total interest-earning assets. Changes in interest rates affect Pinnacle's net interest margin in diverse ways, including the pricing of loans and deposits, the levels of prepayments and asset quality. Interest rates are highly sensitive to many factors beyond Pinnacle's control, including general economic conditions and the policies of the Federal Reserve and other governmental and regulatory agencies. Pinnacle cannot predict actual fluctuations of market interest rates. Recent actions by the Federal Open Market Committee have maintained an accommodative monetary policy, thereby supporting strong labor market conditions and reducing short-term interest rates. Longer-term market interest rates, including yields on U.S. treasury bonds, remain low. Therefore, Pinnacle expects continued pressure on its net interest margin due to intense competition for loans and deposits from both local and national financial institutions. An upward movement in interest rates may result in an unfavorable pricing disparity between Pinnacle's fixed rate loan portfolio and adjustable-rate funding sources. Continued pressure on our net interest margin could adversely affect our results of operations. Changes in monetary policy and changes in interest rates will influence the origination of loans, the prepayment of loans, the fair value of existing assets and liabilities, the purchase of investments, the retention and generation of deposits, the rates received on loans and investment securities, and the rates paid on deposits or other sources of funding. The impact of these changes may be magnified if Pinnacle does not effectively manage the relative sensitivity of its assets and liabilities to changes in market interest rates. In addition, Pinnacle's ability to reflect such interest rate changes in pricing its products is influenced by competitive pressures. Pinnacle generally seeks to maintain a neutral position in terms of the volume of assets and liabilities that mature or re-price during any period so that it may reasonably maintain its net interest margin; however, interest rate fluctuations, loan prepayments, loan production, deposit flows, and competitive pressures are constantly changing and influence the ability to maintain a neutral position. Generally, Pinnacle's earnings will be more sensitive to fluctuations in interest rates depending upon the variance in volume of assets and liabilities that mature and re-price in any period. The extent and duration of the sensitivity will depend on the cumulative variance over time, the velocity and direction of changes in interest rates, shape and slope of the yield curve, and whether Pinnacle is more asset sensitive or liability sensitive. Accordingly, Pinnacle may not be successful in maintaining a neutral position and, as a result, Pinnacle's net interest margin may be affected. At December 31, 2020, approximately 11.84% of Pinnacle's loans held for investment were variable rate loans. While the variable rate structure on these loans reduces interest rate risk for First National Bank, increases in market interest rates may cause the borrower's required payment to increase which, in turn, may increase the risk of payment default or the risk of early pay-off by refinancing with another financial institution.

Debt & Financing - Risk 11

Pinnacle may not be able to effectively integrate the operations of Virginia Bank and Trust into First National Bank.

Integration in connection with a merger is sometimes difficult, and there is a risk that integrating Virginia Bank into Pinnacle may take more time and resources than Pinnacle expects. The future operating performance of Pinnacle and First National Bank will depend, in part, on the success of the merger of Virginia Bank and Trust into First National Bank. Virginia Bank and Trust has been merged with and into First National Bank with First National Bank surviving. The success of the merger of the banks will, in turn, depend on a number of factors, including Pinnacle's ability to: (i) integrate the operations and branches of Virginia Bank and Trust into First National Bank; (ii) retain the deposits and customers of Virginia Bank and Trust; (iii) control the incremental increase in noninterest expense arising from the merger in a manner that enables the combined company to improve its overall operating efficiencies; and (iv) retain and integrate the appropriate personnel of Virginia Bank and Trust into the operations of First National Bank, as well as reducing overlapping bank personnel. The integration of Virginia Bank and Trust and First National Bank following the bank merger will require the dedication of the time and resources of Pinnacle's management and may temporarily distract managements' attention from Pinnacle's day-to-day business. If Pinnacle is unable to successfully integrate Virginia Bank and Trust into First National Bank, Pinnacle may not be able to realize expected operating efficiencies and eliminate redundant costs.

Debt & Financing - Risk 12

Pinnacle may need to raise additional capital in the future and may not be able to do so on acceptable terms, or at all.

