~~Table~~UNITED ~~of Contents~~STATES

~~UNITED~~SECURITIES ~~STATES~~AND EXCHANGE COMMISSION

~~SECURITIES~~Washington, ~~AND~~D.C. ~~EXCHANGE COMMISSION~~ 20549

~~Washington,~~FORM ~~D.C. 20549~~ 10-K

~~FORM~~Annual ~~10-K~~ Report Pursuant to Section 13 or 15(d)

~~(Mark~~of ~~One)~~the Securities Exchange Act of 1934

xFor ~~ANNUAL~~the ~~REPORT~~Fiscal ~~PURSUANT~~Year TOEnded ~~SECTION~~December 1331, ~~OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~2020

~~For~~PINNACLE ~~the~~BANKSHARES ~~fiscal year ended December 31, 2012~~ CORPORATION

or(Exact Name of Registrant as Specified in Its Charter)

¨Commission ~~TRANSITION~~file ~~REPORT~~number ~~PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~000-23909

For the transition period from to

Virginia		54-1832714
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

622 Broad Street, Altavista, VA		24517-1830
(Address of Principal Executive Offices)		(Zip Code)

~~Commission~~(434) ~~file number: 000~~369-~~23909~~ 3000

~~PINNACLE BANKSHARES~~(Issuer’s ~~CORPORATION~~telephone number, including area code)

~~(Exact~~Securities ~~name~~registered ofunder ~~registrant~~Section as12(b) ~~specified~~of inthe ~~its~~Exchange ~~charter)~~Act: None

Virginia		54-1832714
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
622 Broad Street, Altavista, Virginia		24517-1830
(Address of principal executive offices)		(Zip Code)

Securities registered under Section 12(g) of the Exchange Act: None

~~Registrant’s~~Indicate ~~telephone~~by ~~number,~~check ~~including~~mark ~~area~~if ~~code~~the ~~(434) 369~~registrant is a well-~~3000~~known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

~~Securities~~Indicate ~~registered~~by check mark if the registrant is not required to file reports pursuant to Section 12 13 or Section 15(bd) of the Act:. ☐ Yes ☒ No

~~Title~~Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of ~~each~~the ~~class~~Securities ~~Name~~Exchange Act of ~~each~~1934 ~~exchange~~during onthe ~~which~~preceding ~~registered~~12 ~~n/a~~months ~~n/a~~(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

~~Securities~~Indicate ~~registered~~by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to ~~Section 12~~Rule 405 of Regulation S-T (g)§ 232.405 of this chapter) during the ~~Act:~~preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

n/Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

~~Indicate~~Large byaccelerated ~~check~~filer ~~mark~~☐ ifAccelerated ~~the registrant~~filer is☐ ~~a well~~Non-~~known~~accelerated ~~seasoned~~filer ~~issuer,~~☒ asSmaller ~~defined~~reporting incompany ~~Rule~~☒ ~~405~~Emerging ofgrowth ~~the~~company ~~Securities Act. Yes ¨ No x~~ ☒

~~Indicate~~If an emerging growth company, indicate by check mark if the registrant ishas elected not ~~required~~ to ~~file~~use ~~reports~~the ~~pursuant~~extended totransition ~~Section 13~~period for complying with any new or revised financial accounting standards provided pursuant to Section 15 13(da) of the Exchange Act. ~~Yes ¨ No x~~ ☐

*Indicate ~~See~~by ~~explanatory~~check ~~note~~mark ~~below~~whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under section 404(b) of the Sarbanes-Oxley Act (U.S.C. 7262 (b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant ~~(1) has~~is ~~filed~~a ~~all~~shell ~~reports~~company ~~required~~(as todefined ~~be filed~~ by ~~Section 13~~Rule or12b-2 ~~15(d)~~ of the ~~Securities~~ Exchange Act ~~of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports~~),. ~~and~~☐ ~~(2) has~~Yes ~~been~~☒ ~~subject to such filing requirements for the past 90 days. Yes x~~ No ¨

~~Indicate~~The aggregate value of the voting common equity held by ~~check~~non-affiliates ~~mark~~as ~~whether~~of June 30, 2020, the ~~registrant~~last ~~has~~business ~~submitted~~day ~~electronically~~of ~~and~~the ~~posted~~registrant’s onmost ~~its corporate~~recently ~~Web~~completed ~~site~~second fiscal quarter, ifwas ~~any~~approximately $32,731,902 ~~every~~based ~~Interactive~~on ~~Data~~the ~~File~~price ~~required~~at towhich bethe ~~submitted~~common ~~and~~stock ~~posted~~last ~~pursuant~~traded toon ~~Rule~~such ~~405~~day. ofThis ~~Regulation~~price Sreflects inter-Tdealer prices without retail mark up, mark down, or commissions, and may not represent actual transactions.

~~Table~~The number of ~~Contents~~shares outstanding of Common Stock, $3.00 par value, as of March 18, 2021 was approximately 2,158,379.

(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

PART I		1
Item 1.	Business	1
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	23
Item 2.	Properties	24
Item 3.	Legal Proceedings	25
Item 4.	Mine Safety Disclosures	25
PART II		26
Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	26
Item 6.	Selected Financial Data	26
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk – Not Applicable	45
Item 8.	Financial Statements and Supplementary Data	46
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	89
Item 9A.	Controls and Procedures	89
Item 9B.	Other Information	90
PART III		91
Item 10.	Directors, Executive Officers and Corporate Governance	91
Item 11.	Executive Compensation	97
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	103
Item 13.	Certain Relationships and Related Transactions, and Director Independence	104
Item 14.	Principal Accounting Fees and Services	107
PART IV		108
Item 15.	Exhibits, Financial Statement Schedules	108
Item 16.	Form 10–K Summary	109
SIGNATURES		110
SUPPLEMENTAL INFORMATION		110

~~Indicate~~Explanatory byNote ~~check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K~~ (§amounts ~~229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge,~~ in ~~definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x~~ thousands)

~~Indicate~~On byFebruary ~~check~~12, ~~mark~~2021, ~~whether~~Pinnacle Bankshares Corporation (“Pinnacle”) issued a press release announcing its unaudited financial results for the ~~registrant~~quarter isand year ended December 31, 2020. A copy of the press release was attached to a ~~large~~Form ~~accelerated~~8-K ~~filer~~furnished by Pinnacle to the Securities and Exchange Commission on February 12, an2021. Following ~~accelerated~~the ~~filer~~issuance of that press release, aPinnacle ~~non~~continued to complete its year-~~accelerated~~end ~~filer~~audit processes, orincluding with respect to the acquisition of Virginia Bank Bankshares, Inc. and with respect to income taxes. As a ~~smaller~~result ~~reporting company~~of completing these audit processes, Pinnacle identified adjustments to other assets and total assets each decreasing by $318, other liabilities and total liabilities each increasing by $2,208, surplus and stockholders’ equity each decreasing by $2,346, and income tax expense increasing by $318. These ~~See~~adjustments are appropriately reflected in the ~~definitions~~audited offinancial ~~“large~~statements ~~accelerated~~included ~~filer~~in Item 8,” ~~“accelerated~~and ~~filer”~~in management’s discussion and ~~“smaller~~analysis ~~reporting~~included ~~company”~~in Item 7, included in ~~Rule~~this ~~12b~~Annual Report on Form 10-2K, ofand ~~the~~Pinnacle’s ~~Exchange~~reported ~~Act.~~net income and basic and diluted earnings per share have been updated to incorporate these adjustments.

~~Large~~PART ~~accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x~~I

~~Indicate~~Item ~~by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)~~1. ~~Yes ¨ No x~~Business General

~~The aggregate market value of the issuer~~Pinnacle’s ~~common stock held by non-affiliates as of June 30, 2012 was $13,915,046.47.~~ Business

~~There~~Pinnacle ~~were~~Bankshares 1Corporation (“Pinnacle” or the “Company”),~~507~~ a Virginia corporation,~~589~~ ~~shares~~was organized in 1997 and is registered as a bank holding company under the Bank Holding Company Act of ~~common~~1956, ~~stock~~as amended (the “BHCA”). Pinnacle is headquartered in Altavista, Virginia. Pinnacle conducts all of its business activities through the ~~issuer~~branch ~~outstanding~~offices asof its wholly-owned subsidiary bank, First National Bank (Altavista, Virginia) (“First National Bank”). Pinnacle was primarily established for the purpose of ~~March 26~~holding the stock of its subsidiary, ~~2013~~First National Bank, and of such other subsidiaries as Pinnacle may acquire or establish. Pinnacle’s administrative offices are located at 622 Broad Street, Altavista, Virginia. Pinnacle’s website is www.1stnatbk.com. The information on our website is not part of, and is not incorporated into, this Annual Report on Form 10-K.

~~DOCUMENTS~~First ~~INCORPORATED~~National BYBank ~~REFERENCE~~was organized as a national bank in 1908 and commenced general banking operations in December of that year, providing services to commercial and agricultural businesses as well as individuals in the Altavista area. With an emphasis on personal service, 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 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, Inc. and Banker’s Insurance, LLC.

~~Portions~~First ofNational ~~the~~Bank ~~2012~~serves ~~Annual~~a ~~Report~~trade toarea ~~Shareholders, which~~consisting isprimarily ~~attached~~of ~~hereto~~all asor ~~Exhibit~~portions 13of the Counties of Amherst, ~~are~~Bedford, ~~incorporated~~Campbell byand ~~reference~~Pittsylvania, inand ~~Part~~the IICities of ~~this~~Charlottesville, ~~report~~Danville and Lynchburg. ~~[Portions~~The Company has a total of ~~the~~eighteen ~~Proxy~~branches ~~Statement~~with ~~for~~one in the ~~Company’s~~Town ~~Annual~~of ~~Meeting~~Amherst in Amherst County, two in Bedford County, two located in the Town of ~~Shareholders~~Altavista toin beCampbell ~~held~~County, onthree ~~April 9~~additional branches in Campbell County, ~~2013~~three ~~are~~in ~~incorporated~~Pittsylvania byCounty, ~~reference~~four in ~~Part~~ ~~III~~the City of ~~this~~Danville ~~report~~and three in the City of Lynchburg. The Company also operates a loan production office located in Charlottesville.

~~Explanatory~~First ~~Note~~National Bank has two wholly-owned subsidiaries. FNB Property Corp., which is a Virginia corporation, formed to hold title to hold real estate for future bank premises. First Properties, Inc., also a Virginia corporation, was formed to hold title to other real estate owned.

~~The~~Pinnacle’s ~~Company~~revenues ~~has~~are ~~filed~~primarily ~~Forms~~derived 15from ~~with~~interest ~~respect~~on toand ~~the~~fees ~~termination~~received ofin ~~registration~~connection ~~under Section 12(g) of the Securities Exchange Act of 1934~~with, asreal ~~amended~~estate ~~(the~~and ~~“Exchange~~other ~~Act”)~~loans, and ~~the suspension~~from ofinterest ~~the~~and ~~duty~~dividends tofrom ~~file~~investment ~~reports under Section 15(d) of the Exchange Act~~securities. As aThe ~~result,~~principal ~~the~~sources ~~Company~~of ~~expects~~funds ~~that~~for ~~this~~Pinnacle’s ~~annual~~lending ~~report~~activities onare ~~Form~~its ~~10-K and amendments~~deposits, ifrepayment ~~any,~~of ~~thereto~~ loans, ~~will~~maturity beof ~~the~~investment ~~last~~securities, ~~report~~and ~~filed~~borrowings byfrom the ~~Company~~Federal ~~with~~Home ~~the SEC~~Loan ~~pursuant~~Bank ~~to Section 13~~ of ~~the~~Atlanta ~~Exchange Act for the foreseeable future~~(“FHLB”).

~~Table~~Pinnacle’s operations are influenced by general economic conditions and by related monetary and fiscal policies of ~~Contents~~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 the interest rate environment and its impact on local demand and the availability of funds. The Bank faces strong competition in the attraction of deposits, its primary source of lendable funds, and in the origination of loans.

~~PINNACLE BANKSHARES CORPORATION~~ Competition

~~2011~~The ~~FORM~~banking ~~10-K~~business ~~ANNUAL~~in ~~REPORT~~central and southern Virginia is highly competitive with respect to both loans and deposits and has a number of major banks that have offices operating throughout the state and in Pinnacle’s market area. Pinnacle actively competes for all types of deposits and loans with other banks and with nonbank financial institutions, including savings and loan associations, finance companies, credit unions, mortgage companies, insurance companies and other lending institutions.

~~TABLE OF CONTENTS~~ 1

	PART I
Item 1.	Business	4
	General Development of Business	4
	Competition	4
	Regulation and Supervision	5
	Employees	14
	Executive Officers of the Registrant	14
Item 1A.	Risk Factors	15
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	15
Item 3.	Legal Proceedings	15
Item 4.	Mine Safety Disclosures	16
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Selected Financial Data	16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	16
Item 8.	Financial Statements and Supplementary Data	16
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	16
Item 9A.	Controls and Procedures	16
Item 9B.	Other Information	17
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	17
Item 11.	Executive Compensation	17
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	18
Item 13.	Certain Relationships and Related Transactions, and Director Independence	18
Item 14.	Principal Accountant Fees and Services	18
	PART IV
Item 15.	Exhibits, Financial Statement Schedules	18
SIGNATURES		21

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 major banks have over Pinnacle is their ability to finance extensive advertising campaigns and to allocate their investment assets to regions of highest yield and demand over a more diverse geographic area. Although major banks have these competitive advantages over small community banks, Pinnacle actively emphasizes its competitive advantage by soliciting customers who prefer the personal service offered by a community bank.

~~Table~~Pinnacle is not dependent upon a single customer or industry, the loss of ~~Contents~~which would have a material adverse effect on Pinnacle’s financial condition. Pinnacle is located in a market rich in industrial and retail diversification.

~~PART~~Pinnacle Ibelieves that its prompt response to lending requests is a key factor to Pinnacle’s competitive position in its primary service area. In addition, local decision-making and the accessibility of senior management to customers also distinguish Pinnacle from other area financial institutions.

~~Item~~In 1order to compete with the other financial institutions in its primary service area, Pinnacle relies principally upon local promotional activities, personal contact by its officers, directors, employees and stockholders and its ability to offer specialized services to customers. Pinnacle’s ~~Business~~promotional activities emphasize the advantages of dealing with a local bank attuned to the particular needs of the community.

~~General~~Information ~~Development~~about the Effects of ~~Business~~and Responses to COVID-19

~~Pinnacle~~The ~~Bankshares~~ongoing ~~Corporation,~~COVID-19 apandemic ~~Virginia~~has ~~corporation~~and ~~(the~~continues ~~“Company”),~~to ~~was organized~~impact inPinnacle ~~1997~~ and isits ~~registered~~customers, asemployees, acommunities ~~bank~~and ~~holding~~service ~~company~~providers; ~~under~~however the ~~Bank~~ultimate ~~Holding~~severity ~~Company Act~~ of ~~1956,~~the asCOVID-19 ~~amended. The Company is headquartered in Altavista~~pandemic, ~~Virginia. The Company conducts all of~~ its ~~business~~duration ~~activities~~and ~~through~~ the ~~branch~~extent ~~offices~~ of its ~~wholly-owned~~impact ~~subsidiary~~on ~~bank,~~ First National Bank’s ~~(the~~business, ~~“Bank”).~~results ~~The Company exists primarily for the purpose~~ of ~~holding the stock of its subsidiary~~operations, ~~the~~financial ~~Bank~~condition, liquidity and ofprospects ~~such~~remains ~~other subsidiaries as it may acquire or establish~~uncertain. ~~The Company’s administrative offices are located at 622 Broad Street, Altavista, Virginia.~~

~~The~~Pandemic ~~Bank~~Guidelines ~~was organized as a national bank in 1908~~ and ~~commenced~~Business ~~general~~Continuity. In ~~banking~~response ~~operations~~to inthe ~~December~~COVID-19 ~~of that year~~pandemic, ~~providing~~Pinnacle ~~services to commercial~~ and ~~agricultural~~First ~~businesses~~National ~~and~~Bank ~~individuals~~have inplaced ~~the Altavista area. With~~ an emphasis on ~~personal~~delivering ~~service, the Bank today offers a broad range of commercial and retail banking~~ products and services ~~including~~through ~~checking,~~online ~~savings~~ and ~~time~~mobile ~~deposits~~banking, ~~individual~~remote ~~retirement~~deposit ~~accounts~~capture, ~~merchant bankcard processing, residential~~ and ~~commercial~~digital ~~mortgages,~~communications home equity loans, consumer installment loans, agricultural loans, investment loans, small business loans, commercial lines of credit and letters of credit. The Bank also offers a full range of investment, insurance and annuity products through its association with ~~Infinex Investments, Inc~~customers. ~~and Banker’s Insurance, LLC.~~

~~The~~Pinnacle ~~Bank~~and ~~serves~~First aNational ~~trade~~Bank ~~area~~have ~~consisting~~implemented ~~primarily~~a set of ~~Campbell~~pandemic ~~County, northern~~guidelines ~~Pittsylvania~~to ~~County,~~protect ~~eastern~~employees ~~Bedford County, Amherst County~~ and ~~the~~promote ~~city~~business ofcontinuity ~~Lynchburg~~while ~~from~~providing ~~facilities~~support ~~located~~to inits ~~Campbell~~customers ~~County,~~and ~~Bedford~~communities ~~County,~~facing ~~the~~challenges ~~town~~due ofto ~~Altavista,~~ the ~~town~~impacts of ~~Amherst,~~COVID-19. ~~the~~These ~~town~~guidelines ofinclude ~~Rustburg~~policies and ~~the~~procedures ~~city~~with ofrespect ~~Lynchburg, Virginia.~~to InPhase ~~June 1999 the Company opened the Airport facility~~1, ~~located~~Phase ~~just~~2 ~~outside the Lynchburg city limits,~~ and inPhase ~~August~~3 ~~2000,~~responses ~~opened~~to the ~~Old~~COVID-19 ~~Forest Road facility~~pandemic, ~~located~~additional oncleaning ~~Old~~and ~~Forest~~sanitation ~~Road in Lynchburg~~requirements, and ~~the~~branch-specific ~~Brookville~~response ~~Plaza~~plans ~~facility, located~~for onemployees ~~Timberlake~~and ~~Road~~customer inservice ~~Lynchburg.~~at InFirst ~~August~~National ~~2004~~Bank’s ~~the~~branch ~~Company opened the Forest facility~~locations, ~~located~~including inremote ~~Forest,~~work ~~Bedford~~and ~~County,~~social ~~Virginia~~distancing requirements. InPinnacle ~~July~~has ~~2005~~purchased ~~the~~additional ~~Company opened the Smith Mountain Lake loan production facility~~laptops, ~~located~~invested in ~~Moneta, Franklin~~additional ~~County,~~technology ~~Virginia~~ and ~~closed~~software, ~~the~~and ~~facility~~purchased inpersonal ~~May~~protective ~~2011.~~equipment Infor ~~May~~employee ~~2006~~use. ~~the~~Pinnacle’s ~~Company~~management ~~relocated~~meets ~~the~~regularly ~~Brookville Plaza facility~~ to ~~Timberlake~~review ~~Road~~the inpandemic ~~Campbell County. In November 2006~~guidelines, ~~the~~response ~~Company opened a temporary Amherst facility located in the town of Amherst. The Company opened a permanent Amherst facility on South Main Street in Amherst in March 2008. In February 2009~~priorities, ~~the~~guidance ~~Company~~issued ~~opened~~by ~~the~~health ~~Rustburg~~regulatory ~~facility~~agencies, ~~located~~and onprotective ~~Village~~measures ~~Highway~~and inother ~~the~~actions ~~Rustburg~~being ~~Marketplace~~taken ~~Shopping~~by ~~Center,~~Pinnacle ~~which further~~and ~~increases~~First ~~our~~National ~~presence in Campbell County~~Bank.

~~The~~Paycheck ~~Bank~~Protection ~~has~~Program ~~two~~(“PPP”). As ~~wholly-owned~~a ~~subsidiaries.~~further ~~FNB~~part ~~Property~~of ~~Corp.,~~Pinnacle’s ~~which~~response isto ~~a Virginia~~the ~~corporation~~COVID-19 pandemic, ~~was~~First ~~formed~~National toBank ~~hold~~has ~~title~~participated in the PPP established pursuant to ~~Bank~~the ~~premises~~Coronavirus ~~real~~Aid, ~~estate.~~Relief, ~~FNB~~and ~~Property~~Economic ~~Corp.~~Security ~~sold~~Act ~~land~~(also ~~held~~known ~~for~~as ~~sale~~the in“CARES ~~2003~~Act”) and ~~purchased~~implemented ~~land~~by inthe ~~Forest,~~U.S. ~~Virginia~~Small ~~that~~Business ~~was~~Administration ~~used~~with tosupport ~~build~~from the ~~Forest~~U.S. ~~facility~~Department of the Treasury. First ~~Properties,~~National ~~Inc.,~~Bank ~~also~~has ~~a Virginia~~provided ~~corporation,~~over ~~was~~$40 ~~formed~~million toin ~~hold~~PPP ~~title~~loans to ~~other~~small ~~real~~businesses ~~estate~~in ~~owned.~~its ~~Sixteen~~markets ~~properties~~and ~~valued~~acquired atover $~~2,393,000~~13 ~~are~~million ~~being~~in ~~held~~PPP Loans in ~~other~~its ~~real~~merger ~~estate~~with ~~owned~~Virginia asBank ~~of December 31~~Bankshares, ~~2012~~Inc. (“Virginia Bank”) through March 30, 2021.

~~Competition~~Acquisition of Virginia Bank Bankshares, Inc.

~~The~~On ~~banking~~October ~~business~~30, in2020, ~~central Virginia~~Pinnacle iscompleted ~~highly~~its ~~competitive~~merger (the “Merger”) with ~~respect~~Virginia Bank Bankshares, Inc. (“Virginia Bank”). The Merger was effected pursuant to ~~both~~the ~~loans~~terms and ~~deposits~~conditions of the Agreement and isPlan ~~dominated~~of byReorganization abetween ~~number~~Pinnacle ofand ~~major~~Virginia ~~banks~~Bank, ~~that~~signed ~~have~~January ~~offices~~21, ~~operating~~2020 ~~throughout~~and ~~the~~as ~~state~~amended on June 9, 2020, and inthe related plan of merger (collectively, the ~~Company’s~~“Merger ~~market~~Agreement”). Under ~~area~~the Merger Agreement, Virginia Bank shareholders had the opportunity to elect to receive either $16.00 ~~The~~of ~~Company~~cash ~~actively~~(the ~~competes~~“Cash ~~for~~Consideration”) ~~all~~or ~~types~~0.5400 shares of ~~deposits~~ ~~and~~Pinnacle ~~loans~~common ~~with~~stock ~~other~~(the ~~banks~~“Stock ~~and~~Consideration”) ~~with~~for ~~nonbank~~each ~~financial~~share ~~institutions,~~of ~~including~~Virginia ~~savings~~Bank ~~and~~common ~~loan~~stock ~~associations~~held, ~~finance~~subject ~~companies,~~to ~~credit~~the ~~unions,~~limitation ~~mortgage~~that ~~companies,~~60% ~~insurance~~of ~~companies~~the shares would be exchanged for the Stock Consideration and ~~other~~40% ~~lending~~of ~~institutions.~~the shares would be exchanged for the Cash Consideration.

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 the Company with respect to the acquisition of deposits. Among the advantages that the major banks have over the Company is their ability to finance extensive advertising campaigns and to allocate their investment assets to regions of highest yield and demand over a more diverse geographic area. Although major banks have these competitive advantages over small independent banks, the Company actively tries to 2

4For additional information about the Merger, see Note 2 to Pinnacle’s condensed consolidated financial statements included in Part II, Item 8 of this report. The above description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement which, is included as Exhibit 2.1 to this report and is incorporated by reference herein.

~~Table of Contents~~Employees

~~turn~~As ~~the loss~~ of ~~local~~December ~~independent~~31, ~~banks~~2020, toPinnacle ~~its~~had ~~competitive~~187 ~~advantage~~full-time byand ~~soliciting~~10 ~~customers~~part-time ~~who~~employees. Pinnacle’s ~~prefer~~management ~~the~~believes ~~personal~~that ~~service~~its ~~offered~~employee byrelations aare ~~small independent bank~~good.

