Profitability as measured by the Company’s return on average assets (“ROA”) decreased to 0.87% for the six months ended June 30, 2024, as compared to 0.96% for the same time period of 2023. Correspondingly, return on average equity (“ROE”) decreased to 12.16% for six months ended June 30, 2024, as compared to 15.65% for the same time period of 2023.

“We are pleased with Pinnacle’s second quarter and year-to-date performance in 2024,” stated Aubrey H. Hall, III, President and Chief Executive Officer for both the Company and the Bank. Mr. Hall further commented, “Second quarter net income increased compared to the first quarter of 2024 and the second quarter of last year due to increased loan volume and expansion of our net interest margin. Our Company is in a solid position with ample funding, strong asset quality, and an expanding net interest margin.”

Net Interest Income and Margin

The Company generated $8,818,000 in net interest income for the second quarter of 2024, which represents a $584,000, or 7%, increase as compared to $8,234,000 for the second quarter of 2023. Interest income increased $1,406,000, or 14%, due to higher yields on earning assets and increased loan volume, while interest expense increased $822,000, or 39%, due to higher interest rates paid on deposits.

The Company generated $17,228,000 in net interest income for the first half of 2024, which represents a $661,000, or 4%, increase as compared to $16,567,000 for the same time period of 2023. Interest income increased $2,726,000, or 13%, as yield on earning assets increased 52 basis points to 4.86%. Interest expense increased $2,065,000, or 57%, due to higher interest rates paid on deposits as cost to fund earning assets increased 43 basis points to 1.21%. Net interest margin increased to 3.65% for the first half of 2024 from 3.56% for the first half of 2023.

Reserves for Credit Losses and Asset Quality

The provision for credit losses was $242,000 in the second quarter of 2024 as compared to $1,000 in the second quarter of 2023. For the first half of 2024, the provision for credit losses was $260,000 as compared to $62,000 for the first half of 2023. Provision expense increased in the first half of 2024 as a result of increased loan volume.

The allowance for credit losses (ACL) was $4,622,000 as of June 30, 2024, which represented 0.69% of total loans outstanding. In comparison, the ACL was $4,511,000 or 0.70% of total loans outstanding as of December 31, 2023. Non-performing loans to total loans decreased to 0.20% as of June 30, 2024, compared to 0.24% as of year-end 2023. ACL coverage of non-performing loans was 351% as of June 30, 2024, compared to 290% as of year-end 2023. Management views the allowance balance as being sufficient to offset potential future losses in the loan portfolio.

Noninterest Income and Expense

Noninterest income for the second quarter of 2024 increased $254,000, or 16%, to $1,812,000 as compared to $1,558,000 for the second quarter of 2023. The increase was primarily due mainly to a $72,000 increase in commissions and fees from sales of investment and insurance products, a $55,000 increase in merchant card fees, and a $38,000 increase in fees generated from sales of mortgage loans.

Noninterest income for the first half of 2024 increased $135,000, or 4%, to $3,435,000 as compared to $3,300,000 for the same time period in 2023. The increase was mainly due to a $75,000 increase in merchant card fees, a $90,000 increase in commissions and fees from sales of investment and insurance products, and a $47,000 increase in bank-owned life insurance returns. These increases were partially offset by a $74,000 decrease in interchange fees from debit card transactions and a $22,000 decrease in fees generated from sales of mortgage loans.

Noninterest expense for the second quarter of 2024 increased $479,000, or 7%, to $7,681,000 as compared to $7,202,000 for the second quarter of 2023. The increase was primarily due to a $279,000 increase in core operating system expenses and a $48,000 increase in dealer loan expenses due to higher volume.

Noninterest expense for the first half of 2024 increased $1,104,000, or 8%, to $15,083,000 as compared to $13,979,000 for the same time period of 2023. The increase was mainly due to a $515,000 increase in core operating system expenses, a $123,000 increase in dealer loan expenses, and a $116,000 increase in salaries and employee benefits.

The Balance Sheet and Liquidity

Total assets as of June 30, 2024, were $998,247,000, down 2% from $1,016,528,000 as of December 31, 2023. The principal components of the Company’s assets as of June 30, 2024, were $670,131,000 in total loans, $179,823,000 in securities, and $98,172,000 in cash and cash equivalents. For the first half of 2024, total loans increased $28,694,000, or 4.5%, from $641,437,000, securities decreased $53,756,000, or 23%, from $233,579,000, and cash and cash equivalents increased $10,583,000, or 12%, from $87,589,000.00.