Access to sufficient capital is critical in order to enable Pinnacle to implement its business plan, support its business, expand its operations and meet applicable capital requirements. The inability to have sufficient capital, whether internally generated through earnings or raised in the capital markets, could adversely impact Pinnacle's ability to support and to grow its operations. If Pinnacle grows its operations faster than it generates capital internally, or if Pinnacle's existing capital is impaired for any reason, it will need to access the capital markets. Pinnacle may not be able to raise additional capital in the form of additional debt or equity on acceptable terms, or at all. Pinnacle's ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, Pinnacle's financial condition and its results of operations. Economic conditions and a loss of confidence in financial institutions may increase Pinnacle's cost of capital and limit access to some sources of capital. Further, if Pinnacle needs to raise capital in the future, it may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. An inability to raise additional capital on acceptable terms when needed could have a material adverse impact on Pinnacle's business, financial condition and results of operations.

Corporate Activity and Growth4 | 9.8%

Corporate Activity and Growth - Risk 1

The operational functions of business counterparties over which Pinnacle may have limited or no control may experience disruptions that could adversely impact Pinnacle.

Multiple major U.S. retailers and a major consumer credit reporting agency have experienced data systems incursions in recent years reportedly resulting in the thefts of credit and debit card information, online account information, and other personal and financial data of hundreds of millions of individuals. Retailer incursions affect cards issued and deposit accounts maintained by many banks, including First National Bank. Although neither Pinnacle's or First National Bank's systems are breached in retailer incursions, such incursions can still cause customers to be dissatisfied with First National Bank and otherwise adversely affect Pinnacle's and First National Bank's reputation. These events can also cause First National Bank to take other costly steps to avoid significant theft loss to First National Bank and its customers. In some cases, First National Bank may be required to reimburse customers for the losses they incur. Credit reporting agency intrusions affect First National Bank's customers and can require these customers and First National Bank to increase account monitoring and take remedial action to prevent unauthorized account activity or access. Other possible points of intrusion or disruption not within Pinnacle's or First National Bank's control include internet service providers, electronic mail portal providers, social media portals, distant-server ("cloud") service providers, electronic data security providers, telecommunications companies, and smart phone manufacturers.

Corporate Activity and Growth - Risk 2

Pinnacle's risk-management framework may not be effective in mitigating risk and loss.

Pinnacle maintains an enterprise risk management program that is designed to identify, assess, mitigate, monitor, and report the risks that it faces. These risks include: interest-rate, credit, liquidity, operational, reputation, compliance, and legal. While Pinnacle assesses and improves this program on an ongoing basis, there can be no assurance that its approach and framework for risk management and related controls will effectively mitigate all risk and limit losses in its business. If conditions or circumstances arise that expose flaws or gaps in Pinnacle's risk-management program, or if Pinnacle's controls break down, Pinnacle's results of operations and financial condition may be adversely affected.

Corporate Activity and Growth - Risk 3

Pinnacle is subject to a variety of operational, technological and organizational risks.

Similar to other financial institutions, Pinnacle is exposed to many types of operational and technological risk, including reputation, legal, and compliance risk. Pinnacle's ability to grow and compete is dependent on its ability to build or acquire the necessary operational and technological infrastructure and to manage the cost of that infrastructure while it expands and integrates acquired businesses. Operational risk can manifest itself in many ways, such as errors related to failed or inadequate processes, faulty or disabled computer systems, fraud by employees or persons outside of Pinnacle, and exposure to external events. Pinnacle is dependent on its operational infrastructure to help manage these risks. From time to time, Pinnacle may need to change or upgrade its technology infrastructure and it may experience disruption, and it may face additional exposure to these risks during the course of making such changes. As Pinnacle acquires other financial institutions, it faces additional challenges when integrating different operational platforms. Such integration efforts may be more disruptive to Pinnacle's business and/or more costly or time-intensive than anticipated.

Corporate Activity and Growth - Risk 4

Pinnacle may not be able to successfully manage its long-term growth, which may adversely affect its results of operations and financial condition.

A key aspect of Pinnacle's long-term business strategy is its continued growth and expansion. Pinnacle's ability to continue to grow depends, in part, upon its ability to (i) open new branch offices or acquire existing branches or other financial institutions, (ii) attract deposits to its current and future branch locations, and (iii) identify attractive loan and investment opportunities. Pinnacle may not be able to successfully implement its growth strategy if it is unable to identify attractive markets, locations or opportunities to expand in the future, or if Pinnacle is subject to regulatory restrictions on growth or expansion of its operations. Pinnacle's ability to manage its growth successfully also will depend on whether it can maintain capital levels adequate to support its growth, maintain cost controls and asset quality and successfully integrate any businesses Pinnacle acquires into its organization. As Pinnacle identifies opportunities to implement its growth strategy, it may incur increased personnel, occupancy and other operating expenses. In the case of new branches, Pinnacle must absorb those higher expenses while it begins to generate new deposits, and there is a further time lag involved in redeploying new deposits into attractively priced loans and other higher yielding assets.