~~The~~Regulation Company does not depend upon a single customer or industry, the loss of which would have a material adverse effect on the Company’s financial condition. The Company is located in a market rich in industrial and ~~retail diversification.~~ Supervision

General. Bank holding companies, banks and their affiliates are extensively regulated under both federal and state law. The ~~Company~~ ~~believes~~following ~~that~~summary ~~its~~briefly ~~prompt~~describes ~~response~~significant toprovisions ~~lending~~of ~~requests~~currently isapplicable afederal ~~key~~and ~~factor~~state tolaws and certain regulations and the ~~Company’s~~potential ~~competitive~~impact ~~position~~of such provisions. This summary is not complete and is qualified in its ~~primary~~entirety ~~service~~by ~~area~~reference to the particular statutory or regulatory provisions or proposals. InBecause ~~addition,~~regulation ~~local~~of ~~decision-making~~financial institutions changes regularly and is the ~~accessibility~~subject of ~~senior~~constant ~~management~~legislative toand ~~customers~~regulatory ~~also distinguish~~debate, ~~the~~we ~~Company~~cannot ~~from~~forecast ~~other~~how ~~area~~federal and state regulation and supervision of financial institutions. may change in the future and affect Pinnacle’s and First National Bank’s operations.

InDuring ~~order~~2020, toPinnacle ~~compete~~became ~~with~~subject ~~the~~to ~~other~~periodic ~~financial~~reporting ~~institutions~~requirements ~~in its~~under ~~primary~~Section ~~service~~15(d) ~~area,~~of the ~~Company~~Securities ~~relies~~Exchange ~~principally~~Act ~~upon~~of ~~local~~1934 ~~promotional~~(the ~~activities~~“Exchange Act”), ~~personal~~which ~~contact~~include bythe ~~its~~filing ~~officers,~~of ~~directors~~annual, ~~employees~~quarterly and ~~stockholders~~current ~~and~~reports ~~its~~with ~~ability~~the toSecurities ~~offer~~and ~~specialized~~Exchange ~~services~~Commission to(the ~~customers~~“SEC”). ~~The~~Pinnacle ~~Company’s promotional~~is ~~activities~~also ~~emphasize~~required ~~the~~to ~~advantages~~comply ~~of dealing~~ with aother ~~local~~laws ~~bank~~and ~~attuned~~regulations toof the ~~particular~~SEC ~~needs~~applicable ofto ~~the~~public ~~community~~companies.

~~Suspension~~ As a national bank, First National Bank is subject to regulation, supervision and regular examination by the OCC. The prior approval of ~~Duty~~the OCC or other appropriate bank regulatory authority is required for a national bank to ~~File~~merge ~~SEC~~with ~~Reports~~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”) and fair housing initiatives, the data security and cybersecurity infrastructure of the constituent organizations and the combined organization, and the effectiveness of the subject organizations in combating money laundering activities.

~~The~~Each ~~Company~~depositor’s ~~has~~account ~~filed Forms 15~~ with ~~respect~~First toNational ~~the~~Bank ~~termination~~is ofinsured ~~registration~~by ~~under Section 12(g) of~~ the ~~Securities~~Federal ~~Exchange~~Deposit ~~Act~~Insurance ofCorporation ~~1934, as amended~~ (the “~~Exchange Act~~FDIC”), ~~and the suspension of the duty~~ to ~~file reports under Section 15(d) of~~ the ~~Exchange~~maximum ~~Act. As~~amount apermitted ~~result, the Company expects that this annual report on Form 10-K and amendments, if any, thereto , will be the last report filed~~ by ~~the Company with the SEC pursuant to Section 13 of the Exchange Act for the foreseeable future~~law. Despite the suspension of the Company’s reporting obligations, management remains committed to providing quarterly and annual updates on the Company’s performance to its shareholders by mailing such information to shareholders and posting such information on the Bank’s website at www.1stnatbk.com under the Investor Relations tab. Additionally, quarterly call reports will continue to be filed with the Bank’s primary regulator, the Office of the Comptroller of the Currency. Call reports are available for review on the Federal Deposit Insurance Corporation’s website at www.fdic.gov.

~~Regulation~~First National Bank is also subject to certain regulations promulgated by the Federal Reserve and ~~Supervision~~ applicable provisions of Virginia law, insofar as they do not conflict with or are not preempted by federal banking law.

~~Set~~The ~~forth~~regulations ~~below~~of isthe aFederal ~~brief~~Reserve, ~~description~~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 ~~material~~federal ~~laws~~bank regulatory agencies have adopted guidelines and ~~regulations~~released interpretive materials that ~~affect~~establish operational and managerial standards to promote the ~~Company.~~safe ~~The~~and ~~description~~sound operation of ~~these~~ ~~statutes~~banks and ~~regulations~~bank isholding ~~only~~companies. These astandards ~~summary~~relate ~~and~~to ~~does~~the institution’s key operating functions, including but not ~~purport~~limited to beinternal ~~complete~~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 ~~This~~a ~~discussion~~consequence isof ~~qualified~~the extensive regulation of commercial banking activities in ~~its~~the ~~entirety~~United byStates, ~~reference~~Pinnacle’s business is particularly susceptible to ~~the~~changes ~~statutes~~in state and federal legislation and regulations, ~~summarized~~which ~~below.~~may Nohave ~~assurance~~the ~~can~~effect beof ~~given~~increasing ~~that~~the ~~these~~cost ~~statutes~~of ~~or regulations~~doing ~~will~~business, ~~not~~limiting ~~change~~permissible inactivities ~~the~~or ~~future.~~increasing competition.

~~General.~~As ~~The~~a ~~financial~~bank ~~crisis~~holding ~~of 2008~~company, ~~including~~Pinnacle ~~the~~is ~~downturn~~subject ~~of global~~to ~~economic, financial and money markets and~~ the ~~threat of collapse of numerous financial institutions~~BHCA, and ~~other~~regulation ~~recent~~and ~~events~~supervision ~~have~~by ~~led to~~ the ~~adoption~~Federal ofReserve. ~~numerous~~A ~~new~~bank ~~laws~~holding ~~and~~company ~~regulations~~is ~~that~~required ~~apply~~ to, ~~and~~obtain ~~focus~~the ~~on,~~approval ~~financial institutions. The most significant~~ of ~~these new laws is~~ the ~~Dodd-Frank~~Federal ~~Wall~~Reserve ~~Street~~before ~~Reform~~making ~~and~~certain ~~Consumer~~acquisitions ~~Protection~~or ~~Act~~engaging ~~(the~~in ~~Dodd-Frank~~certain ~~Act),~~activities. ~~which~~Bank ~~was~~holding ~~adopted~~companies ~~on July 21, 2010~~ and, intheir ~~part,~~subsidiaries isare ~~intended~~also tosubject ~~implement significant structural reforms~~ to ~~the financial~~restrictions ~~services~~on ~~industry.~~transactions ~~The~~with ~~Dodd-Frank~~insiders ~~Act~~and ~~is discussed in more detail below~~affiliates.

As a result of the Dodd-Frank Act and other regulatory reforms, the Company is experiencing a period of rapidly changing regulations. These regulatory changes could have a significant impact on how the Company conducts its business. The specific implications of the Dodd-Frank Act and other proposed regulatory reforms cannot yet be predicted and will depend to a large extent on the specific regulations that are adopted in the coming months and years to implement regulatory reform initiatives. 3

~~The~~A ~~Company~~bank isholding ~~currently~~company ~~subject~~is required to obtain the ~~periodic~~approval ~~reporting requirements~~ of the ~~Exchange~~Federal ~~Act,~~Reserve ~~which~~before ~~include,~~it ~~but~~may ~~are~~acquire ~~not~~all ~~limited~~or ~~to,~~substantially ~~the filing~~all of ~~annual, quarterly and other reports with~~ the ~~SEC.~~assets ~~However, following the filing~~ of ~~this~~any ~~annual report on Form 10-K~~bank, ~~the~~and ~~Company~~before ~~will~~it nomay ~~longer~~acquire beownership ~~subject~~or tocontrol ~~the periodic reporting requirements~~ of the ~~SEC.~~voting Asshares anof ~~Exchange~~any ~~Act~~bank ~~reporting company~~if, ~~the~~after ~~Company~~giving iseffect ~~directly~~to ~~affected by~~ the ~~Sarbanes-Oxley~~acquisition, ~~Act of 2002 (~~the ~~“SOX”),~~bank ~~which~~holding iscompany ~~aimed~~would atown ~~improving~~or ~~corporate~~control ~~governance~~more ~~and~~than ~~reporting~~5.0% ~~procedures~~of ~~and~~the ~~requires~~voting ~~additional~~shares ~~corporate~~of ~~governance~~such ~~measures~~bank. ~~and~~The ~~expanded disclosure~~approval ~~with~~of ~~respect to~~ the ~~Company’s~~Federal ~~corporate~~Reserve ~~operations and internal controls. The Company~~ is ~~currently~~also ~~complying~~required ~~with~~for the ~~SEC~~merger ~~and~~or ~~other~~consolidation ~~rules~~of ~~and~~bank ~~regulations~~holding companies.

5Pursuant 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.

~~Table~~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 ~~Contents~~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.

~~implemented~~Regulatory ~~pursuant~~Reform. The tofinancial ~~the~~crisis ~~SOX.~~of ~~Although~~2008, including the ~~Company~~downturn ~~has~~of ~~incurred~~global ~~additional~~economic, ~~expense~~financial inand ~~complying~~money ~~with~~markets and the ~~provisions~~threat of ~~the~~collapse ~~SOX~~of numerous financial institutions, and other events led to the ~~resulting~~adoption of numerous laws and regulations that apply to, ~~this~~and ~~compliance~~focus ~~has~~on, ~~not~~financial ~~had~~institutions. ~~a material~~The ~~impact~~most significant of these laws is the Dodd-Frank Act, which was enacted on July 21, 2010 and, in part, was intended to implement significant structural reforms to the ~~Company’s~~financial services industry. The Dodd-Frank Act implemented far-reaching changes across the financial ~~condition~~regulatory orlandscape, ~~results~~including changes that have significantly affected the business of ~~operations~~all bank holding companies and banks, including Pinnacle and First National Bank. Some of the rules that have been proposed and, in some cases, adopted to comply with the Dodd-Frank Act’s mandates are discussed further below.

~~The~~In ~~Company~~May is2018, ~~a bank holding company within~~ the ~~meaning~~Economic ~~of the Bank Holding Company Act of 1956 (the “BHCA”)~~Growth, ~~and~~Regulatory isRelief ~~registered as such with,~~ and ~~subject~~Consumer toProtection ~~the~~Act ~~supervision of, the Board of Governors of the Federal Reserve System~~ (the “~~FRB~~EGRRCPA”). ~~Generally,~~was aenacted ~~bank holding company is required~~ to ~~obtain~~reduce the ~~approval~~regulatory ofburden ~~the~~on ~~FRB~~certain ~~before~~banking itorganizations, ~~may~~including ~~acquire~~community ~~all or substantially all of the assets of any bank~~banks, ~~and~~by ~~before~~modifying ~~it may acquire ownership~~ or ~~control~~eliminating ofcertain ~~the~~federal ~~voting~~regulatory ~~shares~~requirements. ofWhile ~~any bank if, after giving effect to~~ the ~~acquisition,~~ ~~the~~EGRRCPA ~~bank~~maintains ~~holding~~most ~~company would own or control more than 5%~~ of the ~~voting~~regulatory ~~shares~~structure ofestablished ~~such~~by ~~bank. The FRB’s approval is also required for~~ the ~~merger or consolidation of bank holding companies. The~~ Dodd-Frank Act, ~~amended~~it ~~provisions~~amends ~~of the~~certain ~~BHCA~~aspects ~~(and corresponding provisions~~ of the ~~Federal~~regulatory ~~Deposit~~framework ~~Insurance~~for ~~Act~~small ~~(the~~depository ~~“FDIA”))~~institutions towith ~~require~~assets ~~that~~of aless ~~bank~~than ~~holding~~$10 ~~company~~billion beas well ~~capitalized~~as ~~and~~for ~~well~~larger ~~managed~~banks ~~before~~with ~~the~~assets ~~FRB~~above ~~will~~$50 ~~approve an interstate bank acquisition or merger~~billion. ~~Also~~ asIn aaddition, ~~result of~~ the ~~Dodd-Frank~~EGRRCPA ~~Act,~~included ~~banks~~regulatory ~~also~~relief ~~are~~for ~~able~~community tobanks ~~branch~~regarding ~~across~~regulatory ~~state~~examination ~~lines~~cycles, ~~provided~~call ~~that~~reports, ~~the~~application ~~law~~ of the ~~state~~Volcker inRule ~~which~~(proprietary ~~the~~trading ~~branch~~prohibitions), ismortgage todisclosures, bequalified ~~located~~mortgages, ~~would~~and ~~permit~~risk ~~establishment~~weights offor ~~the~~certain ~~branch~~high-risk ifcommercial ~~the~~real ~~bank~~estate ~~were a state bank chartered by such state~~loans. ~~Additionally~~However, ~~the~~federal ~~FRB~~banking ~~has~~regulators ~~the~~retain ~~power~~broad todiscretion ~~order any bank holding company or its subsidiaries~~ to ~~terminate~~impose ~~any~~additional ~~activity~~regulatory orrequirements toon ~~terminate~~banking ~~its~~organizations ~~ownership~~based oron ~~control~~safety ofand ~~any~~soundness ~~subsidiary~~and ~~when~~U.S. ~~the FRB has reasonable grounds to believe that continuation of such activity or ownership constitutes a serious risk to the~~ financial ~~soundness,~~system ~~safety or~~ stability ~~of any bank subsidiary of the bank holding company~~considerations.

~~The~~Pinnacle ~~Company~~continues isto ~~required~~experience toongoing ~~file~~regulatory ~~periodic~~reform. ~~reports~~These ~~with~~regulatory ~~the~~changes ~~FRB~~could ~~and~~have ~~provide~~a ~~any~~significant ~~additional~~effect ~~information~~on ~~the~~how ~~FRB~~Pinnacle ~~may~~conducts ~~require~~its business. The ~~FRB~~specific ~~also~~implications ~~has~~of the ~~authority~~Dodd-Frank toAct, ~~examine~~ the ~~Company~~EGRRCPA, and ~~the~~other ~~Bank,~~potential asregulatory ~~well~~reforms ascannot ~~any arrangements~~yet ~~between~~be ~~the~~fully ~~Company~~predicted and ~~the~~will ~~Bank,~~depend ~~with~~to ~~the~~a ~~cost~~large ofextent ~~any~~on ~~such~~the ~~examinations~~specific regulations that are to be ~~borne~~adopted byin the ~~Company~~future. Certain aspects of the Dodd-Frank Act and the EGRRCPA are discussed in more detail below.

~~Banking subsidiaries~~Capital ofRequirements ~~bank holding companies are also subject to certain restrictions imposed by Federal law in dealings with their holding companies~~ and ~~other~~Prompt ~~affiliates~~Corrective Action. The ~~Subject to certain restrictions set forth in the~~ Federal Reserve ~~Act~~, ~~a bank can loan or extend credit to an affiliate, purchase or invest in~~ the ~~securities~~OCC ~~of an affiliate, purchase assets from an affiliate or issue a guarantee, acceptance or letter of credit on behalf of an affiliate, as long as the aggregate amount of such transactions of a bank~~ and ~~its subsidiaries with its affiliates does not exceed 10% of~~ the ~~capital~~FDIC ~~stock~~have ~~and~~adopted ~~surplus~~risk-based ~~of the bank on a per affiliate basis or 20% of the~~ capital ~~stock~~adequacy ~~and~~guidelines ~~surplus~~for ~~of the~~ bank on an aggregate affiliate basis. In addition, such transactions must be on terms and conditions that are consistent with safe and sound banking practices. In particular, a bank and its subsidiaries generally may not purchase from an affiliate a low-quality asset, as defined in the Federal Reserve Act. These restrictions also prevent a bank holding ~~company~~companies and ~~its~~banks ~~other~~pursuant ~~affiliates~~to ~~from borrowing from a banking subsidiary of~~ the ~~bank~~Federal ~~holding~~Deposit ~~company~~Insurance ~~unless~~Corporation ~~the~~Improvement ~~loans~~Act ~~are secured by marketable collateral~~ of ~~designated~~1991 ~~amounts. Additionally,~~(“FDICIA”) ~~the Company~~ and the ~~Bank~~Basel ~~are~~III ~~prohibited~~Capital ~~from~~Accords. ~~engaging~~See in“Management’s ~~certain~~Discussion ~~tie-in~~and ~~arrangements~~Analysis ~~in connection with any extension~~ of ~~credit,~~Financial ~~sale~~Condition orand ~~lease~~Results of ~~property~~Operations—Capital ~~or furnishing of services~~Resources”.

AThe ~~bank~~federal ~~holding~~banking ~~company~~agencies ishave ~~also~~broad ~~prohibited~~powers ~~from~~to ~~engaging~~take inprompt orcorrective ~~acquiring~~action ~~direct~~to orresolve ~~indirect~~problems ~~ownership or control~~ of ~~more~~insured ~~than~~depository 5%institutions. Under of the ~~voting~~ ~~shares~~FDICIA, ofthere ~~any~~are ~~company~~five ~~engaged~~capital incategories ~~nonbanking~~applicable ~~activities.~~to A bank holding ~~company~~companies ~~may,~~and ~~however~~insured institutions, ~~engage~~each inwith orspecific ~~acquire~~regulatory anconsequences. ~~interest~~The inextent aof ~~company~~the ~~that~~agencies’ ~~engages~~powers independs ~~activities~~on ~~which~~whether the ~~FRB~~institution ~~has~~in ~~determined~~question byis ~~regulation~~“well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or ~~order~~“critically ~~are~~undercapitalized.” These soterms ~~closely~~are ~~related to~~defined ~~banking~~under asuniform toregulations beissued aby ~~proper~~each ~~incident~~of tothe federal banking agencies. If Inthe ~~making~~appropriate ~~these~~federal ~~determinations,~~banking ~~the~~agency ~~FRB~~determines ~~considers~~that ~~whether~~an ~~the~~insured ~~performance~~institution ofis ~~such~~in ~~activities~~an byunsafe aor ~~bank~~unsound ~~holding~~condition, ~~company~~it ~~would~~may ~~offer~~reclassify ~~advantages~~the institution to a lower capital category (other than critically undercapitalized) and require the ~~public~~submission ~~that~~of ~~outweigh~~a ~~possible~~plan ~~adverse~~to ~~effects~~correct the unsafe or unsound condition.

As a national bank, the Bank is also subject to regulation, supervision and regular examination by the Office of the Comptroller of the Currency (the “Comptroller”). Each depositor’s account with the Bank is insured by the Federal Deposit Insurance Corporation (the “FDIC”) to the maximum amount permitted by law, which is currently $250,000 for each depositor for interest bearing accounts. For non-interest-bearing accounts the Bank is insured by the FDIC to the maximum amount permitted by law which is currently unlimited. The Bank is also subject to certain regulations promulgated by the FRB and applicable provisions of Virginia law, insofar as they do not conflict with or are not preempted by Federal banking law. 4

~~The~~Failure ~~regulations~~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 ~~the~~enforcement ~~FDIC~~remedies, including issuance of a capital directive, the ~~Comptroller~~termination ~~and~~of deposit insurance by the ~~FRB~~FDIC, ~~govern~~a ~~most~~prohibition ~~aspects~~on accepting or renewing brokered deposits, limitations on the rates of interest that the ~~Company’s~~institution ~~business,~~may ~~including~~pay ~~deposit~~on ~~reserve~~its ~~requirements~~deposits, ~~investments,~~and ~~loans~~other restrictions on its business. In addition, ~~certain~~an ~~check~~institution ~~clearing~~may ~~activities~~not make a capital distribution, ~~issuance~~ such as a dividend or other distribution that is in substance a distribution of ~~securities,~~capital ~~payment~~to the owners of ~~dividends~~the institution if following such a distribution the institution would be undercapitalized. Thus, ~~branching~~if the making of such dividend would cause First National Bank to become undercapitalized, it could not pay a dividend to Pinnacle.

6Basel 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 loan 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.

~~Table~~The Basel III Capital Rules and minimum capital ratios required to be maintained by banks were effective on January 1, 2015. The Basel III Capital Rules also include a requirement that banks maintain additional capital (the “capital conservation buffer”), which was phased in beginning January 1, 2016 and was fully phased in as of ~~Contents~~January 1, 2019. As fully phased in, the Basel III Capital Rules require banks 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.

~~deposit~~The ~~interest~~Basel ~~rate~~III ~~ceilings~~Capital Rules provide deductions from and ~~numerous~~adjustments ~~other~~to ~~matters.~~regulatory Ascapital ameasures, ~~consequence~~primarily ofto ~~the~~CET1, ~~extensive~~including ~~regulation~~deductions ofand ~~commercial~~adjustments ~~banking~~that ~~activities~~were innot ~~the~~applied ~~United~~to ~~States~~reduce CET1 under historical regulatory capital rules. For example, ~~the~~mortgage ~~Company’s~~servicing ~~business~~rights, ~~is particularly~~deferred ~~susceptible~~tax toassets ~~changes~~dependent inupon ~~state~~future taxable income and ~~Federal~~significant ~~legislation~~investments ~~and~~in ~~regulations,~~non-consolidated ~~which~~financial ~~may~~entities ~~have~~must ~~the~~be ~~effect~~deducted offrom ~~increasing~~CET1 to the ~~cost~~extent ofthat ~~doing~~any ~~business,~~one ~~limiting~~such ~~permissible~~category ~~activities~~exceeds 10.0% of CET1 or ~~increasing~~all ~~competition~~such categories in the aggregate exceed 15.0% of CET1.

~~Governmental~~Small ~~Policies~~Bank ~~and~~Holding ~~Legislation~~Company. The ~~Banking~~EGRRCPA isalso aexpanded ~~business~~the ~~that~~category ~~depends~~of ~~primarily~~bank onholding ~~interest~~companies ~~rate~~that ~~differentials.~~may ~~In general,~~rely on the ~~difference~~Federal ~~between~~Reserve ~~the~~Board’s ~~interest~~Small ~~rates~~Bank ~~paid~~Holding Company Policy Statement by raising the ~~Company~~maximum onamount ~~its~~of ~~deposits~~assets ~~and~~a ~~its~~qualifying ~~other~~bank ~~borrowings~~holding ~~and~~company ~~the~~may ~~interest~~have ~~rates~~from ~~received~~$1 bybillion ~~the~~to ~~Company~~$3 onbillion. ~~loans~~In ~~extended~~addition to ~~its~~meeting ~~customers~~the ~~and~~asset ~~securities~~threshold, ~~held~~a bank holding company must not engage in ~~its~~significant ~~portfolio~~nonbanking ~~comprise~~activities, ~~the~~not ~~major portion~~conduct ofsignificant ~~the~~off-balance ~~Company’s~~sheet ~~earnings.~~activities, ~~These~~and ~~rates~~not ~~are~~have ~~highly~~a ~~sensitive~~material toamount ~~many~~of ~~factors~~debt ~~that~~or ~~are~~equity ~~beyond~~securities outstanding and registered with the ~~Company’s~~SEC ~~control~~(subject to certain exceptions). ~~Accordingly~~The Federal Reserve Board may, ~~the~~in ~~Company’s~~its ~~growth~~discretion, ~~and~~exclude ~~earnings~~any ~~are~~bank ~~subject~~holding tocompany from the ~~influence~~application of ~~domestic~~the ~~and~~Small ~~foreign~~Bank ~~economic conditions,~~Holding ~~including~~Company ~~inflation,~~Policy ~~recession~~Statement ~~and~~if ~~unemployment.~~such action is warranted for supervisory purposes.

~~The~~In ~~commercial~~August ~~banking~~2018, ~~business~~the isFederal ~~affected~~Reserve ~~not~~Board ~~only~~issued byan ~~general economic~~interim ~~conditions,~~final ~~but~~rule isto ~~also~~apply ~~influenced by~~ the ~~monetary~~Small ~~and~~Bank ~~fiscal~~Holding ~~policies~~Company ofPolicy ~~the~~Statement ~~Federal~~to ~~government~~bank ~~and~~holding ~~the~~companies ~~policies~~with ofconsolidated ~~its~~total ~~regulatory~~assets ~~agencies,~~of ~~particularly~~less ~~the~~than ~~FRB~~$3 billion. The ~~FRB~~policy ~~implements~~statement, ~~national~~which, ~~monetary~~among ~~policies~~other ~~(with~~things, ~~objectives~~exempts ~~such~~certain ~~as curbing~~bank ~~inflation~~holding ~~and~~companies ~~combating~~from ~~recession)~~minimum byconsolidated ~~its~~regulatory ~~open-market~~capital ~~operations~~ratios inthat ~~U.S.~~apply ~~Government~~to ~~securities,~~other ~~and,~~bank atholding ~~times,~~companies. ~~other~~As ~~securities,~~a byresult ~~adjusting~~of the ~~required~~interim ~~level~~final ofrule, ~~reserves~~which ~~for~~was ~~financial~~effective ~~institutions~~August ~~subject~~30, to2018, ~~its~~Pinnacle ~~reserve~~expects ~~requirements~~that ~~and by~~it ~~varying~~will ~~the~~be ~~discount~~treated ~~rates~~as ~~applicable~~a tosmall ~~borrowings~~bank byholding ~~depository~~company ~~institutions.~~and ~~The~~will ~~actions~~not ofbe ~~the~~subject ~~FRB~~to inregulatory ~~these~~capital ~~areas~~requirements. ~~influence~~The comment period on the ~~growth~~interim offinal ~~bank~~rule ~~loans~~closed on October 29, ~~investments~~2018 and, ~~deposits~~to date, ~~and~~the ~~also~~Federal ~~affect~~Reserve ~~interest~~has ~~rates~~not ~~charged~~issued ona ~~loans~~final ~~and~~rule ~~paid~~to ~~on deposits.~~replace ~~The~~the ~~nature~~interim ~~and~~final ~~impact~~rule. ofFirst ~~any~~National ~~future~~Bank ~~changes~~remains insubject ~~monetary~~to ~~policies~~the ~~cannot~~regulatory becapital ~~predicted.~~requirements described above.

