<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended September 30, 1995
------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to _________________
Commission File Number: 0-18283
-------
PINNACLE BANC GROUP, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3190818
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2215 York Road, Suite 208, Oak Brook, Illinois 60521
----------------------------------------------------
(Address of principal executive offices)
(708) 574-3550
--------------
(Registrant's telephone number, including area code)
_____________________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 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 been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS: As of November 6, 1995, the
registrant had 4,379,469 shares
outstanding of common stock,
$4.69 par value.
- --------------------------------------------------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Presented on the following pages are the unaudited consolidated balance
sheets of Pinnacle Banc Group, Inc. and subsidiaries ("Pinnacle") for September
30, 1995 and December 31, 1994, the related consolidated statements of income
for the three and nine month periods ended September 30, 1995 and 1994, and the
related consolidated statements of cash flows for the nine month periods ended
September 30, 1995 and 1994.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, such as
estimated provisions for profit sharing and bonus arrangements normally
determined at year end, considered necessary for a fair presentation have been
included. Due to the materiality of securities gains on the sale of U. S.
Treasury bills in the second quarter of 1995, $468,000 relating to the U. S.
Treasury bills sales in the first quarter of 1995 has been reclassified from
interest income to securities gains in the Income Statement for consistent
presentation.
Footnote disclosure has been made regarding the acquisition of Acorn
Financial Corp and its subsidiary bank, Suburban Trust & Savings Bank, which was
completed on January 6, 1995 and the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting for Creditors for Impairment
of a Loan" and its amendment SFAS No. 118, "Accounting for Creditors for
Impairment of a Loan - Income Recognition and Disclosure". The remaining
footnote disclosure has been omitted since it would substantially duplicate the
disclosure contained in the latest audited financial statements of Pinnacle
contained in the 1994 Annual Report to Shareholders.
2
<PAGE>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
PINNACLE BANC GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1995 1994
---- ----
<S> <C> <C>
ASSETS:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . $ 20,708,652 $ 20,265,069
Federal funds sold. . . . . . . . . . . . . . . . . . . . . . . . . 7,000,000 -0-
------------ ------------
Total cash and cash equivalents . . . . . . . . . . . . . . . . . 27,708,652 20,265,069
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . 3,191,368 2,815,326
Securities:
Available for sale. . . . . . . . . . . . . . . . . . . . . . . . 429,456,941 386,500,270
(amortized cost: 9/30/95 - $421,231,000
12/31/94 - $382,618,000)
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304,092,642 248,404,294
Less: Allowance for loan losses. . . . . . . . . . . . . . . . . . (6,522,123) (4,228,608)
------------ ------------
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297,570,519 244,175,686
Premises and equipment. . . . . . . . . . . . . . . . . . . . . . . 16,114,934 9,714,259
Goodwill and other intangibles. . . . . . . . . . . . . . . . . . . 19,649,251 7,965,307
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,117,461 13,456,201
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $805,809,126 $684,892,118
------------ ------------
------------ ------------
LIABILITIES:
Demand deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . $ 89,807,839 73,921,734
Interest-bearing. . . . . . . . . . . . . . . . . . . . . . . . . 82,384,865 74,699,554
Savings deposits. . . . . . . . . . . . . . . . . . . . . . . . . . 263,640,479 251,468,974
Other time deposits . . . . . . . . . . . . . . . . . . . . . . . . 261,227,064 199,789,022
------------ ------------
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . . 697,060,247 599,879,284
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . -0- 4,800,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,400,000 5,400,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 7,961,418 5,977,157