Macro & Political

Total Risks: 5/41 (12%)Above Sector Average

Economy & Political Environment2 | 4.9%

Economy & Political Environment - Risk 1

Pinnacle's business is subject to economic risks that could adversely affect Pinnacle's operations and financial condition, and adverse changes in economic conditions in Pinnacle's market areas or adverse conditions in an industry on which a local market is dependent could adversely affect Pinnacle's operations and financial conditions.

Deterioration in economic conditions could adversely affect Pinnacle's business. Pinnacle's business is directly affected by general economic and market conditions; broad trends in industry and finance; legislative and regulatory changes; changes in governmental monetary and fiscal policies; and inflation, all of which are beyond Pinnacle's control. A deterioration in economic conditions, in particular a prolonged economic slowdown within Pinnacle's geographic region, could result in the following consequences, any of which could materially adversely impact Pinnacle's financial condition or results of operations: an increase in loan delinquencies; an increase in problem assets and foreclosures; a decline in demand for banking products and services; and a deterioration in the value of collateral for loans. We provide full-service banking and other financial services in the Lynchburg and Danville, Virginia banking markets. Our loan and deposit activities are directly affected by, and our financial success depends on, economic conditions within these markets, as well as conditions in the industries on which those markets are economically dependent. A deterioration in local economic conditions or in the condition of an industry on which a local market depends, such the healthcare and higher education industries, could adversely affect such factors as unemployment rates, business formations and expansions and housing market conditions. Adverse developments in any of these factors could result in among other things, a decline in loan demand, a reduction in the number of creditworthy borrowers seeking loans, an increase in delinquencies, defaults and foreclosures, an increase in classified and nonaccrual loans, a decrease in the value of loan collateral, and a decline in the financial condition of borrowers and guarantors, any of which could adversely affect Pinnacle's financial condition or results of operations.

Economy & Political Environment - Risk 2

Pinnacle's earnings are significantly affected by the fiscal and monetary policies of the U.S. federal government and its agencies.

The policies of the Federal Reserve affect Pinnacle significantly. The Federal Reserve regulates the supply of money and credit in the United States and its policies determine in large part Pinnacle's cost of funds for lending, investing and capital raising activities and the return it earns on those loans and investments, both of which affect Pinnacle's net interest margin. The actions of the Federal Reserve also can materially affect the value of financial instruments that Pinnacle holds, such as loans and debt securities, and also can affect Pinnacle's borrowers, potentially increasing the risk that they may fail to repay their loans. Pinnacle's business and earnings also are affected by the fiscal or other policies that are adopted by various regulatory authorities of the United States. Changes in fiscal or monetary policy are beyond Pinnacle's control and hard to predict.

Natural and Human Disruptions2 | 4.9%

Natural and Human Disruptions - Risk 1

The ongoing COVID-19 pandemic and measures intended to prevent or slow its spread may have material adverse effects on each of Pinnacle's business, results of operation, financial condition, liquidity and prospects, and such effects are highly uncertain and difficult to predict.