From time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of bank holding companies, banks and other financial institutions are frequently made in Congress, in the Virginia legislature and brought before various bank holding company and bank regulatory agencies. The likelihood of any major changes and the impact such changes might have are impossible to predict. 5

Limits on Dividends. ~~There~~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 ~~regulatory~~subject ~~restrictions~~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 ~~payments~~is being paid. Generally, dividends paid by ~~both~~First ~~the~~National Bank ~~and~~during a year may not exceed the ~~Company~~sum of the bank’s net income in that ~~may~~year ~~affect~~ and the ~~Company~~bank’s ~~ability~~retained toearnings ~~pay~~of ~~dividends~~the onimmediately ~~its~~preceding ~~common~~two ~~stock~~calendar years without prior approval of the OCC. Further, ~~See~~the Federal Deposit Insurance Act (the “~~Item~~FDIA”) 5prohibits 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. ~~Market~~The ~~for~~OCC ~~Registrant’s~~may ~~Common~~prevent ~~Equity~~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, ~~Related~~regulations ~~Stockholder~~or ~~Matters~~policies ~~and~~will ~~Issuer~~materially ~~Purchases~~affect the ability of ~~Equity~~Pinnacle ~~Securities.”~~or First National Bank to pay dividends.

~~Capital~~Insurance ~~Requirements~~of Accounts, Assessments and Regulation by the FDIC. First ~~The~~National ~~FRB,~~Bank’s deposits are insured by the ~~Comptroller~~Deposit ~~and~~Insurance Fund (the “DIF”) of the FDIC ~~have~~up ~~adopted~~to ~~risk-based~~the ~~capital~~standard ~~adequacy~~maximum ~~guidelines~~insurance amount for ~~bank holding~~each ~~companies~~deposit ~~and~~insurance ~~banks~~ownership category. ~~These~~The ~~capital~~basic ~~adequacy~~limit ~~regulations~~on ~~are~~FDIC ~~based~~deposit ~~upon~~insurance acoverage ~~risk-based~~is ~~capital determination~~$250,000 ~~whereby~~per adepositor. ~~bank~~Under ~~holding~~the ~~company’s~~FDIA, ~~capital~~the ~~adequacy~~FDIC ismay ~~determined~~terminate indeposit ~~light~~insurance ofupon a finding that the ~~risk,~~institution ~~both~~has ~~on-~~engaged in unsafe and ~~off-balance~~unsound ~~sheet~~practices, ~~contained~~ is in ~~the~~an ~~company’s~~unsafe ~~assets.~~or ~~Different~~unsound ~~categories~~condition ofto ~~assets~~continue ~~are~~operations ~~assigned~~as ~~risk~~an ~~weightings~~insured ~~and~~institution, ~~are~~or ~~counted~~has asviolated aany ~~percentage~~applicable oflaw, ~~their~~regulation, ~~book~~rule, ~~value.~~order or condition imposed by the FDIC, subject to administrative and potential judicial hearing and review processes.

~~The~~Deposit ~~regulations~~Insurance ~~divide~~Assessments. The ~~capital~~DIF ~~between~~is ~~Tier~~funded 1by ~~capital~~assessments ~~(core~~on ~~capital)~~banks and ~~Tier~~other 2depository ~~capital.~~institutions ~~For~~calculated abased ~~bank~~on ~~holding~~average ~~company,~~consolidated ~~Tier 1~~total ~~capital~~assets ~~consists~~minus ~~primarily~~average oftangible ~~common~~equity ~~stock,~~(defined ~~related~~as ~~surplus,~~Tier ~~noncumulative perpetual~~1 ~~preferred~~capital). ~~stock,~~As ~~minority~~required ~~interests~~by inthe ~~consolidated~~Dodd-Frank ~~subsidiaries~~Act, ~~and~~the aFDIC ~~limited~~has ~~amount~~adopted ofa ~~qualifying~~large-bank ~~cumulative~~pricing ~~preferred~~assessment ~~securities.~~scheme, ~~Goodwill~~set ~~and~~a ~~certain~~target ~~other~~“designated ~~intangibles~~reserve ~~are~~ratio” ~~excluded~~(described ~~from~~in ~~Tier~~more 1detail ~~capital.~~below) ~~Tier~~of 2.0% ~~capital~~for ~~consists~~the ofDIF ~~an amount~~and, ~~equal~~in tolieu ~~the~~of ~~allowance~~dividends, provides for ~~loan~~a ~~losses~~lower upassessment torate aschedule ~~maximum~~when ofthe 1reserve ratio reaches 2.250% ofand ~~risk~~2.5%. ~~weighted~~An ~~assets,~~institution’s ~~limited~~assessment ~~other~~rate ~~types~~is based on a statistical analysis of ~~preferred~~financial ~~stock~~ratios ~~not~~that ~~included~~estimates inthe ~~Tier~~likelihood 1of ~~capital~~failure over a three-year period, ~~hybrid~~which ~~capital~~considers ~~instruments~~the ~~and~~institution’s ~~term~~weighted ~~subordinated~~average ~~debt.~~capital ~~Investments~~adequacy, inassets, ~~and~~management ~~loans~~capability, ~~to unconsolidated~~earnings, ~~banking~~liquidity, and ~~finance~~sensitivity ~~subsidiaries~~(“CAMELS”) ~~that~~component ~~constitute~~rating, ~~capital~~and ofis ~~those~~subject ~~subsidiaries~~to ~~are~~further ~~excluded~~adjustments ~~from~~including ~~capital.~~those ~~The~~related ~~sum~~to levels of ~~Tier~~unsecured 1debt and ~~Tier~~brokered 2deposits ~~capital~~(not ~~constitutes~~applicable ~~qualifying~~to ~~total~~banks ~~capital.~~with ~~The~~less ~~guidelines~~than ~~generally~~$10 ~~require~~billion ~~banks~~in toassets). At ~~maintain~~December ~~a total~~31, ~~qualifying~~2020, ~~capital~~total tobase ~~weighted~~assessment ~~risk~~rates ~~assets~~for ~~ratio~~institutions ofthat 8%have ~~(the~~been ~~“Risk-based~~insured ~~Capital~~for ~~Ratio”).~~at At least 4%five ofyears ~~the~~range ~~total~~from ~~qualifying~~1.5 ~~capital~~ to ~~weighted~~30 ~~risk~~basis ~~assets~~points ~~(the~~applying ~~“Tier~~to 1banks ~~Risk-based~~with ~~Capital~~less ~~Ratio”)~~than ~~must~~$10 bebillion ~~Tier~~in ~~1 capital~~assets.

The ~~FRB,~~Dodd-Frank ~~the~~Act ~~Comptroller~~transferred ~~and~~to the FDIC ~~have~~increased ~~adopted~~discretion ~~leverage~~with ~~requirements~~regard ~~that apply in addition~~ to managing the ~~risk-based~~required ~~capital requirements.~~amount ~~Banks~~of ~~and~~reserves ~~bank~~for ~~holding~~the ~~companies~~DIF, ~~are~~or ~~required~~the to“designated ~~maintain~~reserve aratio.” ~~minimum~~The ~~leverage~~FDIA ~~ratio~~requires ofthat ~~Tier~~the 1FDIC ~~capital~~consider tothe ~~average~~appropriate ~~total~~level ~~consolidated~~for ~~assets (~~the ~~“Leverage~~designated ~~Ratio”)~~reserve ofratio on at least 3an annual basis.0% ~~for~~As ~~the~~of ~~most~~December ~~highly-rated~~31, ~~financially~~2020, ~~sound banks~~the ~~and~~designated ~~bank~~reserve ~~holding~~ratio ~~companies~~was 2.0% and athe minimum ~~Leverage~~designated ~~Ratio~~reserve ofratio atwas ~~least 4~~1.035% ~~for all other banks~~. At ~~The~~December ~~FDIC~~31, ~~and~~2020, the ~~FRB~~reserve ~~define~~ratio ~~Tier~~was 1.30%. ~~capital for banks in~~

7Certain 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.

~~Table of Contents~~6

~~the~~Covered ~~same~~transactions ~~manner~~as ~~for~~well ~~both~~as ~~the~~other ~~Leverage~~types ~~Ratio~~of transactions between a bank and ~~the~~a ~~Risk-based~~bank ~~Capital~~holding ~~Ratio.~~company ~~However~~must be on market terms, which means that the ~~FRB~~transaction ~~defines~~must ~~Tier~~be 1conducted ~~capital~~on ~~for~~terms ~~bank~~and ~~holding~~under ~~companies~~circumstances inthat aare ~~slightly~~substantially ~~different~~the ~~manner.~~same, Anor ~~institution~~at ~~may be~~least ~~required~~as favorable to ~~maintain~~the ~~Tier~~bank, 1as ~~capital~~those ofprevailing at ~~least~~the 4%time for comparable transactions with or 5%involving non-affiliates or, in the absence of comparable transactions, that in good faith would be offered to or ~~possibly~~would ~~higher~~apply to non-affiliates. Moreover, ~~depending~~certain ~~upon~~amendments to the ~~activities~~BHCA provide that, ~~risks~~to further competition, ~~rate~~a bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with any extension of ~~growth~~credit, ~~and~~lease ~~other~~or ~~factors~~sale ~~deemed~~of ~~material~~property byof ~~regulatory~~any ~~authorities.~~kind, or furnishing of any service.

AsIncentive ~~of December~~Compensation. ~~31,~~The ~~2012~~Federal Reserve, the ~~Company~~OCC and ~~Bank~~the ~~both~~FDIC ~~met~~have ~~all~~issued ~~applicable~~regulatory ~~capital~~guidance ~~requirements~~intended ~~imposed~~to byensure ~~regulation.~~that ~~At December 31, 2012,~~ the ~~Risk-based~~incentive ~~Capital~~compensation ~~Ratios~~policies of banking organizations do not undermine the ~~Company~~safety and ~~the~~soundness ~~Bank~~of ~~were~~such ~~11.39~~organizations ~~percent~~by ~~and~~encouraging 11excessive risk-taking.85 ~~percent~~The Federal Reserve will review, ~~respectively.~~as Atpart ~~December 31~~of the regular, ~~2012~~risk-focused examination process, the ~~Tier~~incentive 1compensation ~~Risk-based~~arrangements ~~Capital~~of ~~Ratios~~banking oforganizations, ~~the~~such ~~Company~~as ~~and~~Pinnacle, ~~the~~that ~~Bank~~are ~~were~~not ~~10.15~~“large, ~~percent~~complex ~~and 10~~banking organizations.60” ~~percent~~The findings will be included in reports of examination, ~~respectively~~and deficiencies will be incorporated into the organization’s supervisory ratings. AtEnforcement ~~December 31~~actions may be taken against a banking organization if its incentive compensation arrangements, ~~2012~~or related risk-management control or governance processes, ~~the~~pose ~~Leverage~~a ~~Ratios~~risk ofto the ~~Company~~organization’s safety and soundness and the ~~Bank~~organization ~~were~~is ~~8.49~~not ~~percent~~taking prompt and ~~8.86~~effective ~~percent,~~measures ~~respectively.~~to correct the deficiencies.

~~Federal~~In ~~Deposit~~addition, ~~Insurance~~in ~~Corporation~~2016, ~~Improvement~~the ~~Act~~SEC ofand ~~1991.~~the ~~There~~federal ~~are~~banking ~~five~~agencies ~~capital~~proposed ~~categories~~rules ~~applicable~~that toprohibit ~~insured~~covered financial institutions, ~~each~~(including ~~with~~bank ~~specific~~holding ~~regulatory~~companies ~~consequences.~~and Ifbanks) ~~the appropriate~~from ~~Federal~~establishing ~~banking~~or ~~agency~~maintaining ~~determines,~~incentive-based ~~after~~compensation ~~notice~~arrangements that encourage inappropriate risk taking by providing covered persons (consisting of senior executive officers and ansignificant ~~opportunity~~risk ~~for~~takers, ~~hearing~~as defined in the rules) with excessive compensation, fees or benefits that ancould ~~insured~~lead to material financial loss to the financial institution. The proposed rules outline factors to be considered when analyzing whether compensation is inexcessive and whether an ~~unsafe~~incentive-based orcompensation ~~unsound~~arrangement ~~condition,~~encourages itinappropriate ~~may~~risks ~~reclassify~~that could lead to material loss to the covered financial institution, and establishes minimum requirements that incentive-based compensation arrangements must meet to ~~the~~be ~~next~~considered ~~lower~~to ~~capital~~not ~~category~~encourage ~~(other~~inappropriate ~~than~~risks ~~critically undercapitalized)~~and to appropriately balance risk and ~~require~~reward. The proposed rules also impose additional corporate governance requirements on the ~~submission~~boards of adirectors ~~plan~~of tocovered ~~correct~~financial ~~the~~institutions ~~unsafe~~and orimpose ~~unsound~~additional ~~condition.~~record-keeping requirements. The ~~Comptroller~~comment period for these proposed rules has ~~issued~~closed ~~regulations~~and toa ~~implement~~final ~~these~~rule ~~provisions.~~has not yet been published.

~~Under~~Federal ~~these~~Home ~~regulations~~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 ~~categories~~members ~~are:~~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.

a.Community ~~Well~~Reinvestment ~~Capitalized~~Act. Pinnacle —is ~~The institution~~subject ~~exceeds~~to the ~~required~~requirements ~~minimum~~of ~~level~~the ~~for~~CRA, ~~each~~which ~~relevant~~imposes ~~capital~~on ~~measure.~~financial Ainstitutions ~~well~~an ~~capitalized~~affirmative ~~institution~~and isongoing ~~one~~obligation ~~(i) having~~to ameet ~~Risk-based~~the ~~Capital~~credit ~~Ratio~~needs of ~~10%~~their orlocal ~~greater~~communities, ~~(ii) having~~including alow ~~Tier~~and ~~1 Risk~~moderate-~~based~~income ~~Capital~~neighborhoods, ~~Ratio~~consistent with the safe and sound operation of 6%those ~~or greater,~~institutions. ~~(iii) having~~A afinancial ~~Leverage~~institution’s ~~Ratio~~efforts ofin 5%meeting orcommunity ~~greater~~credit ~~and~~needs ~~(iv) that~~are isassessed ~~not~~based ~~subject~~on tospecified ~~any~~factors. These ~~order~~factors oralso ~~written~~are ~~directive~~considered toin ~~meet~~evaluating mergers, acquisitions and ~~maintain~~applications to open a ~~specific~~branch ~~capital~~or ~~level~~facility. ~~for~~At ~~any~~its ~~capital~~last ~~measure.~~evaluation in 2020, First National Bank received a “Satisfactory” CRA rating.

bConfidentiality and Required Disclosures of Consumer Information. Pinnacle ~~Adequately~~is ~~Capitalized~~subject —to ~~The~~various ~~institution~~laws ~~meets~~and regulations that address the ~~required~~privacy ~~minimum~~of ~~level~~nonpublic ~~for~~personal ~~each~~financial ~~relevant~~information ~~capital~~of ~~measure~~consumers. NoThe ~~capital distribution~~Gramm-Leach-Bliley ~~may~~Act beand ~~made~~certain ~~that~~regulations ~~would~~issued ~~result~~thereunder inprotect against the ~~institution~~transfer ~~becoming~~and ~~undercapitalized.~~use Anby ~~adequately~~financial ~~capitalized~~institutions of consumer nonpublic personal information. A financial institution ismust ~~one~~provide ~~(i) having~~to aits ~~Risk-based~~customers, ~~Capital~~at ~~Ratio~~the beginning of 8%the orcustomer ~~greater~~relationship and annually thereafter, ~~(ii) having~~the ainstitution’s ~~Tier~~policies 1and ~~Risk-based~~procedures ~~Capital~~regarding ~~Ratio~~the handling of 4% orcustomers’ ~~greater~~nonpublic ~~and~~personal ~~(iii) having~~financial ainformation. ~~Leverage~~These ~~Ratio~~privacy ofprovisions 4%generally orprohibit ~~greater~~a orfinancial institution from providing a ~~Leverage~~customer’s ~~Ratio~~personal offinancial 3%information orto ~~greater~~unaffiliated ifthird parties unless the institution isdiscloses ~~rated~~to ~~composite~~the 1customer ~~under~~that the ~~CAMELS~~information ~~(Capital,~~may ~~Assets,~~be ~~Management,~~so ~~Earnings,~~provided ~~Liquidity~~ and ~~Sensitivity~~the customer is given the opportunity to ~~market~~opt ~~risk) rating~~out ~~system.~~of such disclosure.

c.Certain ~~Undercapitalized~~exceptions —may ~~The~~apply ~~institution fails~~ to ~~meet~~ the ~~required~~requirement ~~minimum~~to ~~level~~deliver ~~for~~an ~~any~~annual ~~relevant~~privacy ~~capital measure.~~notice ~~An undercapitalized institution is one (i) having a Risk-~~based ~~Capital~~on ~~Ratio~~how ~~of less than 8% or (ii) having~~ a ~~Tier~~financial 1institution ~~Risk-based~~limits ~~Capital~~sharing ~~Ratio~~ of ~~less~~nonpublic ~~than~~personal 4%information, orand ~~(iii) having~~whether athe ~~Leverage~~institution’s ~~Ratio~~disclosure ofpractices ~~less than 4%,~~ or ifpolicies ~~the institution~~have ischanged ~~rated~~in acertain ~~composite~~ways 1since ~~under~~ the ~~CAMEL~~last ~~rating~~privacy ~~system,~~notice athat ~~Leverage~~was ~~Ratio of less than 3%~~delivered.

d. Significantly Undercapitalized — The institution is significantly below the required minimum level for any relevant capital measure. A significantly undercapitalized institution is one (i) having a Risk-based Capital Ratio of less than 6% or (ii) having a Tier 1 Risk-based Capital Ratio of less than 3% or (iii) having a Leverage Ratio of less than 3%. 7

~~e. Critically~~Pinnacle ~~Undercapitalized~~is —also subject to various laws and regulations that attempt to combat money laundering and terrorist financing. The ~~institution~~Bank ~~fails~~Secrecy Act requires all financial institutions to, ~~meet~~among other things, create a ~~critical~~system ~~capital~~of ~~level~~controls ~~set~~designed byto prevent money laundering and the ~~appropriate~~financing ~~Federal~~of ~~banking~~terrorism, ~~agency~~and imposes recordkeeping and reporting requirements. AThe ~~critically~~USA ~~undercapitalized~~Patriot ~~institution~~Act isfacilitates ~~one~~information ~~having~~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 ~~ratio~~division of ~~tangible~~the ~~equity~~U.S. Department of the Treasury, is responsible for helping to ~~total~~ensure ~~assets~~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 ~~equal to~~on an OFAC list, it must freeze such account or ~~less~~place ~~than~~transferred ~~2%.~~funds into a blocked account, file a suspicious activity report with the Treasury and notify the Federal Bureau of Investigation.

AnAlthough ~~institution~~these ~~which~~laws isand ~~less~~programs ~~than~~impose ~~adequately~~compliance ~~capitalized~~costs ~~must~~and ~~adopt~~create anprivacy ~~acceptable~~obligations ~~capital restoration plan~~and, isin ~~subject~~some tocases, ~~increased~~reporting ~~regulatory oversight~~obligations, and iscompliance ~~increasingly~~with ~~restricted~~all ~~in the scope~~ of ~~its permissible activities. Each company having control over an undercapitalized institution must provide a limited guarantee that~~ the ~~institution will~~laws, ~~comply~~programs, ~~with~~and ~~its~~privacy ~~capital~~and ~~restoration~~reporting ~~plan.~~obligations ~~Except~~may ~~under~~require ~~limited~~significant ~~circumstances~~resources ~~consistent~~of ~~with~~Pinnacle anand ~~accepted~~First ~~capital~~National ~~restoration plan~~Bank, anthese ~~undercapitalized~~laws ~~institution~~and ~~may~~programs do not ~~grow.~~materially Anaffect ~~undercapitalized~~First ~~institution~~National ~~may~~Bank’s ~~not acquire another institution~~products, ~~establish~~services ~~additional branch offices~~ or ~~engage~~other ~~in any new line of~~ business unless determined by the appropriate Federal banking agency to be consistent with an accepted capital restoration plan, or unless the FDIC determines that the proposed action will further the purpose of prompt corrective actionactivities. The appropriate Federal banking agency may take any action authorized for a significantly undercapitalized institution if an undercapitalized institution fails to submit an acceptable capital restoration plan or

8Cybersecurity. The federal banking agencies have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of a financial institution’s board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial products and services. The federal 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 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.

~~Table~~In October 2016, the federal banking agencies issued proposed rules on enhanced cybersecurity risk-management and resilience standards that would apply to very large financial institutions and to services provided by third parties to these institutions. The comment period for these proposed rules has closed and a final rule has not been published. Although the proposed rules would apply only to bank holding companies and banks with $50 billion or more in total consolidated assets, these rules could influence the federal banking agencies’ expectations and supervisory requirements for information security standards and cybersecurity programs of ~~Contents~~smaller financial institutions, such as Pinnacle and First National Bank.

~~fails~~Consumer inLaws ~~any~~and ~~material~~Regulations. Pinnacle ~~respect~~is also subject to ~~implement~~certain aconsumer ~~plan~~laws ~~accepted~~and byregulations ~~the~~that ~~agency~~are designed to protect consumers in transactions with banks. AWhile ~~critically~~the ~~undercapitalized~~list ~~institution~~set forth herein is ~~subject~~not toexhaustive, ~~having~~these alaws ~~receiver~~and orregulations ~~conservator~~include ~~appointed~~the toTruth ~~manage~~in ~~its~~Lending ~~affairs~~ Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act and ~~for~~the ~~loss~~Fair ofHousing ~~its~~Act, ~~charter~~among toothers. ~~conduct~~These ~~banking~~laws ~~activities~~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.

AnThe ~~insured~~Consumer ~~depository~~Financial ~~institution~~Protection ~~may~~Bureau ~~not~~(the ~~pay~~“CFPB”) ais ~~management~~the ~~fee~~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 ~~bank~~lesser ~~holding~~extent, ~~company~~smaller ~~controlling~~institutions. ~~that~~The ~~institution~~CFPB orsupervises ~~any~~and ~~other~~regulates ~~person~~providers ~~having~~of ~~control~~consumer offinancial ~~the~~products ~~institution~~and ifservices and has rulemaking authority in connection with numerous federal consumer financial protection laws (for example, ~~after~~but ~~making~~not ~~the~~limited ~~payment~~to, the ~~institution~~Truth ~~would~~in beLending ~~undercapitalized.~~Act Inand ~~addition,~~the anReal ~~institution~~Estate ~~cannot~~Settlement ~~make~~Procedures Act). As a ~~capital~~smaller ~~distribution~~institution (i.e., ~~such as~~with aassets ~~dividend~~of $10 billion or ~~other~~less), ~~distribution~~most ~~that~~consumer isprotection inaspects ~~substance~~of athe ~~distribution~~Dodd-Frank ofAct ~~capital~~will continue to be applied to Pinnacle by the ~~owners~~Federal ofReserve and to First National Bank by the ~~institution~~OCC. However, ifthe ~~following~~CFPB ~~such~~may ainclude ~~distribution~~its ~~the~~own examiners in regulatory examinations by a smaller institution’s ~~would~~prudential beregulators ~~undercapitalized~~and may require smaller institutions to comply with certain CFPB reporting requirements. ~~Thus~~In addition, ifregulatory ~~payment~~positions oftaken ~~such~~by athe ~~management~~CFPB ~~fee~~and oradministrative ~~the~~and ~~making~~ legal precedents established by CFPB enforcement activities, including in connection with supervision of ~~such~~larger ~~would~~bank ~~cause~~holding companies and banks, could influence how the ~~Bank~~Federal Reserve and the OCC apply consumer protection laws and regulations to ~~become~~financial ~~undercapitalized,~~institutions itthat ~~could~~are not ~~pay~~directly asupervised ~~management~~by ~~fee~~the orCFPB. ~~dividend~~The toprecise effect of the ~~Company~~CFPB’s consumer protection activities on Pinnacle cannot be forecast.