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 727,421,665 616,056,441
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock
1,000 shares authorized, none issued. . . . . . . . . . . . . . . -0- -0-
Common stock, $4.69 par . . . . . . . . . . . . . . . . . . . . . . 20,585,973 20,653,341
20,000,000 shares authorized; shares issued and
outstanding: 9/30/95: 4,391,724
12/31/94: 4,406,046
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . 17,873,431 17,550,439
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 32,855,357 27,583,618
Unrealized gains in securities available for sale, net of tax 7,072,700 3,048,279
------------ ------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . 78,387,461 68,835,677
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $805,809,126 $684,892,118
------------ ------------
------------ ------------
</TABLE>
3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
PINNACLE BANC GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
-------------------------- -----------------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans. . . . . . . . . . . . . . . . . . . . . $ 6,509,653 $ 5,206,767 $19,796,179 $15,161,588
Securities:
Taxable. . . . . . . . . . . . . . . . . . . 5,652,789 5,403,233 17,696,446 13,924,724
Tax exempt . . . . . . . . . . . . . . . . . 592,361 703,093 2,114,255 2,231,141
Interest-bearing deposits, Federal funds sold
and other. . . . . . . . . . . . . . . . . . 217,099 15,164 752,375 39,002
----------- ----------- ----------- -----------
Interest income. . . . . . . . . . . . . . . 12,971,902 11,328,257 40,359,255 31,356,455
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits:
Interest-bearing demand. . . . . . . . . . . 429,666 336,975 1,276,863 1,021,148
Savings. . . . . . . . . . . . . . . . . . . 2,087,554 1,731,396 6,293,433 5,208,616
Other time . . . . . . . . . . . . . . . . . 3,556,322 1,940,470 9,968,377 5,363,683
Short-term borrowings. . . . . . . . . . . . . 1,624 146,163 38,583 400,317
Notes payable. . . . . . . . . . . . . . . . . 399,775 86,835 1,527,651 181,525
----------- ----------- ----------- -----------
Interest expense . . . . . . . . . . . . . . 6,474,941 4,241,839 19,104,907 12,175,289
----------- ----------- ----------- -----------
Net Interest Income. . . . . . . . . . . . . . . 6,496,961 7,086,418 21,254,348 19,181,166
Provision for loan losses. . . . . . . . . . . 75,000 300,000 225,000 900,000
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses. . . . . . . . . . . . . . 6,421,961 6,786,418 21,029,348 18,281,166
----------- ----------- ----------- -----------
OTHER INCOME:
Banking services and other . . . . . . . . . . 1,140,981 915,706 3,691,328 2,719,349
Trust services . . . . . . . . . . . . . . . . 544,824 449,628 1,569,215 1,316,044
Net securities gains (losses). . . . . . . . . 182,733 (125,781) 4,447,894 (6,607,786)
----------- ----------- ----------- -----------
Other income . . . . . . . . . . . . . . . . 1,868,538 1,239,553 9,708,437 (2,572,393)
----------- ----------- ----------- -----------
OTHER EXPENSE:
Salaries, profit sharing and other
employee benefits. . . . . . . . . . . . . . 2,945,304 2,347,467 8,848,975 7,011,127
Occupancy. . . . . . . . . . . . . . . . . . . 631,660 454,128 2,274,254 1,411,105
Amortization of goodwill and other intangibles 471,832 420,232 1,413,307 1,260,696
Other operating expenses . . . . . . . . . . . 1,489,995 1,927,100 5,677,934 5,773,742
----------- ----------- ----------- -----------
Other expense. . . . . . . . . . . . . . . . 5,538,791 5,148,927 18,214,470 15,456,670
----------- ----------- ----------- -----------
Income before income taxes . . . . . . . . . . . 2,751,708 2,877,044 12,523,315 252,103
Provision (benefit) for income taxes . . . . . 729,000 125,000 2,438,000 (1,146,000)
----------- ----------- ----------- -----------
Net Income . . . . . . . . . . . . . . . . . . . $ 2,022,708 $ 2,752,044 $10,085,315 $ 1,398,103
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Primary. . . . . . . . . . . . . . . . . . . . 4,410,166 4,426,445 4,424,942 4,472,058
Fully diluted. . . . . . . . . . . . . . . . . 4,410,352 4,426,445 4,425,510 4,472,058
EARNINGS PER SHARE:
Primary. . . . . . . . . . . . . . . . . . . . $ 0.46 $ 0.61 $ 2.28 $ 0.31
Fully diluted. . . . . . . . . . . . . . . . . $ 0.46 $ 0.61 $ 2.28 $ 0.31
</TABLE>
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
PINNACLE BANC GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30