The majority of the Company’s securities portfolio is relatively short-term in nature. Forty-eight percent (48%) of the Company’s securities portfolio is invested in U.S. Treasuries having an average maturity of 1.48 years with $64,000,000 maturing during the next twelve months. The Company’s entire securities portfolio was classified as available for sale on June 30, 2024, which provides transparency regarding unrealized losses. Unrealized losses associated with the available for sale securities portfolio were $13,716,000 as of June 30, 2024, or seven percent (7%) of book value, an improvement from $14,943,000 as of December 31, 2023.

The Company had a strong liquidity ratio of 34% as of June 30, 2024. The liquidity ratio excluding the available for sale securities portfolio was 12% providing the opportunity to sell excess funds at an attractive federal funds rate. The Company has access to multiple liquidity lines of credit through its correspondent banking relationships and the Federal Home Loan Bank. None of these contingency funding sources have been utilized.

Total liabilities as of June 30, 2024, were $925,484,000, down $22,639,000, or 2%, from $948,123,000 as of December 31, 2023, as deposits decreased $22,119,000, or 2%, in the first half of 2024 to $910,325,000 from $932,444,000. First National Bank’s number of deposit accounts increased 3% during the same time period as the Bank has benefitted from the closures of large national bank branches within markets served and its reputation for providing extraordinary customer service.

Total stockholders’ equity as of June 30, 2024, was $72,763,000 and consisted primarily of $65,255,000 in retained earnings. In comparison, as of December 31, 2023, total stockholders’ equity was $68,405,000. The increase in stockholders’ equity is due primarily to 2024 profitability and an increase in the market value of the securities portfolio and pension assets. Both the Company and Bank remain “well capitalized” per all regulatory definitions.

Company Information

Pinnacle Bankshares Corporation is a locally managed community banking organization serving Central and Southern Virginia. The one-bank holding company of First National Bank serves market areas consisting primarily of all or portions of the Counties of Amherst, Bedford, Campbell and Pittsylvania, and the Cities of Charlottesville, Danville and Lynchburg. The Company has a total of eighteen branches with one branch in Amherst County within the Town of Amherst, two branches in Bedford County; five branches in Campbell County, including two within the Town of Altavista, where the Bank was founded; one branch in the City of Charlottesville, three branches in the City of Danville; three branches in the City of Lynchburg; and three branches in Pittsylvania County, including one within the Town of Chatham. First National Bank is in its 116^th year of operation.

Cautionary Statement Regarding Forward-Looking Statements

This press release may contain “forward-looking statements” within the meaning of federal securities laws that involve significant risks and uncertainties. Any statements contained herein that are not historical facts are forward-looking and are based on current assumptions and analysis by the Company. These forward-looking statements, including statements made in Mr. Hall’s quotes may include, but are not limited to, statements regarding the credit quality of our asset portfolio in future periods, the expected losses of nonperforming loans in future periods, returns and capital accretion during future periods, our cost of funds, the maintenance of our net interest margin, future operating results and business performance and our growth initiatives. Although we believe our plans and expectations reflected in these forward-looking statements are reasonable, our ability to predict results or the actual effect of future plans or strategies is inherently uncertain, and we can give no assurance that these plans or expectations will be achieved. Factors that could cause actual results to differ materially from management's expectations include, but are not limited to: changes in consumer spending and saving habits that may occur, including increased inflation; changes in general business, economic and market conditions; attracting, hiring, training, motivating and retaining qualified employees; changes in fiscal and monetary policies, and laws and regulations; changes in interest rates, inflation rates, deposit flows, loan demand and real estate values; changes in the quality or composition of the Company’s loan portfolio and the value of the collateral securing loans; changes in macroeconomic trends and uncertainty, including liquidity concerns at other financial institutions, and the potential for local and/or global economic recession; changes in demand for financial services in Pinnacle’s market areas; increased competition from both banks and non-banks in Pinnacle’s market areas; a deterioration in credit quality and/or a reduced demand for, or supply of, credit; increased information security risk, including cyber security risk, which may lead to potential business disruptions or financial losses; volatility in the securities markets generally, including in the value of securities in the Company’s securities portfolio or in the market price of Pinnacle common stock specifically; and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and you should not place undue reliance on such statements, which reflect our views as of the date of this release.