~~As of December 31, 2012, both the Company and the Bank were considered “well capitalized.”~~ 8

~~Basel~~Mortgage ~~III~~Banking ~~Capital Framework~~Regulation. In ~~June~~connection ~~2012~~with making mortgage loans, ~~the~~First ~~federal~~National ~~bank~~Bank ~~regulatory~~is ~~agencies~~subject ~~proposed~~to ~~(i)~~ rules toand ~~implement~~regulations ~~the~~that, ~~Basel~~among ~~III~~other ~~capital~~things, ~~framework~~establish asstandards ~~outlined~~for byloan ~~the~~origination, ~~Basel~~prohibit ~~Committee~~discrimination, provide for inspections and appraisals of property, require credit reports on ~~Banking~~prospective ~~Supervision~~borrowers, ~~and~~in ~~(ii) rules~~some ~~for~~cases, ~~calculating~~restrict ~~risk-weighted assets.~~certain ~~The~~loan ~~federal~~features ~~bank~~and ~~regulatory~~fix ~~agencies~~maximum ~~have~~interest ~~delayed~~rates and fees, require the ~~implementation~~disclosure of ~~Basel~~certain ~~III~~basic information to mortgagors concerning credit and ~~the~~settlement ~~new~~costs, ~~risk-weighted~~limit ~~assets~~payment ~~calculations~~for settlement services to ~~consider~~the ~~comments~~reasonable ~~received~~value onof the ~~proposed~~services ~~rules.~~rendered ~~The~~and ~~timing~~require ~~for~~ the ~~agencies’~~maintenance ~~publication~~and disclosure of ~~revised proposed~~information ~~rules~~ regarding, orthe ~~final~~disposition ~~rules~~of tomortgage ~~implement~~applications based on race, ~~Basel~~gender, ~~III~~geographical distribution and ~~the~~income ~~new~~level. ~~risk-weighted~~First ~~assets~~National ~~calculations~~Bank’s ismortgage ~~uncertain.~~origination ~~Basel~~activities ~~III,~~are ~~when~~subject ~~implemented~~to by the ~~U.S.~~Equal ~~banking~~Credit ~~agencies~~Opportunity ~~and~~Act, ~~fully~~Truth ~~phased-~~in Lending Act, ~~will~~Home ~~require~~Mortgage ~~bank~~Disclosure ~~holding~~Act, ~~companies~~Real Estate Settlement Procedures Act, and ~~their bank~~Home ~~subsidiaries~~Ownership toEquity ~~maintain~~Protection ~~substantially~~Act, ~~more~~and ~~capital~~the regulations promulgated under these acts, ~~with~~among aother ~~greater~~additional ~~emphasis~~state onand ~~common~~federal ~~equity.~~laws, regulations and rules.

~~The~~First ~~Basel~~National ~~III~~Bank’s ~~final capital~~mortgage ~~framework~~origination activities are also subject to Regulation Z, ~~among~~which ~~other~~implements ~~things~~the Truth in Lending Act. Certain provisions of Regulation Z require mortgage lenders to make a reasonable and good faith determination, ~~(i) introduces~~based ason verified and documented information, that a ~~new~~consumer ~~capital~~applying ~~measure~~for ~~“Common~~a ~~Equity~~mortgage ~~Tier~~loan 1”has (a reasonable ability to repay the loan according to its terms. Alternatively, mortgage lenders can originate “~~CET1~~qualified mortgages”), ~~(ii) specifies~~which ~~that~~are ~~Tier~~generally 1defined ~~capital~~as ~~consists~~mortgage ofloans ~~CET1~~without ~~and~~negative ~~“Additional~~amortization, ~~Tier~~interest-only 1payments, ~~capital”~~balloon ~~instruments meeting~~payments, ~~specified~~terms ~~requirements~~exceeding 30 years, ~~(iii) defines~~and ~~CET1~~points ~~narrowly~~and byfees ~~requiring~~paid ~~that~~by ~~most~~a ~~adjustments~~consumer equal to ~~regulatory~~or ~~capital~~less ~~measures~~than be3.0% ~~made~~of tothe ~~CET1~~total ~~and~~loan ~~not~~amount. toUnder the ~~other~~EGRRCPA, ~~components~~most ofresidential ~~capital~~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 (ive.g., subprime loans) ~~expands~~ ~~the~~receive ~~scope~~a rebuttable presumption of ~~the~~compliance ~~adjustments~~with ~~as compared~~ability-to-repay rules, and other qualified mortgages (e.g., prime loans) are deemed to ~~existing~~comply ~~regulations~~with the ability-to-repay rules.

~~When~~Volcker ~~fully phased in, Basel III would require banks to maintain, (i)~~Rule. asThe ~~a newly adopted international standard, a minimum ratio of CET1 to risk~~Dodd-~~weighted~~Frank ~~assets~~Act ofprohibits atbank ~~least~~holding ~~4.5%,~~companies ~~plus~~and atheir ~~2.5%~~subsidiary ~~“capital~~banks ~~conservation~~from ~~buffer”~~engaging ~~(which~~in isproprietary ~~added~~trading toexcept ~~the~~in ~~4.5%~~limited ~~CET1 ratio as that buffer is phased in~~circumstances, ~~effectively~~and ~~resulting~~places inlimits ~~a minimum~~on ~~ratio~~ownership of ~~CET1~~equity toinvestments ~~risk-weighted~~in ~~assets~~private ofequity atand ~~least~~hedge ~~7%),~~funds (~~ii) a~~the ~~minimum~~Volcker ~~ratio~~Rule). ofThe ~~Tier 1 capital to risk-weighted assets of at least 6.0%~~EGRRCPA, ~~plus~~and ~~the~~final ~~capital~~rules ~~conservation~~adopted ~~buffer (which is added~~ to implement the ~~6.0%~~EGRRCPA, ~~Tier~~exempt 1all ~~capital~~banks ~~ratio~~with asless ~~that~~than ~~buffer is~~$10 ~~phased~~billion in, ~~effectively~~assets ~~resulting~~(including intheir aholding ~~minimum~~companies ~~Tier~~and 1affiliates) ~~capital~~from ~~ratio~~the ofVolcker ~~8.5% upon full implementation)~~Rule, ~~(iii) a~~provided ~~minimum ratio of Total (~~that the ~~is,~~institution ~~Tier~~has 1total ~~plus~~trading ~~Tier~~assets 2)and ~~capital~~liabilities ~~to risk-weighted assets~~ of ~~at least 8~~5.0%, ~~plus~~or ~~the~~less ~~capital conservation~~of ~~buffer~~total ~~(which~~assets, issubject ~~added~~ to ~~the~~certain 8limited exceptions.0% ~~total~~Pinnacle ~~capital~~believes ~~ratio as~~ that ~~buffer~~its isfinancial ~~phased~~condition ~~in,~~and ~~effectively~~its ~~resulting~~operations inare anot ~~minimum~~and ~~total~~will ~~capital~~not ~~ratio~~be ofsignificantly ~~10.5%~~affected ~~upon~~by ~~full~~the ~~implementation)~~Volcker ~~and (iv) as a newly adopted international standard~~Rule, ~~a minimum~~amendments ~~leverage ratio of 3%~~thereto, ~~calculated~~or asits ~~the~~implementing ~~ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter)~~regulations.

~~Basel~~Call ~~III~~Reports ~~also~~and ~~provides~~Examination ~~for~~Cycle. All ainstitutions, ~~“countercyclical~~regardless ~~capital~~of ~~buffer~~size,” ~~generally~~submit ~~designed~~a toquarterly ~~absorb~~call ~~losses~~report ~~during~~that ~~periods~~includes ofdata ~~economic stress~~used ~~and~~by federal banking agencies to bemonitor ~~imposed~~the ~~when~~condition, ~~national~~performance, ~~regulators~~and ~~determine~~risk ~~that~~profile ~~excess~~of ~~aggregate~~individual ~~credit~~institutions ~~growth~~and ~~becomes~~the ~~associated~~industry ~~with~~as a ~~buildup~~whole. The EGRRCPA contained provisions expanding the number of ~~systemic~~regulated ~~risk~~institutions eligible to use streamlined call report forms. ~~This~~In ~~buffer~~June ~~would~~2019, bethe federal banking agencies issued a ~~CET1~~final ~~add-on~~rule to ~~the~~permit ~~capital~~insured ~~conservation~~depository ~~buffer~~institutions inwith ~~the~~total ~~range~~assets of 0%less tothan 2.$5% ~~when fully~~billion ~~implemented~~that ~~(potentially~~do ~~resulting~~not engage in ~~total~~certain ~~buffers~~complex or international activities to file the most streamlined version of ~~between~~the ~~2.5%~~quarterly ~~and~~call ~~5%)~~report.

~~The~~In ~~Basel~~December ~~III~~2018, ~~final~~consistent ~~framework~~with ~~provides~~the ~~for a~~provisions ~~number~~ of ~~new~~the ~~deductions~~EGRRCPA, ~~from~~the ~~and~~federal ~~adjustments~~banking toagencies ~~CET1.~~jointly ~~These~~adopted ~~include,~~final ~~for~~rules ~~example,~~that ~~the~~permit ~~requirement~~banks ~~that~~with ~~mortgage~~up ~~servicing~~to ~~rights,~~$3 ~~deferred~~billion ~~tax~~in total assets, ~~dependent~~that ~~upon~~received ~~future~~a ~~taxable~~composite ~~income~~CAMELS rating of “1” or “2,” and ~~significant~~that ~~investments~~meet incertain ~~non-consolidated~~other ~~financial entities~~criteria be(including ~~deducted~~not ~~from~~having ~~CET1~~undergone toany change in control during the ~~extent~~previous ~~that~~12-month ~~any~~period, ~~one~~and ~~such~~not ~~category~~being ~~exceeds~~subject ~~10%~~to ofa ~~CET1~~formal orenforcement ~~all~~proceeding ~~such~~or ~~categories~~order), into ~~the~~qualify ~~aggregate~~for ~~exceed~~an ~~15%~~18-month ofon-site ~~CET1.~~examination cycle.

~~Implementation~~Future ofRegulation. ~~the~~From ~~deductions~~time ~~and~~to ~~other~~time, ~~adjustments~~various tolegislative ~~CET1~~and regulatory initiatives are ~~currently~~introduced ~~expected~~in toCongress beand ~~phased-in~~state ~~over~~legislatures, aas ~~five-year~~well ~~period~~as ~~(20%~~by ~~per~~regulatory ~~year)~~agencies. ~~The~~Such ~~implementation~~initiatives ofmay include proposals to expand or contract the ~~capital~~powers ~~conservation~~of ~~buffer~~bank ~~is expected~~holding companies and depository institutions or proposals to ~~begin~~substantially atchange 0the financial institution regulatory system.~~625%~~ Such legislation could change banking statutes and bethe ~~phased~~operating environment of Pinnacle in ~~over~~substantial aand ~~four-year~~unpredictable ~~period~~ways. ~~(increasing~~If byenacted, ~~that~~such ~~amount~~legislation ~~each~~could ~~year~~increase or decrease the cost of doing business, ~~until~~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, ~~reaches~~or 2any implementing regulations, would have on the financial condition or results of operations of Pinnacle.~~5%).~~ A change in statutes, regulations or regulatory policies applicable to Pinnacle or First National Bank could have a material effect on our business.

~~Table~~Item of1A.Risk ~~Contents~~Factors

~~The~~In ~~regulations~~addition ~~ultimately~~to ~~applicable~~the toother information included in this Annual Report on Form 10-K, the ~~Company~~following ~~may~~risk factors should be ~~substantially~~carefully ~~different~~considered ~~from~~in connection with evaluating our business and any forward-looking statements contained herein. Our business, financial condition, results of operations and cash flows could be harmed by any of the ~~Basel~~ ~~III~~risk ~~proposed~~factors ~~rules~~described below, or other risks that ~~were~~have ~~issued~~not inbeen ~~June~~identified ~~2012~~or which we believe are immaterial or unlikely. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our business, financial condition, operating results and cash flows could be materially adversely affected.

~~Requirements~~Risks toRelated ~~maintain higher levels of capital or~~ to ~~maintain higher levels of liquid assets could adversely impact the Company’s net income and return on equity.~~ COVID-19

The ~~Dodd-Frank~~ongoing ~~Act. The Dodd~~COVID-~~Frank~~19 ~~Act~~pandemic ~~implements~~and ~~far-reaching~~measures ~~changes~~intended ~~across~~to ~~the~~prevent ~~financial~~or ~~regulatory~~slow ~~landscape,~~its ~~including~~spread ~~changes~~may ~~that~~have ~~will~~material ~~affect~~adverse ~~all~~effects ~~bank~~on ~~holding~~each ~~companies~~of ~~and~~Pinnacle’s ~~banks~~business, ~~including~~results ~~the~~of ~~Company~~operation, ~~and~~financial ~~the~~condition, ~~Bank.~~liquidity ~~Provisions~~and ~~that~~prospects, ~~significantly~~and ~~affect~~such ~~the business~~effects ofare ~~the~~highly ~~Company~~uncertain and ~~the~~difficult ~~Bank~~to ~~include~~predict. ~~the following:~~

•Global ~~Insurance~~health ofconcerns ~~Deposit~~regarding ~~Accounts.~~the ~~The Dodd~~COVID-~~Frank~~19 ~~Act~~pandemic ~~changed~~and related governmental actions taken to reduce the ~~assessment~~spread ~~base~~of ~~for~~the ~~federal~~coronavirus ~~deposit~~have ~~insurance~~negatively ~~from~~impacted the ~~amount~~macroeconomic ofenvironment, ~~insured~~and ~~deposits~~the toCOVID-19 ~~consolidated~~pandemic ~~assets~~has ~~less~~significantly ~~tangible~~increased ~~capital~~economic uncertainty and abruptly reduced economic activity. The ~~Dodd~~COVID-~~Frank~~19 ~~Act~~pandemic ~~also~~has ~~made~~resulted ~~permanent~~in governmental authorities implementing numerous measures to try to contain the ~~$250~~virus,~~000~~ ~~limit~~such ~~for~~as ~~federal~~travel ~~deposit~~bans ~~insurance~~ and ~~increased~~restrictions, ~~the~~quarantines, ~~cash~~shelter-in-place ~~limit~~orders ofand ~~Securities~~business ~~Investor~~limitations ~~Protection~~and ~~Corporation~~shutdowns. ~~protection~~Such ~~from~~measures ~~$100,000~~have significantly contributed to ~~$250~~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,~~000~~ and the operations of their customers and business partners.

•Pinnacle ~~Payment~~may ofexperience ~~Interest~~adverse onfinancial ~~Demand~~consequences ~~Deposits.~~due ~~The~~to ~~Dodd-Frank~~a ~~Act~~number ~~repealed~~of ~~the~~factors ~~federal~~that ~~prohibitions~~are onrelated ~~the~~to ~~payment~~or ofexacerbated ~~interest~~by ~~and~~the ~~demand~~COVID-19 ~~deposits~~pandemic, ~~thereby~~including, ~~permitting~~but ~~depository~~not ~~institutions~~limited to: ~~pay interest on business transaction and other accounts.~~

• ~~Creation~~increased ofcredit ~~the~~losses ~~Consumer~~due ~~Financial~~to ~~Protection~~financial ~~Bureau.~~strain ~~The~~on ~~Dodd-Frank~~its ~~Act~~customers ~~centralized~~as ~~significant~~a ~~aspects~~result of ~~consumer~~the ~~financial~~COVID-19 ~~protection~~pandemic byand ~~creating~~governmental aactions ~~new~~to ~~agency,~~address the ~~Consumer~~pandemic, ~~Financial~~specifically ~~Protection~~with ~~Bureau~~respect ~~(the~~to ~~“CFPB”),~~loans ~~which~~to isborrowers ~~discussed~~ in ~~more~~the ~~detail~~hospitality ~~below.~~or retail real estate industries;

• ~~Debit~~declines Card Interchange Fees. The Dodd-Frank Act amended the Electronic Fund Transfer Act to, among other things, require that debit card interchange fees be reasonable and proportional to the actual cost incurred by the issuer with respect to the transaction. In June 2011, the FRB adopted regulations setting the maximum permissible interchange fee as the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction, with an additional adjustment of up to one cent per transaction if the issuer implements additional fraud-prevention standards. Although issuers that have assets of less than $10 billion are exempt from the FRB’s regulations that set maximum interchange fees, these regulations could significantly impact the interchange fees that financial institutions with less than $10 billion in ~~assets~~collateral ~~are able to collect.~~values;

In• ~~addition~~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 ~~Dodd~~COVID-~~Frank~~19 ~~Act~~pandemic. ~~implemented~~Pinnacle ~~other~~has ~~far~~modified its business practices, including restricting employee travel and implementing work-~~reaching~~from-home ~~changes~~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 ~~financial~~best ~~regulatory landscape~~interests of its employees, ~~including~~customers ~~provisions~~and ~~that:~~business partners;

• ~~Restrict~~ the ~~preemption~~negative ofeffect ~~state~~on ~~law~~earnings byresulting ~~Federal~~from ~~law~~Pinnacle ~~and~~agreeing ~~disallow~~to ~~subsidiaries~~loan ~~and~~payment ~~affiliates~~deferrals ofdue ~~national~~to ~~banks, such as subsidiaries and affiliates of~~ the ~~Bank,~~COVID-19 ~~from~~pandemic ~~availing~~or ~~themselves~~otherwise ofmodifying ~~such preemption.~~loans;

• ~~Impose~~increased ~~comprehensive~~demands ~~regulation~~on ofPinnacle’s ~~the~~liquidity ~~over-the-counter~~and ~~derivatives~~regulatory ~~market~~capital, ~~subject~~as toit ~~significant~~meets ~~rulemaking~~borrowers’ ~~processes,~~needs ~~which~~and ~~would~~pays ~~include~~expenses ~~certain~~related ~~provisions~~to ~~that would effectively prohibit insured depository institutions from conducting certain derivatives businesses in~~ the ~~institution~~COVID-19 ~~itself.~~pandemic;

• ~~Require~~third-party ~~depository~~disruptions, ~~institutions~~including ~~with~~negative ~~total~~effects ~~consolidated~~on ~~assets~~network ofand ~~more~~technology ~~than~~providers ~~$10~~and ~~billion~~other counterparties, which have been, and may continue to ~~conduct~~be, ~~regular~~affected ~~stress~~by ~~tests~~stay-at-home orders, market volatility and ~~require~~other ~~large,~~factors ~~publicly~~that ~~traded~~increase ~~bank~~their ~~holding~~risks ~~companies~~of tobusiness ~~create~~disruption aor ~~risk~~that ~~committee~~may ~~responsible~~otherwise ~~for~~affect their ability to perform under the ~~oversight~~terms of ~~enterprise~~any ~~risk~~agreements ~~management.~~with Pinnacle or provide essential services;

• ~~Require~~increased ~~loan~~cybersecurity ~~originators~~and tofraud ~~retain~~risks 5due ~~percent~~to ofincreased ~~any~~online ~~loan~~and ~~sold~~remote oractivity; ~~securitized, unless it is a “qualified residential mortgage”, subject to certain exceptions.~~and

• ~~Prohibit~~operational ~~banks~~failures ~~and~~due ~~their~~to ~~affiliates~~changes ~~from engaging~~ in ~~proprietary~~Pinnacle’s ~~trading~~normal ~~and~~business ~~investing in and sponsoring certain unregistered investment companies~~practices.

~~• Implement corporate governance revisions that apply to all public companies, not just financial institutions.~~10

~~Many~~These ~~aspects~~factors ofmay ~~the Dodd-Frank Act~~ remain ~~subject~~prevalent tofor ~~rulemaking~~a ~~and~~significant ~~will~~period ~~take~~of ~~effect~~time ~~over~~and ~~several~~may ~~years,~~continue ~~making it difficult~~ to ~~anticipate~~ ~~the~~adversely ~~overall~~affect ~~financial~~Pinnacle’s ~~impact~~business, onresults ~~the~~of ~~Company~~operations, ~~and the Bank or their customers or the~~ financial ~~industry~~condition, ~~more~~liquidity ~~generally. Provisions in the legislation that affect the payment of interest on demand deposits~~ and ~~interchange~~prospects, ~~fees~~including ~~are~~even ~~likely~~after ~~to increase~~ the ~~costs~~COVID-19 ~~associated~~pandemic ~~with~~has ~~deposits as well as place limitations on certain revenues those deposits may generate~~subsided. ~~Provisions in the legislation that require revisions to the capital requirements of the Company and the Bank~~

10The 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.

~~Table~~There are no comparable recent events that provide guidance as to the effect the spread of ~~Contents~~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.

~~could~~Further, ~~impact~~ the ~~Company’s~~COVID-19 ~~and~~pandemic ~~the~~may ~~Bank’s~~also ~~future~~exacerbate ~~raising~~many ~~activities.~~of ~~Although~~ the ~~Company~~risk ~~and~~factors ~~Bank~~identified ~~have not issued trust preferred securities, provisions~~ in the ~~legislation~~“Risk ~~that~~Factors” ~~revoke the~~section ~~Tier 1 capital treatment~~ of ~~trust~~this ~~preferred~~Annual ~~securities~~Report, ~~could~~including ~~cause~~risks ~~the~~related ~~Company and the Bank~~ to ~~seek~~credit ~~other~~quality, ~~sources~~collateral, of capital, inliquidity, ~~the future. Some of the rules that have been proposed and~~operations, ininterest ~~some~~rate ~~cases~~risk, ~~adopted~~strategic torisk ~~comply~~and ~~with the Dodd-Frank Act’s mandates are discussed further below~~technology.

~~Insurance~~In ofresponse ~~Accounts,~~to ~~Assessments and Regulation by~~ the ~~FDIC.~~ ~~The~~COVID-19 ~~Bank’s~~pandemic, ~~deposits~~governmental ~~are~~authorities ~~insured~~have bytaken ~~the~~unprecedented ~~Deposit~~measures ~~Insurance~~to ~~Fund~~stabilize ~~(“DIF”)~~economic ofmarkets ~~the~~and ~~FDIC~~support upeconomic togrowth, ~~the~~and ~~standard~~Pinnacle’s ~~maximum~~participation ~~insurance~~in ~~amount~~and ~~for~~execution ~~each~~of ~~deposit~~these ~~insurance~~measures ~~ownership~~could ~~category.~~result Asin ofreputational ~~January 1,~~harm ~~2013,~~or ~~the~~litigation ~~basic limit~~that onresults ~~FDIC~~in ~~deposit~~judgments, ~~insurance~~settlements, ~~coverage~~penalties isor ~~$250,000~~fines ~~per~~levied ~~depositor~~against Pinnacle.

~~Under the FDIA~~Federal, ~~the~~state ~~FDIC~~and ~~may~~local ~~terminate~~governments ~~deposit~~in ~~insurance upon~~the aUnited ~~finding~~States ~~that~~have ~~the~~taken ~~institution~~unprecedented ~~has~~measures ~~engaged~~to instabilize ~~unsafe~~economic markets and ~~unsound~~support ~~practices,~~economic isgrowth in anresponse ~~unsafe~~to orthe ~~unsound~~COVID-19 ~~condition~~pandemic. toThe ~~continue~~success ~~operations~~of these measures is uncertain, orand ~~has~~these ~~violated~~measures ~~any~~even ~~applicable~~if ~~law,~~successful ~~regulation,~~may ~~rule,~~not ~~order~~be orsufficient ~~condition~~to ~~imposed~~address bythe negative economic impacts of the ~~FDIC,~~COVID-19 ~~subject~~pandemic ~~to administrative~~or avert severe and ~~potential~~prolonged ~~judicial~~reductions ~~hearing~~in ~~and~~economic ~~review~~activity, ~~processes~~including in the markets in which Pinnacle operates.