Global health concerns regarding the COVID-19 pandemic and related governmental actions taken to reduce the spread of the coronavirus have negatively impacted the macroeconomic environment, and the COVID-19 pandemic has significantly increased economic uncertainty and abruptly reduced economic activity. The COVID-19 pandemic has resulted in governmental authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders and business limitations and shutdowns. Such measures have significantly contributed to rising unemployment and negatively impacted consumer and business spending. The COVID-19 pandemic has adversely impacted and could potentially further adversely impact Pinnacle's workforce and operations, and the operations of their customers and business partners. Pinnacle may experience adverse financial consequences due to a number of factors that are related to or exacerbated by the COVID-19 pandemic, including, but not limited to: - increased credit losses due to financial strain on its customers as a result of the COVID-19 pandemic and governmental actions to address the pandemic, specifically with respect to loans to borrowers in the hospitality or retail real estate industries;- declines in collateral values;- disruptions if a significant portion of Pinnacle's workforces are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions related to the COVID-19 pandemic. Pinnacle has modified its business practices, including restricting employee travel and implementing work-from-home arrangements, and it may be necessary for Pinnacle to take further actions as may be required by governmental authorities or if determined to be in the best interests of its employees, customers and business partners;- the negative effect on earnings resulting from Pinnacle agreeing to loan payment deferrals due to the COVID-19 pandemic or otherwise modifying loans;- increased demands on Pinnacle's liquidity and regulatory capital, as it meets borrowers' needs and pays expenses related to the COVID-19 pandemic;- third-party disruptions, including negative effects on network and technology providers and other counterparties, which have been, and may continue to be, affected by stay-at-home orders, market volatility and other factors that increase their risks of business disruption or that may otherwise affect their ability to perform under the terms of any agreements with Pinnacle or provide essential services;- increased cybersecurity and fraud risks due to increased online and remote activity; and - operational failures due to changes in Pinnacle's normal business practices. These factors may remain prevalent for a significant period of time and may continue to adversely affect Pinnacle's business, results of operations, financial condition, liquidity and prospects, including even after the COVID-19 pandemic has subsided. The extent to which the COVID-19 pandemic impacts Pinnacle's business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of COVID-19, its severity, the actions taken to contain the coronavirus virus or treat its impact and their respective effectiveness, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, Pinnacle may continue to experience materially adverse impacts to their business as a result of the COVID-19's global economic impact, including the availability of credit, adverse impacts on liquidity and any recession or depression that has occurred or may occur in the future. There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of COVID-19 is highly uncertain and subject to change. Pinnacle does not know the full extent of the impacts of the COVID-19 pandemic on its business, operations or the economy as a whole. However, the effects could have a material adverse impact on Pinnacle's financial condition, results of operations, and business. Further, the COVID-19 pandemic may also exacerbate many of the risk factors identified in the "Risk Factors" section of this Annual Report, including risks related to credit quality, collateral, capital, liquidity, operations, interest rate risk, strategic risk and technology.

Natural and Human Disruptions - Risk 2

In response to the COVID-19 pandemic, governmental authorities have taken unprecedented measures to stabilize economic markets and support economic growth, and Pinnacle's participation in and execution of these measures could result in reputational harm or litigation that results in judgments, settlements, penalties or fines levied against Pinnacle.

Federal, state and local governments in the United States have taken unprecedented measures to stabilize economic markets and support economic growth in response to the COVID-19 pandemic. The success of these measures is uncertain, and these measures even if successful may not be sufficient to address the negative economic impacts of the COVID-19 pandemic or avert severe and prolonged reductions in economic activity, including in the markets in which Pinnacle operates. First National Bank is a participating lender in the PPP, a loan program administered through the U.S. Small Business Administration (the "SBA"), that was created to help eligible businesses, organizations and self-employed persons fund their operational costs (and particularly payroll costs) during the COVID-19 pandemic. Under this program, the SBA guarantees 100% of the amounts loaned under the PPP. The laws, rules and guidance that govern the operation of the PPP contain significant ambiguities, which has exposed lenders under the PPP program, including Pinnacle, to risks relating to noncompliance with the PPP. For example, other financial institutions are defendants in purported class action litigation regarding the procedures used by the lender in processing applications for the PPP. Under the PPP, lending banks are generally entitled to rely on borrower representations and certifications of eligibility to participate in the PPP, and lending banks may also be held harmless by the SBA in certain circumstances for actions taken in reliance on borrower representations and certifications. Notwithstanding the foregoing, First National Bank has been and continues to be exposed to credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded or serviced. If a deficiency is identified, the SBA may deny its liability under its guaranty of amounts owed on the PPP loan, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from First National Bank. Pinnacle's participation in and execution of these and other measures taken by governments and regulatory authorities in response to the COVID-19 pandemic could result in reputational harm and may also lead to litigation, including class action claims, or regulator or administrative actions or proceedings. Such litigation, actions or proceedings may result in judgments, settlements, penalties and fines levied against Pinnacle.

Capital Markets1 | 2.4%

Capital Markets - Risk 1

Pinnacle may be adversely impacted by changes in market conditions.

