KBRA Affirms Ratings for Pinnacle Bancorp, Inc.

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Omaha, Nebraska-based Pinnacle Bancorp, Inc. (“Pinnacle” or “the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for Pinnacle’s largest subsidiary bank, Pinnacle Bank (NE). KBRA also affirms the deposit and senior unsecured debt ratings of A- and the short-term deposit and debt ratings of K2 for Pinnacle’s other subsidiary banks, Bank of Colorado, Pinnacle Bank (TX), and Pinnacle Bank - Wyoming. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

Pinnacle’s ratings are supported by a favorable, long-term performance track record that has benefited most from very low credit costs over time, as well as a robust core deposit base. With that said, Pinnacle’s returns declined somewhat (beginning in 2022 and persisting through mid-2024) from the company’s highly consistent and strong historical earnings performance, with some recovery in core returns during 2H24 and into 1Q25. Variable performance during this period was driven principally by deposit cost increases and related NIM pressure; though not to a degree that was dissimilar to that reflected by some peers. In this regard, Pinnacle’s total average cost of deposits rose through 2022 and 2023, stabilizing at a peak of ~2.3% during mid-2024, then declining to ~2.1% in 4Q24 and further in 1Q25. While Pinnacle’s average loan yields were also up (~70bps during 2023 and ~50bps in 2024 to ~5.7%), a large, lower yielding securities portfolio constrained NIM trends. Having reflected a relatively competitive cost base (mid-50% core efficiency measures) through much of its modern history, even despite an attractive ‘high touch’ business model that includes select non-spread business lines (core fees recently tracking at ~17% of total revenues), the aforementioned NIM compression/revenue pressures have resulted in elevated relative costs (scaled to revenues), though after tracking in the mid-60% range during 2023 and most of 2024, have moved back to ~60%. Positively, Pinnacle’s creditor profile continues to benefit from a strong core capital base that had pre-pandemic TCE and CET1 ratios tracking in the 9% and 12% range, respectively. Since then, while TCE has been impacted by negative AOCI impacts on AFS securities, CET1 has remained solid, tracking at or above the mid-12% range since the company’s December 2022 acquisition of Crockett National Bank (TX). From a longer-term perspective, we consider it noteworthy that Pinnacle’s annual returns during the GFC never fell below 1% ROA; unsurprisingly benefiting from superior credit quality that saw a “peak” annual NCO ratio of 0.46% for CY10. Since then, asset quality metrics have been pristine, with NCO ratios <10 bps since 2013, including through the pandemic, as well as more recently, despite some increased economic uncertainty.

Rating Sensitivities

Further development of existing or diversification into other fee revenue sources would be viewed favorably. Continued conservative financial management would remain important as well. An unexpected change in asset quality or material change in capital management could affect ratings.

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Methodologies