~~Deposit~~First ~~Insurance~~National ~~Assessments.~~Bank ~~The DIF~~ is ~~funded~~ bya ~~assessments~~participating onlender ~~banks~~in ~~and~~the ~~other~~PPP, ~~depository~~a ~~institutions.~~loan ~~The~~program ~~Bank’s~~administered ~~deposits~~through ~~are insured up to applicable limits by~~ the ~~FDIC~~U.S. ~~Under~~Small ~~the~~Business ~~risk-based~~Administration ~~assessment~~(the ~~system~~“SBA”), ~~insured~~that ~~institutions~~was ~~are~~created ~~assigned~~ to ~~one~~help ofeligible ~~four~~businesses, ~~risk~~organizations ~~categories based~~and onself-employed ~~supervisory~~persons ~~evaluations,~~fund ~~regulatory~~their ~~capital~~operational ~~levels~~costs (and ~~certain~~particularly ~~other~~payroll ~~factors.~~costs) Anduring ~~institution’s~~the ~~assessment~~COVID-19 ~~rate~~pandemic. ~~depends~~Under ~~upon~~this program, the ~~category~~SBA toguarantees ~~which~~100% itof isthe ~~assigned.~~amounts ~~Unlike~~loaned under the ~~other~~PPP. ~~categories~~The aslaws, ~~applied~~rules toand ~~small~~guidance ~~institutions,~~that ~~Risk Category~~govern 1,the ~~which~~operation ~~contains~~of the ~~least~~PPP ~~risky~~contain ~~depository~~significant ~~institutions~~ambiguities, ~~contains~~which ~~further~~has ~~risk~~exposed ~~differentiation~~lenders ~~based~~under on the ~~FDIC’s~~PPP ~~analysis~~program, ofincluding ~~financial ratios~~Pinnacle, ~~examination~~to ~~component~~risks ~~ratings~~relating ~~(CAMELS~~to ~~components)~~noncompliance ~~and~~with ~~other~~the ~~information~~PPP. ~~Assessment rates~~For ~~are~~example, ~~determined~~other byfinancial ~~the~~institutions ~~FDIC~~are ~~and,~~defendants ~~beginning~~in ~~April 1,~~purported ~~2011,~~class ~~initial~~action ~~base~~litigation ~~assessment~~regarding ~~rates~~the ~~ranged~~procedures ~~from~~used ~~2.5~~by tothe 45lender ~~basis~~in ~~points.~~processing ~~The~~applications ~~FDIC~~for ~~may make~~ the ~~following~~PPP. ~~further~~Under ~~adjustments~~the toPPP, anlending ~~institution’s~~banks ~~initial~~are ~~base~~generally ~~assessment~~entitled ~~rates: decreases~~to ~~for~~rely ~~long-term~~on ~~unsecured~~borrower ~~debt,~~representations ~~including~~and ~~most~~certifications ~~senior~~of ~~unsecured~~eligibility ~~debt~~to ~~and~~participate ~~subordinated~~in ~~debt;~~the ~~increases~~PPP, ~~for~~and ~~holding~~lending ~~long-term~~banks ~~unsecured~~may ~~debt~~also orbe ~~subordinated~~held ~~debt~~harmless ~~issued~~ by ~~other~~the ~~insured~~SBA ~~depository~~in ~~institutions;~~certain ~~and~~circumstances ~~increases~~ for ~~broker deposits~~actions taken in ~~excess~~reliance ofon 10borrower ~~percent~~representations ~~of domestic deposits for insurances not well rated~~ and ~~well capitalized~~certifications. ~~The~~Notwithstanding ~~Dodd-Frank~~the ~~Act~~foregoing, ~~transferred~~First toNational ~~the~~Bank ~~FDIC~~has ~~increased~~been ~~discretion~~and ~~with~~continues ~~regard~~ to ~~managing~~be ~~the~~exposed ~~required~~to ~~amount~~credit ofrisk ~~reserves~~on ~~for~~PPP ~~the~~loans ~~DIF,~~if ora ~~the “designated~~determination ~~reserve~~is ~~ratio.”~~made ~~Among~~by ~~other changes,~~ the ~~Dodd-Frank~~SBA ~~Act~~that ~~(i) raised~~there ~~the~~is ~~minimum~~a ~~designated~~deficiency ~~reserve~~in ~~ratio to 1.35 percent and removed~~ the ~~upper~~manner ~~limit~~in onwhich the ~~designated~~loan ~~reserve~~was ~~ratio~~originated, ~~(ii) requires~~funded ~~that~~or ~~the designated reserve ratio reach 1~~serviced.35 ~~percent~~If bya ~~September~~deficiency ~~2020~~is identified, ~~and (iii) requires~~ the ~~FDIC~~SBA tomay ~~offset~~deny ~~the~~its ~~effect~~liability onunder ~~institutions~~its ~~with~~guaranty ~~total~~of ~~consolidated~~amounts ~~assets~~owed ofon ~~less~~the ~~than~~PPP ~~$10~~loan, ~~billion~~reduce ofthe ~~increasing~~amount of ~~raising~~ the ~~designated~~guaranty, ~~reserve~~or, ~~ratio~~if ~~from~~it ~~1.15~~has ~~percent to~~already ~~1.35~~paid ~~percent.~~under ~~The~~the ~~FDIA~~guaranty, ~~requires~~seek ~~that~~recovery ~~the~~of ~~FDIC~~any ~~consider~~loss ~~the~~related ~~appropriate~~to ~~level for~~ the ~~designated~~deficiency ~~reserve~~from ~~ratio~~First onNational ~~at least an annual basis~~Bank.

InPinnacle’s anparticipation ~~effort~~in toand ~~restore~~execution ~~capitalization~~of ~~levels~~these and toother ~~ensure~~measures ~~the~~taken ~~DIF~~by ~~will~~governments ~~adequately~~and ~~cover~~regulatory ~~projected~~authorities ~~losses~~in ~~from~~response ~~future~~to ~~bank failures,~~ the ~~FDIC,~~COVID-19 ~~effective~~pandemic ~~April 1,~~could ~~2009,~~result ~~implemented~~in areputational ~~rule~~harm ~~providing for~~and ~~initial~~may ~~base~~also ~~assessment~~lead ~~rates for Risk Category 1 institutions of 12~~ to ~~16 basis points~~litigation, ~~subject~~including toclass ~~potential~~action ~~base-rate adjustments~~claims, ~~including~~or ~~(i) a~~regulator ~~potential~~or ~~decrease~~administrative ofactions upor toproceedings. ~~5 basis~~Such ~~points for long-term unsecured debt~~litigation, ~~including~~ ~~senior~~actions ~~and~~or ~~subordinated~~proceedings ~~debt,~~may ~~(ii) a~~result ~~potential increase for secured liabilities~~ in ~~excess of 25% of domestic deposits and (iii) for non-Risk Category 1 institutions~~judgments, ~~a potential increase for brokered deposits in excess of 10% of domestic deposits. Taking into account these potential base-rate adjustments~~settlements, ~~the~~penalties ~~annualized~~and ~~assessment~~fines ~~rate~~levied ~~for~~against ~~Risk Category 1 institutions would range from 7 to 24 basis points~~Pinnacle.

In October 2010, the FDIC adopted a new DIF restoration plan to ensure that the fund reserve ratio reaches 1.35 percent by September 30, 2020, as required by the Dodd-Frank Act. The restoration plan requires the FDIC to update its loss and income projections for the DIF at least semiannually, and if needed the FDIC may increase or decrease assessment rates, following a notice-and-comment rulemaking. 11

InRisks ~~February~~Related ~~2011, the FDIC approved a final rule that changed the assessment base from domestic deposits~~ to ~~average~~Pinnacle’s ~~consolidated~~Lending total assets minus average tangible equity (defined as Tier 1 capital); adopted a new large-bank pricing assessment scheme; and set a target “designated reserve ratio” for the DIF. The rule, as mandated by the Dodd-Frank Act, finalizes a target size for the DIF at 2 percent of insured deposits. It also implements a lower assessment rate schedule when the fund reaches 1.15 percent and, in Activities

11Pinnacle may experience increased delinquencies and credit losses, which could have a material adverse effect on Pinnacle’s capital, financial condition and results of operations.

~~Table~~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 ~~Contents~~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.

~~lieu~~Pinnacle’s ofallowance ~~dividends,~~for ~~provides~~loan ~~for~~losses amay ~~lower~~be ~~rate~~insufficient ~~schedule~~to ~~when~~absorb ~~the~~incurred ~~reserve~~losses ~~ratio~~in ~~reaches~~Pinnacle’s 2loan ~~percent~~portfolio, and ~~2.5~~any ~~percent.~~increases ~~The~~in ~~changes~~the ~~went~~ALL ~~into~~may ~~effect~~have ~~beginning~~a ~~with~~material ~~the~~adverse ~~second~~effect ~~quarter~~on ofPinnacle’s ~~2011,~~financial condition and ~~began affecting~~results ~~premiums payable at the end~~ of ~~September 2011~~operations.

~~Mortgage~~Pinnacle ~~Banking~~maintains ~~Regulation.~~an ~~The Bank’s~~allowance ~~mortgage~~for ~~banking~~loan ~~operation~~losses is(“ALL”), ~~subject~~which tois ~~the~~a ~~rules~~reserve ~~and~~established ~~regulations~~through ~~of,~~a ~~and~~provision ~~examination~~for byloan ~~the~~losses ~~U.S.~~charged ~~Department~~to ~~of Housing and Urban Development~~expense, ~~the~~that ~~Federal~~represents ~~Housing~~Pinnacle’s ~~Administration,~~best ~~the~~estimate ~~Veterans~~of ~~Administration~~probable ~~and~~losses ~~state~~that ~~regulatory authorities~~have ~~with~~been ~~respect~~incurred towithin ~~originating,~~the ~~processing~~existing ~~and~~portfolio ~~selling~~of ~~mortgage~~ loans. ~~Those~~The ~~rules and regulations~~allowance, ~~among~~in ~~other~~the ~~things,~~judgment ~~establish standards for loan origination, prohibit discrimination, provide for inspections and appraisals~~ of ~~property~~management, ~~require~~ ~~credit~~is ~~reports~~necessary onto ~~prospective~~reserve ~~borrowers~~for ~~and,~~estimated ~~in some cases, restrict certain~~ loan ~~features,~~losses and ~~fix~~risks ~~maximum~~inherent ~~interest~~in ~~rates~~the ~~and~~loan ~~fees~~portfolio. InElevated ~~addition~~levels toof ~~other~~loan ~~Federal~~delinquencies ~~laws,~~and ~~mortgage~~bankruptcies ~~origination~~in ~~activities~~Pinnacle’s ~~are~~market ~~subject~~area togenerally ~~the~~and ~~Equal~~among ~~Credit Opportunity~~its ~~Act,~~customers ~~Truth-in-Lending Act~~specifically, ~~Home~~can ~~Mortgage~~be ~~Disclosure~~precursors ~~Act,~~of ~~the~~future ~~Real~~charge-offs ~~Estate~~and ~~Settlement~~may ~~Procedures~~require ~~Act,~~increases ~~and~~to the ~~Home~~ALL. ~~Ownership~~Higher ~~Equity~~charge-off ~~Protection Act~~rates, ~~and~~delays in the ~~regulations~~foreclosure ~~promulgated~~process ~~thereunder.~~or ~~These~~in ~~laws~~obtaining ~~prohibit~~judgments ~~discrimination,~~against ~~require~~defaulting ~~the disclosure~~borrowers ofor ~~certain~~an ~~basic~~increase ~~information~~in toPinnacle’s ~~mortgagors~~ALL ~~concerning~~may ~~credit~~hurt ~~and~~Pinnacle’s ~~settlement~~overall ~~costs,~~financial ~~limit~~performance ~~payment~~if ~~for~~it ~~settlement~~is ~~services~~unable to ~~the~~increase ~~reasonable~~revenue ~~value~~to ofcompensate ~~the~~for ~~services~~these ~~rendered~~losses, ~~and~~may ~~require~~increase ~~the~~Pinnacle’s ~~maintenance~~cost ~~and disclosure~~ of ~~information regarding the disposition of mortgage applications based on race~~funds, ~~gender, geographical distribution~~ and ~~income~~could ~~level.~~materially ~~The~~adversely ~~Dodd-Frank~~affect ~~Act~~Pinnacle’s ~~has~~business, ~~transferred~~results ~~rulemaking authority under many~~ of ~~these~~operations ~~laws~~and tofinancial ~~the CFPB~~condition.

~~Financial~~The ~~Holding~~level ~~Company~~of ~~Status.~~the AsALL ~~provided~~reflects bymanagement’s evaluation of the ~~Gramm~~level of loans outstanding, the level of non-~~Leach-Bliley~~performing ~~Act~~loans, historical loan loss experience, delinquency trends, underlying collateral values, the amount of ~~1999~~actual (losses charged to the ~~“GLBA”),~~reserve in a ~~bank~~given ~~holding company~~period ~~may~~and ~~become~~our ~~eligible~~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 ~~engage~~make insignificant ~~activities~~estimates ~~that~~of ~~are~~current ~~financial~~credit inrisks ~~nature~~and orfuture ~~incidental~~trends, orall ~~complimentary~~of which may undergo material changes. The ALL may not be sufficient to ~~financial~~cover ~~activities~~actual byloan ~~qualifying~~losses asand afuture ~~financial~~provisions ~~holding~~for ~~company~~loan losses could materially and adversely affect Pinnacle’s operating results.

ToPinnacle’s ~~qualify~~banking regulators, as aan ~~financial~~integral ~~holding~~part ~~company,~~of ~~each~~their ~~insured~~examination ~~depository~~process, ~~institution~~periodically ~~controlled~~review by the ~~bank~~ALL ~~holding~~and ~~company~~may ~~must~~require ~~be well-capitalized,~~Pinnacle ~~well-managed~~to ~~and~~increase ~~have~~its atALL ~~least~~by arecognizing ~~satisfactory~~additional ~~rating~~provisions ~~under~~for ~~the~~loan ~~CRA~~losses ~~(discussed~~charged ~~below).~~to ~~In addition~~expense, ~~the~~or ~~bank~~to ~~holding~~decrease ~~company~~the ~~must~~ALL ~~file~~by ~~with~~recognizing ~~the~~loan ~~FRB~~charge-offs, anet ~~declaration~~ of ~~its intention to become a financial holding company~~recoveries. ~~While~~Any ~~the Company~~such ~~satisfies~~required ~~these~~additional ~~requirements,~~provisions ~~the~~for ~~Company~~loan ~~has~~losses ~~not~~or ~~elected~~charge-offs ~~for~~could ~~various~~have ~~reasons~~a tomaterial beadverse ~~treated~~effect ason aPinnacle’s financial ~~holding~~condition ~~company~~and ~~under~~results ~~the~~of ~~GLBA~~operations.

ToAdditionally, ~~date~~the measure of Pinnacle’s ALL is dependent on the adoption and interpretation of accounting standards. In June 2016, the ~~Company~~Financial ~~has~~Accounting ~~not~~Standards ~~qualified~~Board as(the a“FASB”) ~~financial~~issued ~~holding~~Accounting ~~company~~Standards Update (“ASU”) No. 2016-13, ~~and~~“Financial ~~qualification~~Instruments as- ~~such~~Credit byLosses ~~other~~(Topic ~~bank~~326): ~~holding~~Measurement ~~companies~~of ~~has~~Credit ~~not~~Losses ~~had~~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 ~~material~~methodology ~~impact~~that onreflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Accordingly, the ~~Company~~implementation of the CECL model will change Pinnacle’s orcurrent ~~the~~method ~~Bank~~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.

Confidentiality and Required Disclosures of Customer Information. The Company is subject to various laws and regulations that address the privacy of nonpublic financial information of customers. The GLBA and other regulations issued thereunder protect against the transfer and use by financial institutions of consumer nonpublic personal information. A financial institution must provide to 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. 12

~~The~~Pinnacle’s ~~Company~~credit isstandards ~~also subject to various laws~~ and ~~regulations~~its 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 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 antion-~~money~~going ~~laundering~~credit ~~programs.~~assessment ~~The~~processes ~~Federal~~might ~~Bureau~~not ofprotect Investigation (FBI) sends banking regulatory agencies lists of the names of persons suspected of involvement in terrorist activities, and requests banks to search their records for any relationships or transactions with persons on those lists. If the Bank finds any relationships or transactions, it ~~must~~from ~~file~~significant acredit ~~suspicious activity report with the Treasury and contact the FBI~~losses. The Office of Foreign Assets Control (“OFAC”), which is a division 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 the Bank finds a name of an “enemy” of the United States on any transaction, account or wire

12Pinnacle 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.

~~Table~~Pinnacle’s offocus ~~Contents~~on lending to small and mid-sized community-based businesses may increase its credit risk.

~~transfer~~Most ~~that~~of isPinnacle’s oncommercial anbusiness ~~OFAC~~and ~~list,~~commercial itreal ~~must~~estate ~~freeze~~loans ~~such~~are ~~account,~~made ~~file~~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 ~~suspicious~~heightened ~~activity~~vulnerability ~~report~~to ~~with~~economic conditions. If general economic conditions in the ~~Treasury~~market areas in which Pinnacle operates negatively impact this important customer sector, Pinnacle’s results of operations and ~~notify~~financial condition may be adversely affected. Moreover, a portion of these loans have been made by Pinnacle in recent years and the ~~FBI~~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.

~~Although~~Pinnacle’s ~~these~~concentration ~~laws~~in ~~and~~loans ~~programs~~secured ~~impose~~by ~~compliance~~real ~~costs~~estate ~~and~~may ~~create~~increase ~~privacy~~its ~~obligations~~future ~~and,~~credit ~~in some cases~~losses, ~~reporting~~which ~~obligations,~~would ~~these laws~~negatively ~~and programs do not materially~~ affect ~~the Bank~~Pinnacle’s ~~products,~~financial ~~services or other business activities~~results.

~~Stress Testing.~~Pinnacle Asoffers ~~required~~a byvariety ~~the~~of ~~Dodd-Frank~~secured ~~Act~~loans, ~~the~~including ~~federal~~commercial ~~banking~~lines ~~agencies~~of ~~have~~credit, ~~implemented~~commercial ~~stress~~term ~~testing~~loans, ~~requirements~~real ~~for~~estate, ~~certain~~construction, ~~financial~~home ~~institutions~~equity, ~~including~~consumer ~~bank~~and ~~holding~~other ~~companies~~loans. Credit risk and ~~state~~credit ~~chartered~~losses ~~banks,~~can ~~with~~increase ~~more~~if ~~than~~its ~~$10~~loans ~~billion in~~are ~~total~~concentrated ~~consolidated~~to ~~assets.~~borrowers ~~Although~~who, ~~these~~as ~~requirements~~a dogroup, ~~not~~may ~~apply~~be touniquely ~~institutions~~or ~~with~~disproportionately ~~less~~affected ~~than~~by ~~$10~~economic ~~billion~~or inmarket ~~total~~conditions. ~~consolidated~~As ~~assets,~~of ~~the~~December ~~federal~~31, ~~banking~~2020, ~~agencies~~approximately ~~emphasize~~60.16% ~~that~~of ~~all~~Pinnacle’s ~~banking~~loans ~~organizations,~~are ~~regardless~~secured ofby ~~size~~real estate, ~~should~~both ~~have the~~residential ~~capacity~~and tocommercial, ~~analyze~~substantially ~~the~~all ~~potential~~of ~~impact~~which ofare ~~adverse~~located in its market ~~conditions~~area. orA ~~outcomes~~major onchange in the ~~organization~~region’s ~~financial~~real ~~condition.~~estate ~~Based~~market, onresulting ~~existing~~in ~~regulatory~~a ~~guidance~~deterioration in real estate values, or in the ~~Company~~local ~~and~~or ~~the~~national ~~Bank~~economy, ~~will~~including bechanges ~~expected~~caused toby ~~consider~~rising ~~the~~interest ~~institution~~rates, could adversely affect Pinnacle’s ~~interest~~ ~~rate~~customers’ ~~risk~~ability ~~management~~to pay these loans, ~~commercial~~which ~~real~~in ~~estate~~turn ~~concentrations~~could adversely impact Pinnacle. Risk of loan defaults and ~~other~~foreclosures ~~credit-related~~are ~~information~~inherent in the banking industry, and ~~funding~~Pinnacle ~~and~~tries ~~liquidity~~to ~~management~~limit ~~during~~its exposure to this ~~analysis~~risk ofby ~~adverse~~carefully ~~outcomes~~underwriting and monitoring its extensions of credit. Pinnacle cannot fully eliminate credit risk, and as a result credit losses may occur in the future.

~~Community~~A ~~Reinvestment~~portion ~~Act. The Bank is subject to the requirements~~ of the Community Reinvestment Act (the “CRA”). The CRA 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 institutionPinnacle’s ~~efforts~~loan inportfolio ~~meeting~~consists ~~community credit needs is evaluated as part~~ of ~~the~~commercial ~~examination~~real ~~process~~estate ~~pursuant to twelve assessment factors and then given a rating of “Outstanding~~loans,~~” “Satisfactory,”~~ ~~“Needs~~which ~~to improve” or “Substantial noncompliance.” These factors also~~ are ~~considered~~viewed inas ~~evaluating~~having ~~mergers, acquisitions and applications to open~~ a ~~branch~~higher orrisk ~~facility. The Bank received a rating~~ of ~~“Satisfactory”~~ ~~in its most recent CRA performance evaluation as of September 30, 2010~~default.

~~Consumer~~As ~~Laws~~of ~~and Regulations~~December 30, 2020, approximately 28.35% ~~The~~of ~~Bank~~Pinnacle’s isloans ~~also~~are ~~subject~~secured toby ~~certain~~commercial ~~consumer~~real ~~laws~~estate. ~~and~~The ~~regulations~~real ~~that~~estate ~~are~~consists ~~designed~~primarily toof ~~protect~~non-owner-operated ~~consumers~~properties inand ~~transactions~~other ~~with~~commercial ~~banks~~properties. ~~While~~These ~~the~~types ~~list~~of ~~set~~loans ~~forth~~are ~~herein~~generally isviewed ~~not~~as ~~exhaustive,~~having ~~these~~a ~~laws~~higher ~~and~~risk ~~regulations~~of ~~include~~default ~~the~~than ~~Truth in~~residential ~~Lending~~real ~~Act,~~estate ~~the~~loans. ~~Truth~~They inare ~~Savings~~also ~~Act,~~typically ~~the~~larger ~~Electronic~~than ~~Funds~~residential ~~Transfer~~real ~~Act,~~estate ~~the~~loans ~~Expedited~~and ~~Funds~~consumer ~~Availability~~loans ~~Act,~~and ~~the~~depend ~~Equal~~on ~~Credit~~cash ~~Opportunity~~flows ~~Act,~~from the ~~Fair~~owner’s ~~Credit~~business ~~Reporting~~or ~~Act~~the ~~and~~property to service the ~~Fair~~debt. ~~Housing~~It ~~Act,~~may ~~among~~be ~~others.~~more ~~These~~difficult ~~laws~~for ~~and~~commercial ~~regulations mandate~~real ~~certain~~estate ~~disclosure~~borrowers ~~requirements~~to ~~and~~repay ~~regulate~~their ~~the~~loans in a timely manner, inas ~~which~~commercial ~~financial~~real ~~institutions~~estate ~~transact~~borrowers’ ~~business~~abilities ~~with~~to ~~customers.~~repay ~~The~~their ~~Bank~~loans ~~must~~frequently ~~comply~~depends ~~with~~on the ~~applicable~~successful ~~provisions~~rental of ~~these~~their ~~consumer~~properties. ~~protection~~Cash ~~laws~~flows may be affected significantly by general economic conditions, and ~~regulations~~a asdownturn ~~part~~in ofthe ~~its ongoing~~local ~~customer~~economy ~~relations.~~or in occupancy rates in the local economy where the property is located could increase the likelihood of default.

~~The~~Pinnacle’s ~~Dodd-Frank~~banking ~~Act~~regulators ~~created~~generally ~~the~~give ~~CFPB,~~commercial areal ~~federal~~estate ~~regulatory~~lending ~~agency~~greater ~~that is responsible for implementing~~scrutiny, ~~examining~~ and ~~enforcing~~may ~~compliance~~require ~~with~~banks ~~federal consumer financial laws for institutions~~ with ~~more~~higher ~~than~~levels ~~$10~~of ~~billion~~commercial ofreal ~~assets~~estate ~~and,~~loans to aimplement ~~lesser~~improved ~~extent~~underwriting, ~~smaller~~internal ~~institutions.~~controls, ~~The~~risk ~~Dodd-Frank~~management ~~Act~~policies ~~gives the CFPB authority to supervise~~ and ~~regulate~~ ~~providers~~portfolio ofstress ~~consumer financial products and services~~testing, ~~and~~as ~~establishes~~well ~~the~~as ~~CFPB’s~~possibly ~~power~~higher tolevels ~~act~~of ~~against~~allowances ~~unfair,~~for ~~deceptive~~losses ~~or abusive practices,~~ and ~~gives~~capital ~~the~~as ~~CFPB~~a ~~rulemaking~~result ~~authority~~of ~~with~~commercial ~~numerous~~real ~~federal~~estate ~~consumer~~lending ~~financial~~growth ~~protection laws~~and ~~(for example~~exposures, ~~but~~which ~~not~~could ~~limited~~have ~~to,~~a ~~the~~material ~~Truth-in-Lending~~adverse ~~Act~~effect ~~and~~on ~~the~~Pinnacle’s ~~Real~~results ~~Estate~~of ~~Settlement Procedures Act)~~operations.

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 the Company by the FRB and to the Bank by the Comptroller. 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, could influence how the FRB and Comptroller apply consumer protection laws and regulations to financial institutions that are not directly supervised by the CFPB. The precise impact of the CFPB’s consumer protection activities on the Company cannot be forecast. 13

~~Incentive~~A ~~Compensation.~~portion ~~The~~of ~~FRB,~~Pinnacle’s ~~the~~loan ~~Comptroller~~portfolio ~~and~~consists ~~the~~of ~~FDIC~~construction ~~have~~and ~~issued~~land ~~regulatory~~development ~~guidance~~loans, ~~(the~~and ~~“Incentive~~a ~~Compensation~~decline ~~Guidance”)~~in ~~intended~~real toestate ~~ensure~~values ~~that~~and ~~the~~economic ~~incentive compensation~~conditions ~~policies~~would ofadversely ~~banking~~affect ~~organizations do not undermine~~ the ~~safety~~value ~~and soundness~~ of ~~such~~these ~~organizations~~loans ~~by encouraging excessive risk-taking. Banking organizations are instructed to review their incentive compensation policies to ensure that they do not encourage excessive risk-taking~~ and ~~implement~~the ~~corrective~~collateral ~~programs~~securing asthese ~~needed~~loans. ~~The Federal Reserve Board will review, as part of the regular, risk-focused~~

13As 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.