Pinnacle is directly and indirectly affected by changes in market conditions. Market risk generally represents the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions. As a financial institution, market risk is inherent in the financial instruments associated with Pinnacle's operations and activities, including loans, deposits, securities, short-term borrowings, long-term debt and trading account assets and liabilities. A few of the market conditions that may shift from time to time, thereby exposing Pinnacle to market risk, include fluctuations in interest rates, equity and futures prices, and price deterioration or changes in value due to changes in market perception or actual credit quality of issuers. Pinnacle's investment securities portfolio, in particular, may be impacted by market conditions beyond its control, including rating agency downgrades of the securities, defaults of the issuers of the securities, lack of market pricing of the securities, and inactivity or instability in the credit markets. Any changes in these conditions, in current accounting principles or interpretations of these principles could impact Pinnacle's assessment of fair value and thus the determination of other-than-temporary impairment of the securities in the investment securities portfolio, which could adversely affect Pinnacle's earnings and capital ratios.

Legal & Regulatory

Total Risks: 4/41 (10%)Below Sector Average

Regulation3 | 7.3%

Regulation - Risk 1

Pinnacle operates in a highly regulated industry and the laws and regulations that govern Pinnacle's operations, corporate governance, executive compensation and financial accounting, and reporting, including changes in them or Pinnacle's failure to comply with them, may adversely affect Pinnacle.

Pinnacle is subject to extensive regulation and supervision that govern almost all aspects of its operations. These laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on Pinnacle's business activities, limit the dividends or distributions that it can pay, restrict the ability of institutions to guarantee its debt and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in its capital than GAAP. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs. Pinnacle is facing increased regulation and supervision of its industry as a result of the financial crisis in the banking and financial markets. The Dodd-Frank Act instituted major changes to the banking and financial institutions regulatory regimes. Other changes to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation or implementation of statutes, regulations, policies or supervisory guidance, could affect Pinnacle in substantial and unpredictable ways. Such additional regulation and supervision has increased, and may continue to increase, Pinnacle's costs and limit its ability to pursue business opportunities. Further, Pinnacle's failure to comply with these laws and regulations, even if the failure was inadvertent or reflects a difference in interpretation, could subject it to restrictions on its business activities, fines and other penalties, any of which could adversely affect Pinnacle's results of operations, capital base and the price of its securities. Further, any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect Pinnacle's business and financial condition.

Regulation - Risk 2

Applicable regulatory capital standards, including the rules implementing the Basel III capital framework and certain provisions of the Dodd-Frank Act (the "Basel III Capital Rules"), may require Pinnacle and First National Bank to maintain higher levels of capital and liquid assets, which could adversely affect Pinnacle's profitability and return on equity.

Pinnacle is subject to capital adequacy guidelines and other regulatory requirements specifying minimum amounts and types of capital that Pinnacle and First National Bank must maintain. If Pinnacle or First National Bank fails to meet these minimum capital guidelines and/or other regulatory requirements, its financial condition would be materially and adversely affected. The Basel III Capital Rules require bank holding companies and their subsidiaries to maintain significantly more capital as a result of higher required capital levels and more demanding regulatory capital risk weightings and calculations. While Pinnacle is exempt from these capital requirements under the Federal Reserve's Small Bank Holding Company Policy Statement (the "SBHC Policy Statement"), First National Bank is not exempt and must comply. First National Bank must also comply with the capital requirements set forth in the "prompt corrective action" regulations pursuant to Section 38 of the FDIA. Satisfying capital requirements may require Pinnacle or First National Bank to limit its banking operations, retain net income or reduce dividends to improve regulatory capital levels, which could negatively affect its business, financial condition and results of operations. The EGRRCPA, which became effective May 24, 2018, provides relief from certain of these requirements, but Pinnacle does not expect the EGRRCPA and the related regulations to materially reduce the impact of regulatory capital requirements on its business.

Regulation - Risk 3

Regulations issued by the CFPB could adversely impact earnings due to, among other things, increased compliance costs or costs due to noncompliance.

The CFPB has broad rulemaking authority to administer and carry out the provisions of the Dodd-Frank Act with respect to financial institutions that offer covered financial products and services to consumers. The CFPB has also been directed to write rules identifying practices or acts that are unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. For example, the CFPB issued a final rule, effective January 10, 2014, requiring 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, or to originate "qualified mortgages" that meet specific requirements with respect to terms, pricing and fees. The rule also contains additional disclosure requirements at mortgage loan origination and in monthly statements. The requirements under the CFPB's regulations and policies could limit Pinnacle's ability to make certain types of loans or loans to certain borrowers, or could make it more expensive and/or time consuming to make these loans, which could adversely impact Pinnacle's profitability.