------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1994
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,085,315 $ 1,398,103
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . 945,289 503,128
Amortization of goodwill and other intangibles. . . . . . . . 1,413,307 1,260,696
Amortization of purchase accounting adjustments . . . . . . . 57,696 504,696
Discount accretion. . . . . . . . . . . . . . . . . . . . . . (17,123,938) (2,871,865)
Premium amortization. . . . . . . . . . . . . . . . . . . . . 190,548 1,401,565
Provision for loan losses . . . . . . . . . . . . . . . . . . 225,000 900,000
Loss (gain) on sale of securities . . . . . . . . . . . . . . (4,447,894) 6,607,786
Decrease in interest receivable . . . . . . . . . . . . . . . 481,803 1,974,117
Increase in interest payable. . . . . . . . . . . . . . . . . 106,229 114,875
Decrease (increase) in other assets . . . . . . . . . . . . . 2,020,255 (4,403,335)
Increase in other liabilities . . . . . . . . . . . . . . . . 870,934 739,329
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . (74,388) (322,420)
-------------- --------------
Total adjustments . . . . . . . . . . . . . . . . . . . . . (15,335,159) 6,408,572
Net cash provided by (used for) operating activities. . . . (5,249,844) 7,806,675
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash portion of acquisition, net of cash acquired . . . . . . . (14,799,803) -0-
Proceeds from sale of securities available for sale . . . . . . 2,735,907,226 1,123,301,527
Proceeds from maturities and paydowns of securities available
for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,275,651 18,599,065
Purchase of securities available for sale . . . . . . . . . . . (2,728,184,187) (1,116,239,157)
Net decrease in interest-bearing deposits . . . . . . . . . . . 11,992,879 272,721
Net loan principal (advanced) collected . . . . . . . . . . . . 20,197,878 (814,708)
Premises and equipment expenditures . . . . . . . . . . . . . . (1,502,210) (483,931)
-------------- --------------
Net cash provided by (used for) investing activities. . . . 38,887,434 24,635,517
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in total deposits. . . . . . . . . . . . . . . . . (33,816,731) (32,104,414)
Net decrease in short-term borrowings . . . . . . . . . . . . . (4,800,000) (4,600,000)
Proceeds from notes payable . . . . . . . . . . . . . . . . . . 33,000,000 9,700,000
Principal reductions of notes payable . . . . . . . . . . . . . (16,000,000) (4,600,000)
Issuance of common stock. . . . . . . . . . . . . . . . . . . . 417,215 36,775
Purchase and retirement of common stock . . . . . . . . . . . . (1,153,681) (2,626,048)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . (3,840,810) (3,609,560)
-------------- --------------
Net cash provided by (used for) financing activities. . . . (26,194,007) (37,803,247)
Net increase (decrease) in cash and cash equivalents. . . . . . 7,443,583 (5,361,055)
Cash and cash equivalents at beginning of period. . . . . . . . 20,265,069 23,950,118
-------------- --------------
Cash and cash equivalents at end of period. . . . . . . . . . . $ 27,708,652 $ 18,589,063
-------------- --------------
-------------- --------------
CASH PAID DURING PERIOD FOR:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,998,678 $ 12,342,024
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 2,121,000 1,526,000
</TABLE>
NOTE: On January 6, 1995, Acorn Financial Corp and its subsidiary, Suburban
Trust & Savings Bank, were purchased by Pinnacle for $23,413,897 in cash. At the
date of purchase, the balance sheet of Acorn included cash and cash equivalents
of $8,614,094 resulting in a net cash position of $14,799,803.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PINNACLE BANC GROUP, INC. AND SUBSIDIARIES
ACQUISITION:
On January 6, 1995, Pinnacle completed the acquisition of Acorn
Financial Corp ("AFC"), Oak Park, Illinois, and its subsidiary, Suburban
Trust & Savings Bank ("STSB"). The purchase price was $23,400,000 in cash
for all the issued and outstanding shares. Funds to pay for the purchase
were borrowed from an unaffiliated bank. At the date of purchase, AFC was
liquidated into Pinnacle and STSB, concurrent with liquidation of AFC, was
merged into Pinnacle Bank, Cicero, Illinois, a wholly-owned subsidiary of
Pinnacle. As of the date of purchase, AFC had total assets of approximately
$144,000,000. Goodwill of approximately $12,000,000 created in the
acquisition is being amortized on a straight line basis over fifteen years.