~~Table~~Risks ofRelated ~~Contents~~to Pinnacle’s Business, Operations and Industry

~~examination~~Pinnacle ~~process,~~is ~~the~~subject ~~incentive~~to ~~compensation~~interest ~~arrangements~~rate ofrisk ~~banking~~and ~~organizations,~~fluctuations ~~such as the Bank, that are not “large, complex banking organizations.” The findings will be included~~ in ~~reports~~interest ofrates ~~examination, and deficiencies will be incorporated into the organization’s supervisory ratings,~~ which ~~can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions~~ may ~~be taken~~negatively ~~against~~affect ~~a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization~~Pinnacle’s ~~safety~~financial ~~and soundness and the organization is not taking prompt and effective measures to correct the deficiencies~~performance.

~~The~~Pinnacle’s ~~Dodd-Frank~~profitability ~~Act~~depends ~~requires~~in substantial part on its net interest margin, which is the ~~SEC~~difference ~~and~~between the ~~federal~~interest ~~bank~~earned ~~regulatory~~on ~~agencies to~~loans, ~~establish~~securities ~~joint~~and ~~regulations~~other orinterest-earning ~~guidelines~~assets, ~~that~~and ~~require~~interest ~~financial~~paid ~~institutions~~on ~~with~~deposits and borrowings divided by total interest-earning assets. ofChanges atin ~~least~~interest $1rates ~~billion~~affect toPinnacle’s ~~disclose~~net ~~the~~interest ~~structure~~margin ofin ~~their~~diverse ~~incentive~~ways, ~~compensation~~including ~~practices~~the pricing of loans and ~~prohibit~~deposits, ~~such~~the ~~institutions~~levels ~~from~~of ~~maintaining~~prepayments ~~compensation arrangements~~and ~~that~~asset ~~encourage~~quality. ~~inappropriate~~Interest ~~risk-taking~~rates byare ~~providing~~highly ~~excessive~~sensitive ~~compensation~~to ormany ~~that~~factors ~~could~~beyond ~~lead~~Pinnacle’s tocontrol, ~~material~~including ~~financial~~general ~~loss~~economic toconditions and the ~~financial~~policies ~~institution.~~of ~~The~~the ~~SEC~~Federal Reserve and ~~the~~other ~~federal~~governmental ~~bank~~and regulatory agencies. ~~proposed~~Pinnacle ~~such~~cannot ~~regulations~~predict inactual ~~March 2011,~~fluctuations ~~which~~of ~~may~~market ~~become~~interest ~~effective~~rates. ~~before~~Recent actions by the ~~end~~Federal ofOpen ~~2013~~Market Committee have maintained an accommodative monetary policy, thereby supporting strong labor market conditions and reducing short-term interest rates. IfLonger-term ~~the~~market ~~regulations~~interest ~~are~~rates, ~~adopted~~including inyields ~~the~~on ~~form~~U.S. ~~initially~~treasury ~~proposed~~bonds, ~~they~~remain ~~will~~low. Therefore, ~~impose~~Pinnacle ~~limitations~~expects continued pressure on ~~the~~its ~~manner~~net ininterest ~~which~~margin ~~the~~due ~~Corporation~~to intense competition for loans and deposits from both local and national financial institutions. An upward movement in interest rates may ~~structure~~result ~~compensation~~in ~~for~~an ~~its~~unfavorable ~~executives~~pricing ~~only~~disparity ifbetween ~~the Corporation~~Pinnacle’s ~~total~~fixed ~~consolidated~~rate ~~assets~~loan ~~exceed~~portfolio $1and ~~billion~~adjustable-rate funding sources. Continued ~~These~~pressure ~~proposed~~on ~~regulations~~our ~~incorporate~~net ~~the~~interest ~~principles~~margin ~~discussed~~could inadversely ~~the~~affect ~~Incentive~~our ~~Compensation~~results ~~Guidance.~~of operations.

~~Future~~Changes ~~Regulation.~~in ~~From~~monetary ~~time~~policy ~~to time, various legislative~~ and ~~regulatory~~changes ~~initiatives are introduced~~ in ~~Congress~~interest ~~and~~rates ~~state~~will ~~legislatures,~~influence asthe ~~well~~origination asof byloans, ~~regulatory agencies. Such initiatives may include proposals to expand or contract~~ the ~~powers~~prepayment of ~~bank~~loans, ~~holding companies and depository institutions or proposals to substantially change~~ the ~~financial~~fair ~~institution~~value ~~regulatory~~of ~~system.~~existing ~~Such~~assets ~~legislation could change banking statutes~~ and liabilities, the ~~operating~~purchase ~~environment~~ of investments, the ~~Company~~retention ~~in substantial~~ and ~~unpredictable~~generation ~~ways.~~of ~~If enacted~~deposits, ~~such~~the ~~legislation~~rates ~~could~~received ~~increase~~on orloans ~~decrease~~and ~~the~~investment ~~cost of doing business~~securities, ~~limit~~and ~~or expand permissible activities or affect~~ the ~~competitive~~rates ~~balance~~paid ~~among banks,~~on ~~savings~~deposits ~~associations,~~or ~~credit unions, and~~ other ~~financial~~sources ~~institutions~~of funding. The ~~Company~~impact ~~cannot~~of ~~predict~~these ~~whether~~changes ~~any~~may ~~such legislation will~~ be ~~enacted,~~magnified ~~and,~~ if ~~enacted,~~Pinnacle ~~the~~does ~~effect~~not ~~that~~effectively ~~it,~~manage ~~or any implementing regulations, would have on~~ the ~~financial condition~~relative orsensitivity ~~results~~ of ~~operations~~its ofassets ~~the~~and ~~Company.~~liabilities Ato ~~change~~changes in ~~statutes,~~market ~~regulations~~interest orrates. ~~regulatory~~In ~~policies~~addition, ~~applicable~~Pinnacle’s ability to ~~the~~reflect ~~Company~~such orinterest ~~the~~rate ~~Bank,~~changes orin ~~any~~pricing of its ~~subsidiaries,~~products ~~could~~is ~~have~~influenced aby ~~material~~competitive ~~effect on the business of the Company~~pressures.

~~Employees~~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.

~~As of December 31, 2012, the Company had 105 full-time and part-time employees. The Company’s management believes that its employee relations are good.~~ 14

~~Executive~~At ~~Officers~~December 31, 2020, approximately 11.84% of Pinnacle’s loans held for investment were variable rate loans. While the ~~Registrant~~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.

Name (Age)		Principal Occupation During Past Five Years
Aubrey H. Hall, III (42)		President & Chief Executive Officer of Pinnacle Bankshares Coporation and Chief Executive Officer and Trust Officer of First National Bank since July 2011; Director, Pinnacle Bankshares Corporation and First National Bank since 2011. Previously, Executive Vice President of Pinnacle Bankshares Corporation and President and Chief Operating Officer of First National Bank from January 2011 to July 2011 and Chief Lending Officer of First National Bank from 2007 to 2011.
Carroll E. Shelton (62)		Vice President of Pinnacle Bankshares Corporation and Senior Vice President and Chief Credit Officer of First National Bank since 1990; Director, Pinnacle Bankshares Corporation since 1990.
Bryan M. Lemley (41)		Secretary, Treasurer and Chief Financial Officer of Pinnacle Bankshares Corporation since 2000 and Senior Vice President of First National Bank since April 2010, Cashier and Chief

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.

14Deterioration 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.

~~Table~~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 ~~Contents~~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.

~~Financial~~Pinnacle’s ~~Officer~~future ofsuccess ~~First~~will ~~National~~depend ~~Bank~~on ~~since~~its ~~June~~ability ~~2000~~to compete effectively in the highly competitive financial services industry.

~~Item~~Pinnacle 1Afaces substantial competition in all phases of its operation from a variety of competitors. ~~Risk~~Pinnacle ~~Factors~~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.

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

~~Item~~Integration 1Bin 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. ~~Unresolved~~The ~~Staff~~future ~~Comments~~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.

~~Not required.~~ 15

~~Item~~Pinnacle 2.continually ~~Properties~~encounters technological change which could affect its ability to remain competitive.

The ~~Company’s~~ ~~main~~financial ~~office~~services industry is continually undergoing technological change with frequent introductions of new technology-driven products and ~~corporate~~services. ~~headquarters,~~The ~~located~~effective atuse ~~622~~of ~~Broad~~technology ~~Street~~increases efficiency and enables financial institutions to better serve customers and to reduce costs. Pinnacle continues to invest in ~~downtown~~technology ~~Altavista~~and connectivity to automate functions previously performed manually, ~~Virginia~~to facilitate the ability of customers to engage in financial transactions, isand ~~owned~~otherwise to enhance the customer experience with respect to its products and ~~principally~~services. ~~occupied~~Pinnacle’s bycontinued success depends, in part, upon its ability to address the ~~Bank~~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.

~~The~~Pinnacle’s ~~Vista~~operations ~~Office,~~may ~~located~~be atadversely ~~1301~~affected ~~N. Main Street in Altavista, Virginia, consists of a single-story building owned~~ by ~~the~~cyber ~~Bank~~security ~~but~~risks ~~was destroyed by fire last year. The Company expects its new Vista Branch Office located in Altavista, which will replace the one destroyed by fire last year, to be completed~~ and ~~open for business in early May of 2013~~cyber-attacks. ~~A temporary location behind the office site in the Town and Country Shopping Plaza has been established for customer convenience during the rebuilding process.~~

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 ~~Airport~~secure ~~Office~~processing, ~~located~~maintenance, atand ~~14580~~use ~~Wards~~of ~~Road~~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 ~~Campbell~~security ~~County~~or operational integrity of these systems, ~~Virginia~~ such as “hacking,” ~~consists~~“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 aPinnacle’s ~~single~~employees working from home during the COVID-~~story~~19 ~~building~~pandemic, ~~owned~~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 ~~the~~hackers ~~Bank~~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.

~~The~~There ~~Old~~can ~~Forest~~be ~~Road~~no ~~Office,~~assurance ~~located~~that atPinnacle ~~3309~~will ~~Old~~not ~~Forest~~suffer ~~Road~~ cyber-attacks or other information security breaches or be impacted by losses from such events in ~~Lynchburg~~the future. Pinnacle’s risk and exposure to these matters remain heightened because of, ~~Virginia~~among other things, ~~consists~~the evolving nature of athese ~~single~~threats, current use of internet banking and mobile banking channels, expanded operations and third-~~story~~party ~~building~~information ~~owned~~systems. byRecent instances of attacks specifically targeting financial services businesses indicate that the ~~Bank.~~risk to Pinnacle’s systems remains significant.

~~The~~A ~~Timberlake~~breach ~~Office~~of any kind could compromise systems and the information stored there could be accessed, ~~located~~damaged, ator ~~20865 Timberlake~~disclosed. ~~Road~~A breach in ~~Campbell~~security ~~County~~or other failure could result in legal claims, ~~Virginia~~regulatory penalties, ~~consists~~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 acustomers ~~single-story~~and ~~building~~business ~~leased~~partners, ~~for~~and $4damage to Pinnacle’s reputation,~~282~~ ~~per~~which ~~month~~could ~~through~~adversely ~~April~~affect ~~2012~~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.

~~The~~Pinnacle ~~Forest~~relies ~~Office,~~on ~~located~~other atcompanies ~~14417~~to ~~Forest~~provide ~~Road~~key incomponents ~~Forest, Virginia, consists~~ of aits ~~single-story~~business ~~building owned by the Bank~~infrastructure.

~~The~~Third ~~Amherst~~parties ~~Office~~provide key components of Pinnacle’s business operations such as data processing, ~~located~~recording atand ~~130~~monitoring ~~South~~transactions, ~~Main~~online ~~Street~~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 ~~Amherst~~communication services provided by a vendor and failure to handle current or higher volumes, ~~Virginia~~could adversely affect Pinnacle’s ability to deliver products and services to its customers and otherwise conduct its business, ~~consists~~and may harm its reputation. Financial or operational difficulties of a ~~single~~third-~~story~~party ~~building~~vendor ~~leased~~could ~~for~~also ~~$10,878~~hurt ~~per~~Pinnacle’s ~~month~~operations ~~through~~if ~~March~~those ~~2013~~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.

~~The Rustburg Office, located at 1033 Village Highway in Rustburg, Virginia, consists of a single-story building owned by the Bank.~~ 16

The ~~Wyndhurst~~operational ~~Administrative~~functions ~~and~~of ~~Training~~business ~~Office,~~counterparties ~~located~~over atwhich ~~201~~Pinnacle ~~Archway~~may ~~Court~~have inlimited ~~Lynchburg,~~or ~~Virginia,~~no ~~consists~~control ofmay ~~a single-story~~experience ~~building~~disruptions ~~leased~~that ~~for~~could ~~$3,846~~adversely ~~per~~impact ~~month through January 2013~~Pinnacle.

~~With~~Multiple ~~the~~major ~~noted~~U.S. ~~exception~~retailers ofand ~~the~~a ~~Vista~~major ~~Office,~~consumer ~~which was~~credit ~~destroyed~~reporting byagency ~~fire~~have ~~last~~experienced ~~year~~data ~~with~~systems incursions in recent years reportedly resulting in the ~~new~~thefts ~~branch~~of ~~expected~~credit toand bedebit ~~completed~~card ininformation, ~~May~~online ~~2013~~account information, ~~the~~and ~~Company~~other ~~believes~~personal ~~all~~and financial data of ~~these~~hundreds ~~properties~~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 ~~good~~retailer ~~operating~~incursions, ~~condition~~such incursions can still cause customers to be dissatisfied with First National Bank and ~~are~~otherwise ~~adequate~~adversely ~~for~~affect ~~the~~Pinnacle’s ~~Company~~and First National Bank’s ~~present~~reputation. These events can also cause First National Bank to take other costly steps to avoid significant theft loss to First National Bank and ~~anticipated~~its ~~future~~customers. ~~needs~~In some cases, First National Bank may be required to reimburse customers for the losses they incur. ~~The Company~~Credit ~~maintains~~reporting ~~comprehensive~~agency ~~general~~intrusions ~~liability~~affect First National Bank’s customers and ~~casualty~~can ~~loss~~require ~~insurance~~these ~~covering~~customers ~~its~~and ~~properties~~First National Bank to increase account monitoring and ~~activities~~take ~~conducted~~remedial inaction orto ~~about~~prevent ~~its~~unauthorized ~~properties~~account activity or access. ~~The~~Other ~~Company~~possible ~~believes~~points ~~this~~of ~~insurance~~intrusion ~~provides~~or ~~adequate~~disruption ~~protection~~not ~~for~~within ~~liabilities~~Pinnacle’s or ~~losses that~~First ~~might~~National ~~arise~~Bank’s ~~out~~control ofinclude ~~the~~internet ~~ownership~~service ~~and~~providers, ~~use~~electronic ofmail ~~such~~portal ~~properties.~~providers, social media portals, distant-server (“cloud”) service providers, electronic data security providers, telecommunications companies, and smart phone manufacturers.

~~Item~~Pinnacle 3.relies ~~Legal~~substantially ~~Proceedings~~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.

~~Neither~~Pinnacle’s ~~the~~business ~~Company~~strategies ~~nor~~are ~~the~~based ~~Bank~~on ~~nor~~access ~~any~~to funding from local customer deposits. Deposit levels may be affected by a number of ~~their~~factors, ~~properties~~including isinterest ~~involved~~rates inpaid ~~any~~by ~~pending~~competitors, ~~legal~~general ~~proceedings~~interest rate levels, ~~nor~~regulatory ~~are~~capital ~~any~~requirements, ~~such~~returns ~~proceedings threatened~~available to customers on alternative investments and general economic conditions. If Pinnacle’s deposit levels fall, ~~other~~Pinnacle ~~than~~could ~~nonmaterial~~lose a relatively low-cost source of funding and its interest expense would likely increase as it obtains alternative funding to replace lost deposits.

15Another 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.

~~Table~~Pinnacle may be required from time to time to rely on secondary sources of ~~Contents~~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.

~~proceedings~~Pinnacle ~~arising~~may innot ~~the~~be ~~ordinary~~able ~~course~~to ofsuccessfully ~~the~~manage ~~Company’s~~its ~~and~~long-term ~~the~~growth, ~~Bank’s~~which ~~business.~~may adversely affect its results of operations and financial condition.

~~Item~~A 4key aspect of Pinnacle’s long-term business strategy is its continued growth and expansion. ~~Mine~~Pinnacle’s ~~Safety~~ability ~~Disclosures~~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.

~~None~~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.

~~PART II~~ 17

~~Item~~Pinnacle’s 5.success ~~Market~~depends ~~for~~on ~~Registrant’s~~its ~~Common~~management ~~Equity~~team, ~~Related~~and ~~Stockholder~~the ~~Matters~~unexpected ~~and~~loss ~~Issuer~~of ~~Purchases~~any of ~~Equity~~these ~~Securities~~personnel could adversely affect operations.

~~The~~Pinnacle’s ~~information~~success ~~contained~~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 ~~inside~~management ~~back~~team’s ~~cover~~ties ofto the ~~2012~~community ~~Annual~~and ~~Report~~customer relationships to ~~Shareholders~~generate business. Pinnacle’s growth will continue to place significant demands on management, ~~under~~and the ~~caption~~loss ~~“Market~~of ~~for~~any ~~Common Equity~~such ~~and~~person’s ~~Related~~services ~~Stockholder~~may ~~Matters”~~have isan ~~incorporated~~adverse ~~herein~~effect byupon ~~reference~~growth and profitability. If Pinnacle fails to retain or continue to recruit qualified employees, growth and profitability could be adversely affected.

~~Item~~The 6.success ~~Selected~~of ~~Financial~~Pinnacle’s ~~Data~~strategy depends on its ability to identify and retain individuals with experience and relationships in its markets.

~~The~~In ~~information~~order ~~presented~~to ~~under~~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 ~~caption~~community ~~“Selected~~banking ~~Consolidated~~industry ~~Financial~~in ~~Information”~~Pinnacle’s ongeographic ~~page~~markets. 7Even 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 ~~2012~~combination ~~Annual~~of ~~Report~~skills and attributes required to ~~Shareholders~~carry isout ~~incorporated~~Pinnacle’s ~~herein~~strategy byis ~~reference~~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.

~~Item 7. Management~~Pinnacle’s ~~Discussion~~risk-management ~~and~~framework ~~Analysis~~may ofnot ~~Financial~~be ~~Condition~~effective ~~and~~in ~~Results~~mitigating ofrisk ~~Operations~~and loss.

~~The~~Pinnacle ~~information~~maintains ~~presented~~an ~~under~~enterprise risk management program that is designed to identify, assess, mitigate, monitor, and report the ~~caption~~risks ~~“Management’s~~that ~~Discussion~~it faces. These risks include: interest-rate, credit, liquidity, operational, reputation, compliance, and ~~Analysis~~legal. ofWhile ~~Financial~~Pinnacle ~~Condition~~assesses and ~~Results~~improves ~~of Operations”~~this program on ~~pages~~an 8ongoing ~~through~~basis, 27there ofcan ~~the~~be ~~2012~~no ~~Annual~~assurance ~~Report~~that toits ~~Shareholders~~approach isand ~~incorporated~~framework ~~herein~~for byrisk ~~reference~~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.

~~Item~~Pinnacle ~~7A.~~is ~~Quantitative~~subject ~~and~~to ~~Qualitative~~a ~~Disclosures~~variety ~~about~~of ~~Market~~operational, ~~Risk~~technological and organizational risks.

~~Not~~Similar ~~required~~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.

~~Item~~Consumers 8.may ~~Financial~~increasingly ~~Statements~~decide ~~and~~not ~~Supplementary~~to ~~Data~~use banks to complete their financial transactions, which could have a material adverse impact on Pinnacle’s financial condition and operations.

~~The~~Technology ~~consolidated~~and other changes are allowing parties to complete financial ~~statements~~transactions ofthrough ~~the~~alternative ~~Company~~methods ~~and~~that ~~its~~historically ~~subsidiary,~~have ~~including~~involved ~~the~~banks. ~~accompanying~~For ~~notes~~example, ~~and~~consumers ~~independent~~can ~~auditors’~~now ~~report~~maintain ~~thereon~~funds that would have historically been held as bank deposits in brokerage accounts, ~~contained~~mutual onfunds ~~pages~~or 28general-purpose ~~through~~reloadable 66prepaid 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 ~~2012 Annual~~loss ~~Report~~of tofee ~~Shareholders~~income, ~~are~~as ~~incorporated~~well ~~herein~~as bythe ~~reference~~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.

~~Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.~~18

~~None.~~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.

~~Item~~In 9Adeciding 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. ~~Controls~~Pinnacle also may rely on representations of clients and ~~Procedures~~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.

~~Disclosure Controls and Procedures.~~ The ~~Company’s~~soundness ~~management evaluated, with the participation~~ of ~~the~~other ~~Chief~~financial ~~Executive~~institutions ~~Officer~~could ~~and~~adversely ~~Chief~~affect ~~Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report~~Pinnacle. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

~~Because~~Pinnacle’s ofability to engage in routine funding transactions could be adversely affected by the ~~inherent limitations~~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 ~~all~~the ~~control~~financial ~~systems~~industry. As a result, nodefaults ~~evaluation~~by, ofor ~~controls~~even ~~can~~rumors ~~provide~~or ~~absolute~~questions ~~assurance~~about, ~~that~~one or more financial services institutions, or the ~~Company’s~~financial ~~disclosure~~services ~~controls~~industry generally, have led to market-wide liquidity problems and ~~procedures~~could ~~will~~lead ~~detect~~to losses or ~~uncover~~defaults ~~every~~by ~~situation~~Pinnacle ~~involving~~or by other institutions. Many of these transactions expose Pinnacle to credit risk in the ~~failure~~event of ~~persons~~default ~~within~~of its counterparty or client. In addition, credit risk may be exacerbated when the ~~Company~~collateral ~~to disclose~~held ~~material~~cannot ~~information~~be ~~required~~realized upon or is liquidated at prices insufficient to berecover ~~set~~the ~~forth~~full inamount of the ~~Company’s~~financial ~~periodic~~instrument ~~reports~~exposure due. There is no assurance that any such losses would not materially and adversely affect results of operations.

~~Management’s~~Pinnacle ~~Report on~~may ~~Internal~~be ~~Control~~adversely ~~over~~impacted ~~Financial~~by ~~Reporting.~~changes ~~The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined~~ in ~~Rule~~market ~~13a-15(f) under the Exchange Act~~conditions.

16Pinnacle 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.

~~Table~~Risks Related to Regulation and Supervision of ~~Contents~~Pinnacle

~~Because~~Pinnacle ofoperates ~~its~~in ~~inherent~~a ~~limitations,~~highly ~~internal~~regulated ~~control~~industry ~~over~~and ~~financial~~the ~~reporting~~laws ~~may~~and ~~not prevent~~regulations orthat ~~detect~~govern ~~misstatements.~~Pinnacle’s ~~Therefore~~operations, ~~even~~corporate ~~those~~governance, ~~systems~~executive ~~determined~~compensation toand befinancial ~~effective~~accounting, ~~can~~and ~~provide~~reporting, ~~only~~including ~~reasonable~~changes ~~assurance~~in ~~with~~them ~~respect~~or Pinnacle’s failure to ~~financial~~comply ~~statement~~with ~~preparation~~them, ~~and~~may ~~presentation.~~adversely affect Pinnacle.