Environmental / Social1 | 2.4%

Environmental / Social - Risk 1

Pinnacle is subject to laws regarding the privacy, information security and protection of personal information and any violation of these laws or another incident involving personal, confidential or proprietary information of individuals could damage Pinnacle's reputation and otherwise adversely affect its business.

Pinnacle's business requires the collection and retention of large volumes of customer data, including personally identifiable information ("PII") in various information systems that Pinnacle maintains and in those maintained by third party service providers. Pinnacle also maintains important internal company data such as PII about its employees and information relating to its operations. Pinnacle is subject to complex and evolving laws and regulations governing the privacy and protection of PII of individuals (including customers, employees and other third-parties). For example, Pinnacle's business is subject to the Gramm-Leach-Bliley Act of 1999 (the "GLB Act") and related regulations and regulatory guidance, which, among other things: (i) impose certain limitations on Pinnacle's ability to share nonpublic PII about its customers with nonaffiliated third parties; (ii) require that Pinnacle provides certain disclosures to customers about its information collection, sharing and security practices and afford customers the right to "opt out" of any information sharing by it with nonaffiliated third parties (with certain exceptions); and (iii) require that Pinnacle develops, implements and maintains a written comprehensive information security program containing appropriate safeguards based on Pinnacle's size and complexity, the nature and scope of its activities, and the sensitivity of customer information it processes, as well as plans for responding to data security breaches. Various federal and state banking regulators and states have also enacted data breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in the event of a security breach. Ensuring that Pinnacle's collection, use, transfer and storage of PII complies with all applicable laws and regulations can increase Pinnacle's costs. Furthermore, Pinnacle may not be able to ensure that customers and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means. If personal, confidential or proprietary information of customers or others were to be mishandled or misused, Pinnacle could be exposed to litigation or regulatory sanctions under privacy and data protection laws and regulations. Concerns regarding the effectiveness of Pinnacle's measures to safeguard PII, or even the perception that such measures are inadequate, could cause Pinnacle to lose customers or potential customers and thereby reduce its revenues. Any failure, or perceived failure, to comply with applicable privacy or data protection laws and regulations may subject Pinnacle to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties, and could damage Pinnacle's reputation and otherwise adversely affect its operations, financial condition and results of operations. The federal banking agencies have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards. The federal banking 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.

Tech & Innovation

Total Risks: 3/41 (7%)Above Sector Average

Cyber Security1 | 2.4%

Cyber Security - Risk 1

Pinnacle's operations may be adversely affected by cyber security risks and cyber-attacks.

In the ordinary course of business, Pinnacle collects and stores sensitive data, including proprietary business information and personally identifiable information of its customers and employees in systems and on networks. The secure processing, maintenance, and use of this information is critical to Pinnacle's operations and business strategy. In addition, Pinnacle relies heavily on communications and information systems to conduct its business. Any failure, interruption, or breach in security or operational integrity of these systems, such as "hacking," "identity theft" or "cyber fraud," could result in failures or disruptions in Pinnacle's customer relationship management, the general ledger, deposits, loans, and other systems. Moreover, with some of Pinnacle's employees working from home during the COVID-19 pandemic, there may be increased opportunities for unauthorized access and cyber-attacks. Pinnacle has invested in accepted technologies, and continually reviews its controls, processes and practices that are designed to protect its networks, computers, and data, including customer information, from damage or unauthorized access. Despite these security measures, Pinnacle's computer systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. Because the techniques used to obtain unauthorized access, or to disable or degrade systems change frequently and often are not recognized until launched against a target, Pinnacle may be unable to anticipate these techniques or to implement adequate protective measures. There can be no assurance that Pinnacle will not suffer cyber-attacks or other information security breaches or be impacted by losses from such events in the future. Pinnacle's risk and exposure to these matters remain heightened because of, among other things, the evolving nature of these threats, current use of internet banking and mobile banking channels, expanded operations and third-party information systems. Recent instances of attacks specifically targeting financial services businesses indicate that the risk to Pinnacle's systems remains significant. A breach of any kind could compromise systems and the information stored there could be accessed, damaged, or disclosed. A breach in security or other failure could result in legal claims, regulatory penalties, disruption in operations, remediation expenses, costs associated with customer notification and credit monitoring services, increased insurance premiums, fines and costs associated with civil litigation, loss of customers and business partners, and damage to Pinnacle's reputation, which could adversely affect its business and financial condition. Furthermore, as cyber threats continue to evolve and increase, Pinnacle may be required to expend significant additional financial and operational resources to modify or enhance its protective measures, or to investigate and remediate any identified information security vulnerabilities.