This transaction was accounted for using the purchase method of
accounting and the excess of the aggregate purchase price paid over the fair
value of the net assets acquired consisted of goodwill. The results of
operations of STSB have been included in the consolidated financial
statements since date of acquisition. No pro forma financial information is
presented since the date of acquisition closely coincides with the beginning
of the year and would not differ significantly from the results reported.
Condensed pro forma financial statements for the year ended December 31, 1994
were presented in the Form 8 filed March 20, 1995.
LOANS:
On January 1, 1995, Pinnacle adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan",
and its amendment SFAS No. 118, "Accounting for Creditors for Impairment of a
Loan - Income Recognition and Disclosure". The standards require loans to be
valued based on the present value of expected future cash flows or to the fair
value of their collateral. If the fair value is less than the recorded
investment, the impairment is recorded through a provision for loan losses. The
adoption of these standards had no effect on the financial position or results
of operations of Pinnacle.
The recorded investment in impaired loans was $5,625,000 at September
30, 1995. The fair value of all impaired loans was equal or greater than the
recorded investment in the loans at quarter end.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET INCOME - NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
- ----------------------------------------------------------
Consolidated net income was $10,085,000, or $2.28 per share, on a fully
diluted basis for the nine months ended September 30, 1995, compared to the
$1,398,000, or $0.31 per share, earned in the first nine months of 1994. The
annualized return on average assets was 1.66% for the first nine months of 1995
and 0.27% for the first nine months of 1994. For each period, the return on
average equity was 19.6% and 2.8%, respectively. Return on average assets and
equity for the same periods, calculated using the effects of SFAS No. 115 would
not be materially different. The results for the first nine months of 1995
include the acquisition of Acorn Financial Corp and its subsidiary bank,
Suburban Trust & Savings Bank, which was completed on January 6, 1995.
The increase in earnings for the first nine months of 1995 compared with
the same period of 1994 was primarily attributable to net securities gains of
$4,448,000 recorded in 1995 versus net securities losses of $(6,608,000)
recorded in 1994. Net interest income also increased 11%, primarily as a result
of the increase in average earning assets of 13% due to the acquisition of
Acorn.
Other factors contributing to the improved earnings were a decrease in
the provision for loan losses and the increase in other operating income in the
first nine months of 1995 compared with the same period of 1994. Other
operating expense was up 18% primarily as a result of the acquisition.
NET INTEREST INCOME
The primary component of Pinnacle's consolidated earnings is net
interest income, or the difference between interest income on earning assets
and interest paid on supporting liabilities. The net interest margin is net
interest income expressed as a percentage of average earning assets. Pinnacle's
earning assets consist of loans, securities, interest-bearing deposits at
financial institutions and Federal funds sold. Supporting liabilities primarily
consist of deposits, short-term borrowings and Pinnacle's notes payable. A
portion of Pinnacle's interest income is earned on tax exempt investments such
as state and municipal bonds. In an effort to state this tax exempt income and
its resultant yields on a basis comparable to all other taxable investments, an
adjustment is made to analyze this income on a taxable equivalent basis.
During the first nine months of 1995, Pinnacle's average earning assets
were $742,497,000, a 13% increase from the comparable period of the previous
year. The increase was due to the acquisition. The net interest margin for the
first nine months of 1995 was 4.02%, down from 4.13% of a year ago. Net
interest income on a fully taxable equivalent basis was $22,442,000 for the
first nine months of 1995, or 10% higher than the comparable period in 1994.
Actual net interest income increased 11% as the result of the increase in
average earning assets.
The yield earned on total earning assets was 7.44% for the first nine
months of 1995 compared to 6.60% for the same period of 1994. The increase
resulted from a higher level of yields earned on interest-bearing deposits and
Federal funds sold, taxable securities and loans in the first nine months of
1995 compared with the first nine months of 1994. The average rate earned on
interest-bearing deposits and Federal funds sold increased 214 basis points to
5.40% for the first nine months of 1995. This increase was the result of the
general increase in the interest rates earned on overnight deposits as well as
the interest earned on interest-bearing deposits received through the
acquisition of AFC. The average rate on taxable securities was 6.28% for the
first nine months of 1995 compared with 4.98% for the first nine months of 1994.