~~Management~~Pinnacle ~~assessed~~is ~~the~~subject ~~effectiveness~~to ofextensive ~~the~~regulation ~~Company’s~~and ~~internal~~supervision ~~control~~that ~~over~~govern ~~financial~~almost ~~reporting~~all asaspects of ~~December 31,~~its ~~2012~~operations. ~~In making~~These ~~this~~laws ~~assessment~~and regulations, ~~management~~among ~~used~~other matters, prescribe minimum capital requirements, impose limitations on Pinnacle’s business activities, limit the ~~criteria~~dividends ~~set~~or ~~forth~~distributions bythat it can pay, restrict the ~~Committee~~ability of ~~Sponsoring~~institutions ~~Organizations~~to ofguarantee ~~the~~its ~~Treadway~~debt ~~Commission~~and ~~(COSO)~~impose certain specific accounting requirements that may be more restrictive and may result in ~~Internal~~greater ~~Control~~or –earlier ~~Integrated~~charges ~~Framework.~~to ~~Based~~earnings onor ~~this~~reductions ~~assessment,~~in ~~the~~its ~~Company’s management~~capital ~~concluded~~than ~~that,~~GAAP. asCompliance ofwith ~~December 31,~~laws ~~2012,~~and ~~the~~regulations ~~Company’s~~can ~~internal~~be ~~control~~difficult ~~over~~and ~~financial~~costly, ~~reporting~~and ~~was~~changes ~~effective~~to ~~based~~laws onand ~~those~~regulations ~~criteria.~~often impose additional compliance costs.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report. 19

~~Changes~~Pinnacle is facing increased regulation and supervision of its industry as a result of the financial crisis in ~~Internal~~the ~~Controls~~banking and financial markets. NoThe Dodd-Frank Act instituted major changes into the ~~Company~~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 ~~internal~~costs ~~control~~and ~~over~~limit ~~financial~~its ~~reporting~~ability ~~occurred~~to ~~during the~~pursue ~~quarter~~business ~~ended~~opportunities. ~~December 31~~Further, ~~2012~~Pinnacle’s ~~that~~failure ~~have~~to ~~materially~~comply ~~affected~~with these laws and regulations, even if the failure was inadvertent or ~~are~~reflects ~~reasonably~~a ~~likely~~difference in interpretation, could subject it to ~~materially~~restrictions on its business activities, fines and other penalties, any of which could adversely affect Pinnacle’s results of operations, capital base and the ~~Company~~price of its securities. Further, any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect Pinnacle’s ~~internal~~business ~~control~~and ~~over~~ financial ~~reporting~~condition.

~~Item~~Applicable ~~9B.~~regulatory ~~Other~~capital ~~Information~~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.

~~None~~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.

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

~~Except~~The asCFPB ~~otherwise~~has ~~indicated~~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, ~~information~~deceptive ~~called~~or abusive in connection with any transaction with a consumer for bya consumer financial product or service, or the ~~following~~offering ~~items~~of ~~under~~a ~~Part~~consumer ~~III~~financial isproduct ~~contained~~or in service. For example, the ~~Proxy~~CFPB ~~Statement~~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 ~~Company~~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 ~~2013~~regulations ~~Annual~~and ~~Meeting~~policies ofcould ~~Shareholders~~limit ~~(“2013~~Pinnacle’s ~~Proxy~~ability ~~Statement”)~~to make certain types of loans or loans to becertain ~~held~~borrowers, onor ~~April 9~~could make it more expensive and/or time consuming to make these loans, ~~2013.~~which could adversely impact Pinnacle’s profitability.

~~Item~~Pinnacle ~~10.~~is ~~Directors~~subject to laws regarding the privacy, ~~Executive~~information ~~Officers~~security and ~~Corporate~~protection ~~Governance~~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.

~~The~~Pinnacle’s ~~information~~business ~~with~~requires ~~respect~~the tocollection ~~the~~and ~~directors~~retention of ~~the~~large ~~Company~~volumes ~~required by this item is contained on pages 5 through 10~~ of ~~the~~customer ~~2013~~data, ~~Proxy~~including ~~Statement~~personally ~~under~~identifiable ~~the~~information ~~caption~~ (“~~Election of Directors,~~PII”) ~~and is~~in ~~incorporated~~various ~~herein by reference. The~~ information ~~regarding~~systems ~~the~~that ~~Section 16(a)~~Pinnacle ~~reporting~~maintains ~~requirements of the directors~~ and ~~executive~~in ~~officers~~those ismaintained ~~contained~~by onthird ~~page~~party 19service ofproviders. ~~the~~Pinnacle ~~2013~~also ~~Proxy~~maintains ~~Statement~~important ~~under~~internal ~~the~~company ~~caption~~data ~~“Section~~such ~~16(a)~~as ~~Beneficial Ownership~~PII ~~Reporting~~about ~~Compliance,”~~its employees and isinformation ~~incorporated~~relating ~~herein~~to byits ~~reference~~operations. ~~The~~Pinnacle ~~information~~is ~~concerning~~subject ~~the~~to ~~executive~~complex ~~officers~~and ofevolving ~~the~~laws ~~Company~~and ~~required~~regulations bygoverning ~~this~~the ~~item~~privacy isand ~~included~~protection inof ~~Part~~PII I of ~~this~~individuals ~~Form~~(including ~~10-K~~customers, ~~under~~employees ~~the~~and ~~caption~~other ~~“Executive Officers of the Registrant~~third-parties).” ~~The~~For ~~information~~example, ~~regarding the Company~~Pinnacle’s ~~Audit~~business ~~Committee required by this item~~ is ~~contained~~subject onto ~~page 11 of~~ the ~~2013~~Gramm-Leach-Bliley ~~Proxy~~Act ~~Statement~~of ~~under~~1999 (the ~~caption~~ “~~Committees~~GLB ofAct”) ~~the~~and ~~Board~~related ofregulations ~~Directors-Audit~~and ~~Committee~~regulatory guidance,” ~~and is~~which, ~~incorporated~~among ~~herein~~other bythings: ~~reference.~~(i) ~~The~~impose ~~information~~certain ~~regarding~~limitations ~~the~~on ~~Company~~Pinnacle’s ~~Nominating~~ability ~~Committee~~to ~~required~~share bynonpublic ~~this~~PII ~~item~~about isits ~~contained~~customers onwith ~~pages~~nonaffiliated 12third ~~and~~parties; 13(ii) ofrequire ~~the~~that ~~2013~~Pinnacle ~~Proxy~~provides ~~Statement~~certain ~~under~~disclosures ~~the~~to ~~caption~~customers ~~“Committees~~about ofits ~~the~~information ~~Board~~collection, ~~of Directors-Nominating~~sharing ~~Committee”~~ and issecurity ~~incorporated~~practices ~~herein~~and byafford ~~reference.~~customers the

The Company has adopted a Code of Conduct and Conflict of Interest Policy that applies to the directors, executives and employees of the Company and the Bank, including the Company’s Chief Executive Officer, Chief Financial Officer, Controller and other persons performing similar functions. We have posted this Code on our internet website at www.1stnatbk.com under “Investor Relations”. We intend to provide any required disclosure of any amendment to or waiver from the Code that applies to our Chief Executive Officer, Chief Financial Officer, Controller, or persons performing similar functions, on www.1stnatbk.com “Investor Relations” promptly following the amendment or waiver. We may elect to disclose any such amendment or waiver in a report on Form 8-K filed with the SEC either in addition to or in lieu of the website disclosure. The information contained on or connected to our internet website is not incorporated by reference into this report and should not be considered part of this or any other report that we file with or furnish to the SEC. 20

~~Item~~right 11to “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. ~~Executive~~Various ~~Compensation~~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.

17Furthermore, 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.

~~Table~~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 ~~Contents~~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.

~~The~~Pinnacle’s ~~information~~earnings onare ~~Executive~~significantly ~~Compensation~~affected ~~required~~ by ~~this item is contained on pages 14 through 19 of~~ the ~~2013~~fiscal ~~Proxy Statement under the caption “Executive Compensation”~~ and ismonetary ~~incorporated~~policies ~~herein by reference. Information on compensation~~ of ~~directors is contained on page 13 of~~ the ~~2013~~U.S. ~~Proxy~~federal ~~Statement~~government ~~under the caption “Director Compensation”~~ and isits ~~incorporated herein by reference~~agencies.

~~Item~~The 12policies of the Federal Reserve affect Pinnacle significantly. ~~Security~~The ~~Ownership~~Federal Reserve regulates the supply of ~~Certain~~money ~~Beneficial~~and ~~Owners~~credit in the United States and ~~Management~~its policies determine in large part Pinnacle’s cost of funds for lending, investing and ~~Related~~capital ~~Stockholder~~raising ~~Matters~~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.

~~The~~Risks ~~information~~Related onto ~~security~~Pinnacle’s ~~ownership~~Common of certain beneficial owners and management required by this item is contained on page 4 of the 2013 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference. Stock

~~The~~Pinnacle ~~following~~is ~~table~~not ~~sets~~obligated ~~forth~~to ~~information~~pay asdividends ofand ~~December 31,~~its ~~2012~~ability ~~with respect~~ to ~~certain~~pay ~~compensation~~dividends ~~plans~~is ~~under which equity securities of the Company are authorized for issuance~~limited.

~~Equity~~Pinnacle’s ~~Compensation~~ability ~~Plan~~to ~~Information~~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.

Plan Category	Number ofsecurities to beissued uponexercise ofoutstandingoptions, warrantsand rights			Weighted-averageexercise priceof outstandingoptions,warrants andrights		Number of securitiesremaining availablefor future issuanceunder equitycompensation plans(excluding securitiesreflected in column1)
Equity compensation plans approved by shareholders		37,250	(1)	$	9.00		55,000	(2)
Equity compensation plans not approved by shareholders		—			—		—
Total		37,250		$	9.00		55,000

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

~~(1)~~Pinnacle ~~Reflects~~is ~~shares~~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 bepay ~~issued~~dividends to Pinnacle, including pursuant to ~~outstanding~~regulatory ~~options~~restrictions ~~granted~~on ~~under~~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 ~~Company~~holders of Pinnacle common stock and Pinnacle’s ~~1997~~business, ~~Incentive~~financial ~~Stock~~condition ~~Plan~~ and ~~2004~~results ~~Incentive~~of ~~Stock~~operations ~~Plan~~may be materially adversely affected.

~~(2) Reflects shares available to be granted in the form of options, restricted stock or stock appreciation rights under the Company’s 2004 Incentive Stock Plan.~~21

~~Item~~Pinnacle ~~13.~~common ~~Certain~~stock ~~Relationships~~currently has a limited trading market and ~~Related~~is ~~Transactions,~~thinly traded which may limit the ability of shareholders to sell their shares and ~~Director~~may ~~Independence~~increase price volatility.

~~The~~Pinnacle ~~information~~common stock is quoted on the ~~interest~~OTC ofMarkets ~~management~~Group’s inOTCQX ~~certain~~marketplace ~~transactions~~under the symbol “PPBN.” Pinnacle common stock is thinly traded and ~~certain~~has ~~committees~~substantially ofless liquidity than the ~~board~~common stocks of ~~directors~~many ~~required~~other bybank ~~this item~~holding iscompanies. ~~contained~~There oncan ~~pages~~be 11no ~~through~~assurance 14that an active trading market for shares of ~~the~~Pinnacle ~~2013~~common ~~Proxy~~stock ~~Statement~~will ~~under~~develop ~~the~~or, ~~captions~~if ~~“Committees~~one develops, that it can be sustained. The development of a liquid public market depends on the ~~Board~~existence of ~~Directors”~~willing buyers and ~~“Interest~~sellers, the presence of ~~Management~~which inis ~~Certain~~not ~~Transactions~~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 isable ~~incorporated~~to ~~herein~~hold bytheir ~~reference~~shares of Pinnacle common stock for an indefinite period.

~~Item~~In 14addition, thinly traded stocks can be more volatile than more widely traded stocks. ~~Principal~~The ~~Accountant~~price ~~Fees~~of Pinnacle common stock has been volatile in the past and ~~Services~~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.

~~The~~General ~~information~~Risk ~~contained on page 21 of the 2013 Proxy Statement under the captions “Principal Accountant Fees” and “Pre-Approval Policies” is incorporated herein by reference.~~ Factors

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

~~Item~~Effective 15internal and disclosure controls are necessary for Pinnacle to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. ~~Exhibits~~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, ~~Financial~~its ~~Statement~~reputation ~~Schedules~~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.

18Pinnacle’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.

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

~~(a)~~Access ~~(1)~~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 ~~response~~inability to ~~this~~have ~~portion~~sufficient ofcapital, ~~Item~~whether 15internally 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 ~~included~~impaired for any reason, it will need to access the capital markets. Pinnacle may not be able to raise additional capital in ~~Item~~the 8form ~~above~~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.

~~(a) (2) All schedules are omitted because they are not applicable, or the required information is either not material or is shown in the financial statements or the related notes.~~22

~~(a) (3)~~Changes ~~Exhibits~~in accounting standards and management’s selection of accounting methods, including assumptions and estimates, could materially affect Pinnacle’s financial statements.

ExhibitNumber		Description
3.1		Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to registrant’s quarterly report on Form 10-Q filed on November 13, 2008)
3.1(a)		Articles of Amendment to the Articles of Incorporation, effective May 1, 2009 (incorporated by reference to Exhibit 3.1(a) to registrant’s current report on Form 8-K filed on May 4, 2009)
3.2		Bylaws (incorporated by reference to Exhibit 3(ii) to registrant’s registration statement on Form S-4 filed on January 24, 1997)
10.1*		1997 Incentive Stock Plan (incorporated by reference to Exhibit 4.3 to registrant’s registration statement on Form S-8 filed on September 14, 1998)
10.3*		VBA Directors’ Deferred Compensation Plan for Pinnacle Bankshares Corporation, effective December 1, 1997 (incorporated by reference to Exhibit 10.3 to registrant’s annual report on Form 10-KSB filed on March 25, 2003)
10.4*		Pinnacle Bankshares Corporation 2004 Incentive Stock Plan, as amended December 20, 2012
10.5*		Directors’ Annual Compensation
10.6*		Base Salaries of Executive Officers of the Registrant
10.7*		Amended and Restated Change in Control Agreement between Pinnacle Bankshares Corporation and Bryan M. Lemley, dated December 31, 2008 (incorporated by reference to Exhibit 10.7 to registrant’s annual report on Form 10-K filed on March 27, 2009)
10.8*		Amended and Restated Change in Control Agreement between Pinnacle Bankshares Corporation and Carroll E. Shelton, dated December 31, 2008 (incorporated by reference to Exhibit 10.8 to registrant’s annual report on Form 10-K filed on March 27, 2009)
10.9		Pinnacle Bankshares Corporation Promissory Note, effective December 31, 2008, delivered to Community Bankers’ Bank (incorporated by reference to Exhibit 10.9 to registrant’s current report on Form 8-K filed on January 7, 2009)
10.10*		Form of Restricted Stock Agreement under Pinnacle Bankshares Corporation 2004 Incentive Stock Plan, as amended February 9, 2010 (incorporated by reference to Exhibit 10.10 to registrant’s current report on Form 8-K filed on April 19, 2010)
10.12*		Form of Incentive Stock Option Agreement with Tandem Stock Appreciation Right under Pinnacle Bankshares Corporation 2004 Incentive Stock Plan, as amended February 9, 2010 (incorporated by reference to Exhibit 10.12 to registrant’s current report on Form 8-K filed on April 19, 2010)
10.13*		Change in Control Agreement between Pinnacle Bankshares Corporation and Aubrey H. Hall, III, effective July 1, 2011 (incorporated by reference to Exhibit 10.13 to registrant’s current report on Form 8-K filed on July 7, 2011)
13		2012 Annual Report to Shareholders

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.

19Negative perception of Pinnacle or First National Bank through social media may adversely affect their reputation and business.

~~Table~~Pinnacle’s and First National Bank’s reputations are critical to the success of ~~Contents~~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.

21		Subsidiaries of Registrant
31.1		CEO Certification Pursuant to Rule 13a-14(a)
31.2		CFO Certification Pursuant to Rule 13a-14(a)
32.1		CEO/CFO Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)
101		The following materials from Pinnacle Bankshares Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012, formatted in XBRL (Extensible Business Reporting Language), furnished herewith: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.

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

*The ~~Denotes~~Pinnacle ~~management~~board ~~contract~~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.

~~(b)~~Common ~~Exhibits~~stock –is ~~See~~equity ~~exhibit~~and ~~index~~Pinnacle ~~included~~common instock ~~Item~~is ~~15(a)(3)~~subordinate ~~above~~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.

~~(c)~~Shares ~~Financial~~of ~~Statement~~the ~~Schedules~~Pinnacle –common ~~See~~stock ~~Item~~are ~~15(~~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~~)(2)~~ ~~above~~distribution of assets upon First National Bank’s liquidation or reorganization is subject to the prior claims of First National Bank’s creditors.

20Item 1B.Unresolved Staff Comments

~~Table~~Not ~~of Contents~~applicable.

~~SIGNATURES~~ 23

~~Pursuant~~Item ~~to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized~~2. Properties

				PINNACLE BANKSHARES CORPORATION
				(Registrant)
March 27, 2013				/s/ Aubrey H. Hall, III
Date				Aubrey H. Hall, III, President and Chief Executive Officer

Current Locations and Property

~~Pursuant~~As ~~to the requirements~~ of ~~the~~March ~~Securities~~30, ~~Exchange~~2021, ~~Act of 1934~~Pinnacle, ~~this~~through ~~report~~its ~~has~~subsidiaries, ~~been~~owned ~~signed~~or ~~below~~leased by the following ~~persons~~buildings ~~on behalf of the registrant~~ and inoffice ~~the~~space: ~~capacities and on the dates indicated.~~

Signature		Title	Date
Location	Address	Nature of Interest
/s/ Aubrey H. Hall, III		President, Chief Executive Officer and Director (principal executive officer)	March 27, 2013
Altavista Main Corporate Headquarters	622 Broad Street Altavista, Virginia 24517	Owned by First National Bank
Aubrey H. Hall, III
Amherst Branch	130 South Main Street Amherst, Virginia 24521	Owned by First National Bank
/s/ Bryan M. Lemley		Secretary, Treasurer and Chief Financial Officer (principal financial and accounting officer)	March 27, 2013
Brosville Branch Office	10370 Martinsville HighwayBrosville, Virginia 24541	Owned by First National Bank
Bryan M. Lemley
Charlottesville Loan Production Office	2208 Ivy RoadCharlottesville, Virginia 22903	Leased by First National Bank
/s/ A. Willard Arthur		Director	March 27, 2013
Chatham Branch	55 North Main StreetChatham, Virginia 24531	Owned by First National Bank
A. Willard Arthur
Danville Airport Branch	1312 South Boston Road Danville, Virginia 24540	Owned by First National Bank
/s/ James E. Burton, IV		Director	March 27, 2013
Danville Main Branch	336 Main Street, Danville, Virginia 24541	Owned by First National Bank
James E. Burton, IV
Downtown Lynchburg Branch	800 Main StreetLynchburg, Virginia 24504	Leased by First National Bank
/s/ Judson H. Dalton		Director	March 27, 2013
Forest Branch	14417 Forest RoadForest, Virginia 24551	Owned by First National Bank
Judson H. Dalton
Graves Mill Branch	18077 Forest RoadForest, Virginia 24521	Owned by First National Bank
/s/ John P. Erb		Director	March 27, 2013
Lynchburg Airport Branch	14580 Wards RoadLynchburg, Virginia 24502	Owned by First National Bank
John P. Erb
Mt. Hermon Branch	4080 Franklin Turnpike Danville, Virginia 24540	Owned by First National Bank
/s/ Thomas F. Hall		Director	March 27, 2013
North Danville Branch	3300 N. Main Street ExtDanville, Virginia 24540	Owned by First National Bank
Thomas F. Hall
Odd Fellows Road Branch	3401 Odd Fellows RoadLynchburg, Virginia 24501	Owned by First National Bank
/s/ R.B. Hancock, Jr.		Director	March 27, 2013
Old Forest Branch	3321 Old Forest RoadLynchburg, Virginia 24501	Owned by First National Bank
R.B. Hancock, Jr.
Riverside Branch	2600 Riverside DriveDanville, Virginia 24540	Owned by First National Bank Land leased by First National Bank
/s/ A. Patricia Merryman		Director	March 27, 2013
Rustburg Branch	1033 Village HighwayRustburg, Virginia 24588	Owned by First National Bank
A. Patricia Merryman
Timberlake Branch	20865 Timberlake RoadLynchburg, Virginia 24502	Owned by First National Bank
/s/ Carroll E. Shelton		Director	March 27, 2013
Vista Branch	1303 Main StreetAltavista, Virginia 24517	Owned by First National Bank
Carroll E. Shelton
/s/ C. Bryan Stott		Director	March 27, 2013
C. Bryan Stott
/s/ John L. Waller		Director	March 27, 2013
John L. Waller
/s/ Michael E. Watson		Director	March 27, 2013
Michael E. Watson

21 24

All of the foregoing properties are used by Pinnacle in the normal course of its business. Pinnacle believes all of these properties are in good operating condition and are adequate for Pinnacle’s present and anticipated future needs. Pinnacle maintains comprehensive general liability and casualty loss insurance covering its properties and activities conducted in or about its properties. Pinnacle believes this insurance provides adequate protection for liabilities or losses that might arise out of the ownership and use of such properties.

Item 3.Legal Proceedings

In the ordinary course of its operations, Pinnacle and its subsidiaries are parties from time to time to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that there are no pending or threatened legal proceedings against Pinnacle that, if determined adversely, would, in the aggregate, have a material adverse effect on the business, the financial condition or the results of operations of Pinnacle.

Item 4.Mine Safety Disclosures

Not applicable.

PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Prices and Dividends

Common Stock of Pinnacle is traded on the OTCQX under the symbol “PPBN.” As of March 30, 2021, there were approximately 2,158,379 shares of Common Stock outstanding, which shares are held by approximately 532 active shareholders of record.

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 banking 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.

Item 6.Selected Financial Data

Not Applicable

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with Pinnacle’s consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from Pinnacle’s expectations expressed in or implied by such forward-looking statements. For additional information about such risks, uncertainties, assumptions and other factors, please refer to “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” included elsewhere in this Annual Report on Form 10-K.

Dollar amounts in the following discussion are in thousands, except ratios, share and per share data.

Information about the Effects of and Responses to COVID-19

The ongoing COVID-19 pandemic has and continues to impact Pinnacle and its customers, employees, communities and service providers, but the ultimate severity of the COVID-19 pandemic, its duration and the extent of its impact on First National Bank’s business, results of operations, financial condition, liquidity and prospects remains uncertain.

Pandemic Guidelines and Business Continuity. In response to the COVID-19 pandemic, Pinnacle and First National Bank have placed an emphasis on delivering products and services through online and mobile banking, remote deposit capture, and digital communications with customers.

Pinnacle and First National Bank have implemented a set of pandemic guidelines to protect employees and promote business continuity while providing support to its customers and communities facing challenges due to the impacts of COVID-19. These guidelines include policies and procedures with respect to Phase 1, Phase 2 and Phase 3 responses to COVID-19 pandemic, additional cleaning and sanitation requirements, and branch-specific response plans for employees and customer service at First National Bank’s branch locations, including remote work and social distancing requirements. Pinnacle has purchased additional laptops, invested in additional technology and software, and purchased personal protective equipment for employee use. Pinnacle management meets regularly to review the pandemic guidelines, response priorities, guidance issued by health regulatory agencies, and protective measures and other actions being taken by Pinnacle and First National Bank.

Paycheck Protection Program (“PPP”). As a further part of Pinnacle’s response to the COVID-19 pandemic, First National Bank has participated in the PPP established pursuant to the Coronavirus Aid, Relief, and Economic Security Act (also known as the “CARES Act”), as amended by the Consolidated Appropriations Act, 2021 (the “CAA”), and implemented by the U.S. Small Business Administration with support from the U.S. Department of the Treasury. First National Bank has provided over $42,000 of PPP loans to small businesses in its markets.

Acquisition of Virginia Bank Bankshares, Inc.

On October 30, 2020, Pinnacle completed its merger (the “Merger”) with Virginia Bank Bankshares, Inc. (or “Virginia Bank). The Merger was effected pursuant to the terms and conditions of the Agreement and Plan of Reorganization between Pinnacle and Virginia Bank, effective January 21, 2020 and as amended on June 9, 2020, and the related plan of merger (collectively, the “Merger Agreement”). Under the Merger Agreement, Virginia Bank shareholders had the opportunity to elect to receive either $16.00 of cash (the “Cash Consideration”) or 0.5400 shares of Pinnacle common stock (the “Stock Consideration”) for each share of Virginia Bank common stock held, subject to the limitation that 60% of the shares will be exchanged for the Stock Consideration and 40% of the shares will be exchanged for the Cash Consideration.

For additional information about the Merger, see Note 2 to Pinnacle’s consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. The above description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement which is included as Exhibit 2.1 to this report and is incorporated by reference herein.

Executive Summary

Year Ended December 31, 2020 and 2019. Pinnacle generated net income of $3,062 for 2020 which represents a $1,334 or 30.35% decrease as compared to net income of $4,396 for 2019. The decrease as compared to the prior year, which was mainly driven by higher noninterest expense. The increase in noninterest expense was primarily due to $2,889 in expenses associated with Pinnacle’s merger with Virginia Bank, which closed on October 30, 2020, as well as higher salaries and employee benefits related to strategic growth initiatives to include the Bank’s Downtown Lynchburg Branch and its Charlottesville Loan Production Office.

Profitability as measured by Pinnacle’s return on average assets (“ROA”) was 0.52% for 2020, which is a 40 basis points decrease from the 0.92% produced in 2019. Correspondingly, return on average equity (“ROE”) also decreased in 2020 to 6.99%, compared to 9.86% for the prior year.