Technology2 | 4.9%

Technology - Risk 1

Pinnacle continually encounters technological change which could affect its ability to remain competitive.

The financial services industry is continually undergoing technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Pinnacle continues to invest in technology and connectivity to automate functions previously performed manually, to facilitate the ability of customers to engage in financial transactions, and otherwise to enhance the customer experience with respect to its products and services. Pinnacle's continued success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that satisfy customer demands and create efficiencies in its operations. A failure to maintain or enhance a competitive position with respect to technology, whether because of a failure to anticipate customer expectations, substantially fewer resources to invest in technological improvements than larger competitors, or because Pinnacle's technological developments fail to perform as desired or are not rolled out in a timely manner, may cause Pinnacle to lose market share or incur additional expense.

Technology - Risk 2

Pinnacle depends on the accuracy and completeness of information about clients and counterparties and Pinnacle's financial condition could be adversely affected if it relies on misleading or incorrect information.

In deciding whether to extend credit or to enter into other transactions with clients and counterparties, Pinnacle may rely on information furnished to it by or on behalf of clients and counterparties, including financial statements and other financial information, which it does not independently verify. Pinnacle also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to clients, Pinnacle may assume that a client's audited financial statements conform with GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of that client. Pinnacle's financial condition and results of operations could be negatively impacted to the extent it relies on financial statements that do not comply with GAAP or are materially misleading.

Production

Total Risks: 3/41 (7%)Below Sector Average

Employment / Personnel2 | 4.9%

Employment / Personnel - Risk 1

Pinnacle's success depends on its management team, and the unexpected loss of any of these personnel could adversely affect operations.

Pinnacle's success is, and is expected to remain, highly dependent on its management team. This is particularly true because, as a community bank, Pinnacle depends on the management team's ties to the community and customer relationships to generate business. Pinnacle's growth will continue to place significant demands on management, and the loss of any such person's services may have an adverse effect upon growth and profitability. If Pinnacle fails to retain or continue to recruit qualified employees, growth and profitability could be adversely affected.

Employment / Personnel - Risk 2

The success of Pinnacle's strategy depends on its ability to identify and retain individuals with experience and relationships in its markets.

In order to be successful, Pinnacle must identify and retain experienced key management members and sales staff with local expertise and relationships. Competition for qualified personnel is intense and there is a limited number of qualified persons with knowledge of and experience in the community banking industry in Pinnacle's geographic markets. Even if Pinnacle identifies individuals that it believes could assist it in building its franchise, it may be unable to recruit these individuals away from their current employers. In addition, the process of identifying and recruiting individuals with the combination of skills and attributes required to carry out Pinnacle's strategy is often lengthy. Pinnacle's inability to identify, recruit and retain talented personnel could limit its growth and could materially adversely affect its business, financial condition and results of operations.

Supply Chain1 | 2.4%

Supply Chain - Risk 1

Pinnacle relies on other companies to provide key components of its business infrastructure.

Third parties provide key components of Pinnacle's business operations such as data processing, recording and monitoring transactions, online banking interfaces and services, internet connections and network access. While Pinnacle has selected these third-party vendors carefully, it does not control their actions. Any problem caused by these third parties, including poor performance of services, failure to provide services, disruptions in communication services provided by a vendor and failure to handle current or higher volumes, could adversely affect Pinnacle's ability to deliver products and services to its customers and otherwise conduct its business, and may harm its reputation. Financial or operational difficulties of a third-party vendor could also hurt Pinnacle's operations if those difficulties interface with the vendor's ability to serve Pinnacle. Replacing these third-party vendors could also create significant delay and expense. Accordingly, use of such third-parties creates an unavoidable inherent risk to Pinnacle's business operations.

Ability to Sell

Total Risks: 3/41 (7%)Above Sector Average

Competition1 | 2.4%

Competition - Risk 1

Pinnacle's future success will depend on its ability to compete effectively in the highly competitive financial services industry.