Total assets as of December 31, 2020 were $860,514, up 71.92% from $500,530 as of December 31, 2019. The principal components of Pinnacle’s assets as of December 31, 2020 were $564,316 in total gross loans, $46,741 in securities and $210,814 in cash and cash equivalents. During 2020, total loans increased 43.40%, or $170,796 from $393,520 as of December 31, 2019, while securities increased 3.97% or $1,783 from $44,958. Consequently, cash and cash equivalents increased 540.71% or $177,911 from $32,903 as of December 31, 2019 due mainly to an influx of deposits, the liquidation of Virginia Bank’s securities portfolio, which is in the process of being reinvested, and additional liquidity resulting from the merger. Loans increased primarily due to the addition of approximately $154,000 in loans purchased in the merger which included $13,503 in PPP loans. Additionally, First National Bank originated $28,208 in PPP loans in 2020. These increases in loans were partially offset by a few large payoffs of commercial loans and a lower volume of consumer and residential loan originations made in 2020.

Total liabilities as of December 31, 2020 were $802,184, up $345,071, or 76.27%, from $455,085 as of December 31, 2019. Higher levels of deposits drove the increase in liabilities. Approximately $211,000 of the deposit growth resulted from new accounts acquired through the merger with Virginia Bank. Additional deposit growth was the result of federal government stimulus in response to the pandemic, an overall “flight to safety” by depositors and relationships that moved to the Bank as a result of branch closures in the Bank’s markets served by larger national financial institutions.

Total stockholders’ equity as of December 31, 2020 was $58,330 and consisted primarily of $44,509 in retained earnings. In comparison, as of December 31, 2019, total stockholders’ equity was $45,445. Both Pinnacle and First National Bank remain “well capitalized” per all regulatory definitions.

Overview of 2020

Total assets as of December 31, 2020 were $860,514, up 71.92% from $500,530 as of December 31, 2019. The principal components of Pinnacle’s assets at the end of 2020 were $210,814 in cash and cash equivalents, $46,741 in securities and $560,078 in net loans. During 2020, net loans increased 43.67% or $170,230. Pinnacle’s lending activities are a principal source of income. Loans increased primarily due to the addition of approximately $154,000 in loans purchased in the merger, which included $13,503 in PPP loans. Additionally, First National Bank originated $28,208 in PPP loans in 2020. These increases in loans were partially offset by a few large payoffs of commercial loans and a lower volume of consumer and residential loan originations made in 2020.

Total liabilities as of December 31, 2020 were $802,184, up 76.27% from $455,085 as of December 31, 2019, primarily due to higher levels of deposits. Total deposits increased $331,053, or 73.52%, to $781,336 as of December 31, 2020 from $450,283 at December 31, 2019. Approximately $211,000 of the deposit growth resulted from new accounts acquired through the merger with Virginia Bank. Noninterest-bearing demand deposits increased $139,608, or 126.43%, and represented 32.03% of total deposits as of December 31, 2020, compared to 24.52% as of December 31, 2019. Savings and NOW accounts increased $166,307, or 67.90%, and represented 52.63% of total deposits as of December 31, 2020, compared to 54.40% as of December 31, 2019. Time deposits increased $25,138 or 26.48% and represented 15.37% of total deposits as of December 31, 2020, compared to 21.08% as of December 31, 2019. Pinnacle had no brokered deposits as of December 31, 2020 and December 31, 2019.

Total stockholders’ equity as of December 31, 2020 was $58,330, including $44,509 in retained earnings. At December 31, 2019, stockholders’ equity totaled $45,445, including $42,404 in retained earnings. The increase in stockholders’ equity resulted largely from $11,447 in in common stock issued in conjunctions with the merger with Virginia Bank and by net income of $3,062 less dividends paid to shareholders of $957. Dividends paid to shareholders were $0.56 per share paid in 2020 as compared to $0.545 per share paid in 2019.

Pinnacle had net income of $3,062 in 2020, compared to net income of $4,396 in 2019, a decrease of 30.35%, which was mainly driven by higher noninterest expense. The increase in noninterest expense was primarily due to $2,889 in expenses associated with Pinnacle’s merger with Virginia Bank as well as higher salaries and employee benefits related to strategic growth initiatives to include the Bank’s Downtown Lynchburg Branch and its Charlottesville Loan Production Office. The increase in noninterest expense was partially offset by an increase in noninterest income which was primarily due to a $2,694 bargain purchase gain related to the merger with Virginia Bank.

For the year ended December 31, 2020, Pinnacle produced $18,269 in net interest income, which represents a $593, or 3.35%, increase as compared to the $17,676 generated in 2019. Interest income increased $549, or 2.71%, due to higher loan volume in the fourth quarter of 2020 as a result of the merger with Virginia Bank, while interest expense decreased $43,000, or 1.68%, due mainly to a decrease in the cost of deposits caused by lower interest rates.

Pinnacle’s provision for loan losses was $252 for 2020 representing an $89, or 54.60%, increase as compared to $163 for 2019. Pinnacle’s provision for loan losses for 2020 included the impact of qualitative adjustments to Pinnacle’s allowance for loan losses required due to the COVID-19 pandemic.

Noninterest income increased $4,049, or 87.58%, in 2020 to $8,672 from $4,623 in 2019. This improvement was mainly driven by the $2,694 bargain purchase gain related to the merger with Virginia Bank recorded in the fourth quarter of 2020 and a $386 increase in fees generated from sales of mortgage loans. Revenue from Bank Owned Life Insurance (BOLI) increased $253 in 2020. Pinnacle also experienced a $249 increase in loan fees primarily associated with the origination of $28,208 in PPP loans. Other increases in net income included a $148 increase in debit card interchange income, a $90 increase in income derived from the Bank’s investment in Bankers Insurance, LLC, and a $90 increase in commissions on sales of investments and insurance.

Noninterest expense increased $5,741, or 34.23%, in 2020 to $22,513 from $16,772 in 2019. The increase is primarily attributed to $2,889 in merger expenses primarily consisting of legal, accounting, investment banking and contract termination fees. Pinnacle also experienced a $1,167 increase in salaries and benefits and a $496,000 increase in furniture, equipment and occupancy expenses due to growth of Pinnacle during 2020.

Profitability as measured by Pinnacle’s return on average assets (“ROA”) was 0.52% in 2020, which is a 40 basis points decrease from the 0.92% produced in 2019. Correspondingly, return on average equity (“ROE”) also decreased in 2020 to 6.36%, compared to 9.86% for the prior year.

Results of Operations, 2020

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 mix of interest-bearing liabilities, as well as their respective yields and rates, have a significant impact on the level of net interest income. Changes in the interest rate environment and Pinnacle’s cost of funds also effect net interest income.

The net interest spread decreased to 3.15% in 2020 from 3.82% in 2019. Net interest income was $18,269 in 2020, compared to $17,676 in 2019. In 2020, Pinnacle’s asset yields decreased greater than its deposit rates causing Pinnacle’s interest rate spread to decrease. Pinnacle’s yield on interest‑earning assets in 2020 was 78 basis points lower than in 2019 due to higher yielding assets being replaced by lower yielding assets in the second half of 2019 and in 2020 and repricing of existing assets in the lower interest rate environment. Pinnacle’s cost of funds rate on interest-bearing liabilities in 2020 was 11 basis points lower compared to 2019.

Pinnacle’s net interest margin also decreased to 3.34% in 2020 from 4.00% in 2019. Pinnacle’s lower net interest margin in 2020 was due to lower yields from new loans and investments as a result of a lower interest rate environment in the second half of 2019 and in 2020. Pinnacle attempts to conserve 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 2021, 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.

The following table presents the major categories of interest-earning assets, interest-bearing liabilities and stockholders’ equity with corresponding average balances, related interest income or interest expense and resulting yield and rates for the periods indicated.

ANALYSIS OF NET INTEREST INCOME

	Year ended December 31,
	2020								2019								2018
Assets	Average balance(1)			Interest income/ expense		Rate earned/ paid			Average balance(1)			Interest income/ expense		Rate earned/ paid			Average balance(1)			Interest income/ expense		Rate earned/ paid
Interest-earning assets:
Loans (2)	$	432,591		$	19,734		4.56	%	$	381,411			18,760		4.92	%	$	363,891		$	16,908		4.65	%
Investment securities:
Taxable		35,610			698		1.96	%		32,596			901		2.76	%		35,904			806		2.24	%
Tax-exempt (3)		8,966			256		2.86	%		9,890			288		2.91	%		11,099			321		2.89	%
Interest-earning deposits		71,624			187		0.26	%		19,798			379		1.91	%		19,791			334		1.69	%
Federal funds sold		75			—		—			74			2		2.70	%		51			1		1.96	%
Total interest-earning assets		548,866			20,875		3.80	%		443,769			20,330		4.58	%		430,736			18,370		4.26	%
Other assets:
Allowance for loan losses		(3,485	)							(3,430	)							(3,114	)
Cash and due from banks		3,724								2,720								2,661
Other assets, net		37,471								36,606								30,804
Total assets	$	586,576							$	479,665							$	461,087
Liabilities and Stockholders’ equity
Interest-bearing liabilities:
Savings and NOW		289,180		$	968		0.33	%		243,000		$	1,112		0.46	%		227,979		$	660		0.29	%
Time		99,164			1,551		1.56	%		93,472			1,446		1.55	%		98,977			1,182		1.19	%
Other borrowings		—			—		—			—			—		—			2,465			45		1.83	%
Federal funds purchased		—			—		—			210			5		2.38	%		214			1		0.47	%
		388,344			2,519		0.65	%		336,682			2,563		0.76	%		329,635			1,888		0.57	%
Noninterest-bearing liabilities:
Demand deposits		142,659								95,630								89,035
Other liabilities		7,408								2,753								2,144
Total liabilities		538,411								435,065								420,814
Total stockholders’ equity	$	48,165							$	44,600							$	40,273
		586,576								479,665								461,087
Net interest income				$	18,356							$	17,767							$	16,482
Net interest margin (4)							3.34	%							4.00	%							3.83	%
Net interest spread (5)							3.15	%							3.82	%							3.69	%

(1)	Averages are daily averages.

(2)	Nonaccrual loans are included in average loans outstanding.

(3)	Tax-exempt income from investment securities is presented on a tax-equivalent basis assuming a 21% U.S. Federal tax rate for 2020 and 2019 and 34% for 2018.

(4)	The net interest margin is calculated by dividing net interest income by average total interest-earning assets.

(5)	The net interest spread is calculated by subtracting the interest rate paid on interest‑bearing liabilities from the interest rate earned on interest‑earning assets.

As discussed above, Pinnacle’s net interest income is affected by the change in the amounts and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume change,” as well as by changes in yields earned on interest-earning assets and rates paid on deposits and other borrowed funds, referred to as “rate change.” The following table presents, for the periods indicated, a summary of changes in interest income and interest expense for the major categories of interest-earning assets and interest-bearing liabilities and the amounts of change attributable to variations in volumes and rates. Changes attributable to both volume and rate have been allocated proportionately.

RATE/VOLUME ANALYSIS

	Year Ended December 31,									Year Ended December 31,
	2020 compared to 2019 increase (decrease)									2019 compared to 2018 increase (decrease)
	Volume			Rate			Net			Volume			Rate			Net
Interest earned on interest-earning assets:
Loans	$	2,120			(1,146	)		974		$	836			1,016			1,852
Investment securities:
Taxable		95			(298	)		(203	)		(63	)		158			95
Tax-exempt (1)		(26	)		(6	)		(32	)		(35	)		2			(33	)
Interest-earning deposits		(287	)		95			(192	)		0			45			45
Federal funds sold		—			(2	)		(2	)		1			—			1
Total interest earned on interest-earning assets		1,902			(1,357	)		545			739			1,221			1,960
Interest paid on interest-bearing liabilities:
Savings and NOW		349			(493	)		(144	)		46			406			452
Time		85			20			105			(58	)		322			264
Other Borrowings		—			—			—			—			(45	)		(45	)
Federal funds purchased		(5	)		—			(5	)		0			4			4
Total interest paid on interest-bearing liabilities		429			(473	)		(44	)		(12	)		687			675
Change in net interest income	$	1,473			(884	)		589		$	751			534			1,285

(1)	Tax-exempt income from investment securities is presented on a tax equivalent basis assuming a U.S. Federal income tax rate of 21% for 2020 and 2019

Provision for Loan Losses. The provision for loan losses is based upon Pinnacle’s evaluation of the quality of the loan portfolio, total outstanding and committed loans, Pinnacle’s previous loan loss experience and current and anticipated economic conditions. The amount of the provision for loan losses is a charge against earnings. Actual loan losses are charges against the allowance for loan losses.

Pinnacle’s allowance for loan losses is maintained at a level deemed by management to be adequate to provide for known and inherent losses in the loan portfolio. No assurance can be given that unforeseen adverse economic conditions or other circumstances will not result in increased provisions in the future, or that the allowance for loan losses will be adequate for actual losses. Additionally, regulatory examiners may require Pinnacle to recognize additions to the allowance based upon their judgment about information available to them at the time of their examinations.

The provisions for loan losses for year ended December 31, 2020 and 2019 were $252 and $163, respectively. The provision for loan losses increased $89 during 2020 when compared to 2019 due to a change in qualitative factors adjusted for the COVID-19 Pandemic and deferred loans as the economy deteriorated in 2020. Pinnacle saw a decrease in its nonperforming loans to total loans from 0.29% on December 31, 2019 to 0.17% on December 31, 2020. Nonperforming loans were $1,135 as of December 31, 2019 and $950 as of December 31, 2020. Pinnacle expects credit quality in its loan portfolio to moderately decrease in 2021 due to the ongoing Pandemic and continues to work to minimize its losses from nonaccrual and past due loans. See “Allowance for Loan Losses” for further discussion.

Noninterest Income. Total noninterest income for 2020 increased $4,049, or 87.58%, to $8,672 from $4,623 in 2019. This improvement was mainly driven by the $2,694 bargain purchase gain related to the merger and a $386 increase in fees generated from sales of mortgage loans. Revenue from Bank Owned Life Insurance (BOLI) increased $253 in 2020. Pinnacle also experienced a $249 increase in loan fees primarily associated with the origination of $28,208 in PPP loans. Other increases in net income included a $148 increase in debit card interchange income, a $90 increase in income derived from the Bank’s investment in Bankers Insurance, LLC, and a $90 increase in commissions on sales of investments and insurance

Noninterest Expense. Total noninterest expense for 2020 increased $5,741, or 34.23%, to $22,513 from $16,772 in 2019. The increase is primarily attributed to $2,889 in merger expenses primarily consisting of legal, accounting, investment banking and contract termination fees. Pinnacle also experienced a $1,167 increase in salaries and benefits and a $496,000 increase in furniture, equipment and occupancy expenses due to growth of Pinnacle during 2020.

Income Tax Expense. Income taxes on 2020 earnings amounted to $1,114, resulting in an effective tax rate of 26.67%, compared to $968, and an effective tax rate of 18.05% in 2019. The income tax rate increased in 2020 due mainly to capitalized merger transaction costs from the merger with Virginia Bank.

Liquidity. Effective asset/liability management includes maintaining adequate liquidity and minimizing the impact of future interest rate changes on net interest income. The responsibility for monitoring Pinnacle’s liquidity and the sensitivity of its interest-earning assets and interest-bearing liabilities lies with the Investment Committee of First National Bank, which meets at least quarterly to review liquidity and the adequacy of funding sources.

Liquidity measures the ability of Pinnacle to meet its maturing obligations and existing commitments, to withstand fluctuations in deposit levels, to fund its operations, and to provide for customers’ credit needs. Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds from alternative funding sources. Pinnacle’s liquidity is provided by cash and due from banks, federal funds sold, investments available-for-sale, managing investment maturities, interest-earning deposits in other financial institutions and loan repayments.

Pinnacle’s ratio of liquid assets to deposits and short‑term borrowings was 34.12% as of December 31, 2020 as compared to 15.77% as of December 31, 2019. Pinnacle sells excess funds as overnight federal funds sold to provide an immediate source of liquidity. Federal funds sold at December 31, 2020 were $479 as most funds were kept in Pinnacle’s Federal Reserve account, which is interest-bearing. Cash and due from banks of $210,814, which includes funds in Pinnacle’s Federal Reserve account, as of December 31, 2020 was $177,911 higher when compared to December 31, 2019. Pinnacle expects to deploy some of this cash into securities and loans in 2021.

The level of deposits may fluctuate significantly due to seasonal business cycles of depository customers. Levels of deposits are also affected by convenience of branch locations and ATMs to the customer, the rates offered on interest-bearing deposits and the attractiveness of noninterest-bearing deposit offerings compared with the competition. Some main factors that have increased Pinnacle’s 2020 deposit levels include PPP loan proceeds, government stimulus checks and our customers’ “flight to safety” strategy during the ongoing pandemic. Similarly, the level of demand for loans may vary significantly and at any given time may increase or decrease substantially. However, unlike the level of deposits, management has more direct control over lending activities and maintains the level of those activities according to the amounts of available funds. Loan demand may be affected by the overall health of the local economy, loan rates compared with the competition and other loan features offered by Pinnacle.

As a result of Pinnacle’s management of liquid assets and its ability to generate liquidity through alternative funding sources, management believes that Pinnacle maintains overall liquidity that is sufficient to satisfy its depositors’ requirements and to meet customers’ credit needs. Additional sources of liquidity available to Pinnacle include its capacity to borrow funds through correspondent banks and the Federal Home Loan Bank. The total amount available for borrowing to Pinnacle for liquidity purposes was $143,080 on December 31, 2020 and $135,622 on December 31, 2019.

Pinnacle obtains sources of funds through growth in deposits, scheduled payments and prepayments from the loan and investment portfolios and retained earnings growth, and may purchase or borrow funds from the Federal Home Loan Bank or through the Federal Reserve’s discount window. Pinnacle also has sources of liquidity through two correspondent banking relationships. Pinnacle uses its funds to fund loan and investment growth. Excess funds are sold daily to other institutions. Pinnacle also has a $5,000 holding company line of credit with a correspondent bank for bank capital purposes with no outstanding balance as of December 31, 2020 and December 31, 2019.

Pinnacle completed a private placement of $8,000 in fixed-to-floating rate subordinated notes due 2030 (the “Notes”) in the third quarter of 2020. The Notes have been structured to qualify as Tier 2 capital under bank regulatory guidelines in the future, and the proceeds from the sale of the Notes were utilized to pay a portion of the cash consideration paid by Pinnacle in connection with its merger with Virginia Bank on October 30, 2020, and to provide optionality for various growth opportunities and for general corporate purposes. The Notes bear interest at 5.25% per annum, beginning September 18, 2020 to, but excluding September 30, 2025, payable quarterly in arrears. From September 30, 2025 to, but excluding, September 30, 2030, or up to an early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financing Rate (“SOFR”) plus 513 basis points, payable quarterly in arrears. Beginning on September 30, 2025 through maturity, the Notes may be redeemed, at Pinnacle’s option and subject to any required regulatory approval, on any scheduled interest payment date. The Notes will mature on September 30, 2030.

Pinnacle also completed a $2,000 fixed-to-floating rate promissory note due 2030 (the “Promissory Note”) in the fourth quarter of 2020. The Promissory Note bears interest at 5.25% per annum, beginning December 18, 2020 to, but excluding December 31, 2025, payable quarterly in arrears. From December 31, 2025 to, but excluding December 31, 2030, or up to an early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financing Rate (“SOFR”) plus 515 basis points, payable quarterly in arrears. The Promissory Note will mature on December 31, 2030.

Interest Rates

While no single measure can completely identify the impact of changes in interest rates on net interest income, one gauge of interest rate sensitivity is to measure, over a variety of time periods, the differences in the amounts of Pinnacle’s rate-sensitive assets and rate-sensitive liabilities. These differences or “gaps” provide an indication of the extent to which net interest income may be affected by future changes in interest rates. A “positive gap” exists when rate-sensitive assets exceed rate-sensitive liabilities and indicates that a greater volume of assets than liabilities will reprice during a given period. This mismatch may enhance earnings in a rising interest rate environment and may inhibit earnings in a declining interest rate environment. Conversely, when rate-sensitive liabilities exceed rate-sensitive assets, referred to as a “negative gap,” it indicates that a greater volume of liabilities than assets will reprice during the period. In this case, a rising interest rate environment may inhibit earnings and a declining interest rate environment may enhance earnings.

The cumulative three-year gap as of December 31, 2020 was $143,963, representing 16.72% of total assets, which was within First National Bank’s interest rate risk parameters.

The following table illustrates Pinnacle’s interest rate sensitivity gap position at December 31, 2020.

REPRICING GAP POSITION

	Repricing period at December 31, 2020
	1 year		2-3 years		4-5 years		6-10 years		11-15 years
ASSET/(LIABILITY):
Cumulative interest rate sensitivity gap	$	14,552		143,963		215,097		273,324		277,539

As of December 31, 2020, Pinnacle was asset-sensitive in all periods up to 15 years. The foregoing table does not necessarily indicate the impact of general interest rate movements on Pinnacle’s net interest yield, because the repricing of various categories of assets and liabilities is discretionary and is subject to competition and other pressures. As a result, various assets and liabilities indicated as repricing within the same period may reprice at different times and at different rate levels. Management attempts to mitigate the impact of changing interest rates in several ways, one of which is to manage its interest rate-sensitivity gap. In addition to managing its asset/liability position, Pinnacle has taken steps to mitigate the impact of changing interest rates by generating noninterest income through service charges, and offering products that are not interest rate‑sensitive.

Effects of Inflation

The effect of changing prices on financial institutions is typically different from other industries as Pinnacle’s assets and liabilities are monetary in nature. Interest rates are significantly impacted by inflation, but neither the timing nor the magnitude of the changes is directly related to price level indices. Impacts of inflation on interest rates, loan demand and deposits are not reflected in the consolidated financial statements.

Investment Portfolio

Pinnacle’s investment portfolio is used primarily for investment income and secondarily for liquidity purposes. Pinnacle invests funds not used for capital expenditures or lending purposes in securities of the U.S. Government and its agencies, mortgage-backed securities, taxable and tax-exempt municipal bonds, and certificates of deposit. Obligations of the U.S. Government and its agencies include treasury notes and callable or noncallable agency bonds. The mortgage-backed securities include mortgage-backed security pools that are diverse as to interest rates. Pinnacle has not invested in derivatives.

Investment securities as of December 31, 2020 totaled $46,741, an increase of $1,783, or 3.97%, from $44,958 as of December 31, 2019. Held-to-maturity investment securities decreased to $500 as of December 31, 2020 from $1,764 as of December 31, 2019, a decrease of $1,264, or 71.66%. Available-for-sale investments increased to $46,241 as of December 31, 2020 from $43,194 as of December 31, 2019, an increase of $3,047, or 7.05%.

The following table presents the composition of Pinnacle’s investment portfolios as of the dates indicated.

	December 31, 2020				December 31, 2019				December 31, 2018
Available-for-Sale	Amortized cost		Fair value		Amortized cost		Fair value		Amortized cost		Fair value
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	1,701		1,796	$	5,986		6,001	$	8,351		8,227
Obligations of states and political subdivisions		11,584		12,364		8,897		9,267		11,915		11,759
Mortgage-backed securities – government		31,485		32,081		27,984		27,926		28,611		28,063
Total available-for-sale	$	44,770		46,241	$	42,867		43,194	$	48,877		48,049

	December 31, 2020				December 31, 2019				December 31, 2018
Held-to-Maturity	Amortized cost		Fair value		Amortized cost		Fair value		Amortized cost		Fair value
Obligations of states and political subdivisions	$	500		501	$	1,764		1,780	$	1,777		1,803
Total held-to-maturity	$	500		501	$	1,764		1,780	$	1,777		1,803

The following table presents the maturity distribution based on fair values and amortized costs of the investment portfolios as of the dates indicated.

INVESTMENT PORTFOLIO – MATURITY DISTRIBUTION

	December 31, 2020							December 31, 2019
Available-for-Sale	Amortized Cost		Fair Value		Weighted Average Yield			Amortized Cost		Fair Value		Weighted Average Yield
U.S. Treasury securities and obligations of U.S.
Government corporations:
Within one year	$	-		—		—		$	1,997		2,001		2.13	%
After one but within five years		501		525		2.73	%		2,000		1,991		1.56	%
After five years through ten years		1,201		1,272		2.85	%		1,989		2,009		2.82	%
Obligations of states and political subdivisions (1):
After one but within five years		1,077		1,158		3.43	%		1,128		1,180		3.51	%
After five years through ten years		7,645		8,324		2.77	%		6,464		6,775		2.87	%
After ten years		2,861		2,881		1.96	%		1,305		1,312		2.26	%
Mortgage-backed securities – government		31,485		32,081		1.88	%		27,984		27,926		2.74	%
Total available-for-sale	$	44,770		46,241				$	42,867		43,194
Held-to-Maturity

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