Pinnacle faces substantial competition in all phases of its operation from a variety of competitors. Pinnacle competes with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, and insurance companies, as well as other community, super-regional, and national financial institutions that operate offices within Pinnacle's primary market areas. Pinnacle's future growth and success depends on its ability to compete effectively in this highly competitive financial services environment. Many of Pinnacle's competitors are well established, larger financial institutions and many offer products and services that Pinnacle does not, and many such competitors have substantially greater resources and name recognition. Some of Pinnacle's competitors are not subject to the same regulation as imposed on bank holding companies and national banking associations, and therefore have regulatory advantages over Pinnacle in accessing funding and providing various services. Pinnacle may face a competitive disadvantage as a result of its smaller size, smaller asset base, and lack of geographic diversification. If Pinnacle raises interest rates paid on deposits or lowers interest rates charged on loans to compete effectively, Pinnacle's net interest margin and net income could be negatively affected. Failure to compete effectively to attract new or to retain existing customers may reduce or limit Pinnacle's market share and growth and may adversely affect Pinnacle's financial condition and results of operations.

Sales & Marketing1 | 2.4%

Sales & Marketing - Risk 1

Pinnacle's focus on lending to small and mid-sized community-based businesses may increase its credit risk.

Most of Pinnacle's commercial business and commercial real estate loans are made to small business or middle market customers. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions. If general economic conditions in the market areas in which Pinnacle operates negatively impact this important customer sector, Pinnacle's results of operations and financial condition may be adversely affected. Moreover, a portion of these loans have been made by Pinnacle in recent years and the borrowers may not have experienced a complete business or economic cycle. Any deterioration of the borrowers' businesses may hinder their ability to repay their loans with Pinnacle, which could have a material adverse effect on its financial condition and results of operations.

Brand / Reputation1 | 2.4%

Brand / Reputation - Risk 1

Negative perception of Pinnacle or First National Bank through social media may adversely affect their reputation and business.

Pinnacle's and First National Bank's reputations are critical to the success of their businesses. Pinnacle believes that its brand image and the brand image of First National Bank have been well received by customers, reflecting the fact that the brand images, like Pinnacle's and First National Bank's businesses, are based in part on trust and confidence. Pinnacle's and First National Bank's reputation and brand image could be negatively affected by rapid and widespread distribution of publicity through social media channels. Pinnacle's and First National Bank's reputation could also be affected by Pinnacle's association with clients affected negatively through social media distribution, or other third parties, or by circumstances outside of Pinnacle's control. Negative publicity, whether true or untrue, could affect Pinnacle's and First National Bank's ability to attract or retain customers, or cause Pinnacle and First National Bank to incur additional liabilities or costs, or result in additional regulatory scrutiny.

See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.

FAQ

What are “Risk Factors”?

Risk factors are any situations or occurrences that could make investing in a company risky.

The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.

They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.

It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.

How do companies disclose their risk factors?

Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.

Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.

Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.

According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.

How can I use TipRanks risk factors in my stock research?

Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.

You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.

Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.

A simplified analysis of risk factors is unique to TipRanks.

What are all the risk factor categories?

TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.

1. Financial & Corporate

Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.

2. Legal & Regulatory

Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
Regulation – risks related to compliance, GDPR, and new legislation.
Environmental / Social – risks related to environmental regulation and to data privacy.
Taxation & Government Incentives – risks related to taxation and changes in government incentives.

3. Production

Costs – risks related to costs of production including commodity prices, future contracts, inventory.
Supply Chain – risks related to the company’s suppliers.
Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.

4. Technology & Innovation

Innovation / R&D – risks related to innovation and new product development.
Technology – risks related to the company’s reliance on technology.
Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.

5. Ability to Sell

Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
Competition – risks related to the company’s competition including substitutes.
Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
Brand & Reputation – risks related to the company’s brand and reputation.

6. Macro & Political

Economy & Political Environment – risks related to changes in economic and political conditions.
Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
International Operations – risks related to the global nature of the company.
Capital Markets – risks related to exchange rates and trade, cryptocurrency.

Become an Expert with TipRanks Premium

What am I Missing?

Make informed decisions based on Top Analysts' activity

Know what industry insiders are buying

Get actionable alerts from top Wall Street Analysts

Find out before anyone else which stock is going to shoot up

Get powerful stock screeners & detailed portfolio analysis

Subscribe Now See Plans & Pricing