The increase in the yield on taxable securities was the result of the
reinvestment of the proceeds from sales of government securities in 1995 into
securities with higher rates than those which were reinvested and sold in 1994.
Sales of government securities in the first
7
<PAGE>
nine months of 1995 consisted primarily of U. S. Treasury Bills. The average
volume of taxable securities increased $2,900,000 in the comparable period. The
average rate on non-taxable securities decreased 154 basis points due to the
maturity and calls of older, higher yielding non-taxable securities since June
30, 1994. The volume in this category increased $2,800,000 as the maturing and
called securities were replaced by securities received through the acquisition.
The rate earned on loans increased 33 basis points due primarily to the general
increase in interest rates. The average balance of loans increased $63,000,000
primarily due to the acquisition. Total interest income, on a fully taxable
equivalent basis, increased $8,955,000 with both the increase in yields and the
increase in average earning assets due to the acquisition contributing to the
increase.
The average cost of interest-bearing liabilities increased 104 basis
points to 3.95% from 2.91% paid in the first nine months of 1994. The average
rate paid on interest-bearing demand deposits increased 14 basis points, while
the average rate paid on savings deposits increased 52 basis points. The
average rate paid on money market deposits increased 36 basis points. Pinnacle
has taken action at appropriate intervals to adjust the rates paid on these
accounts in order to keep these accounts in line with market rates. Savings
deposits, as indicated above, have had the largest increase in rates in the
non-time categories, while rates paid on interest-bearing demand deposits (NOW)
have remained stable. The average rate paid on other time deposits has had the
largest increase due to changes in the market, with a 152 basis points increase.
Absent the effect of the acquisition, the average balances in certain of the
deposit categories, including savings deposits and money market deposits have
decreased while other time deposits have increased. Management believes the
decrease in savings deposits is partially the result of the previous low
interest rate environment and the customer's attempt to achieve higher yields by
switching funds to non-bank investments or special-term deposits at other
financial institutions. Additionally, certain of the banking locations are in
older, mature neighborhoods, where the deposits are being lost due to death,
moving, or changing demographics of the neighborhood. Management has taken
steps to limit the disintermediation of funds by raising interest rates in
certain time deposit categories beginning in the last half of 1994 and
continuing through September 1995. Special term deposits have also been
introduced. Management has also added other deposit options to introduce the
banking centers to the changing neighborhoods. These steps have resulted in new
accounts and current customers' committing their funds to longer time periods as
evidenced by the increase in average time deposit balances (excluding the effect
of the acquisition). All these moves by management have, however, added to the
increase in the rate paid on certain deposit categories as indicated above.
The average balance in short-term borrowings decreased due to the
greater availability of investible funds resulting from the acquisition. The
average rate paid on notes payable has increased as the rates paid on these
notes are tied to either prime or LIBOR-based indices, which have increased
since the first nine months of 1994. The average balance in notes payable
increased to $25,920,000 due to the acquisition of AFC.
As a result of the increase in rates paid as well as average balances,
total interest expense was $6,929,000 higher in the first nine months of 1995
compared with the same period of 1994.
A detailed Analysis of Net Interest Income for the three and nine month
periods ended September 30, 1995 and 1994 is included on Pages 15 and 16.
PROVISION FOR LOAN LOSSES
Management records a provision for loan losses in an amount sufficient
to maintain the allowance for loan losses at a level commensurate with the risks
in the loan portfolio. The allowance for loan losses is adjusted through
charges to current income based on factors such as past loan loss experience,
management's evaluation of potential losses in the loan portfolio, and
prevailing economic conditions.
8
<PAGE>
The provision for loan losses was $225,000 for the first nine months of
1995, compared to $900,000 for the first nine months of 1994. Pinnacle had net
recoveries of $123,000 in 1995 compared to net charge-offs of $108,000 in 1994.
The allowance for loan losses was $6,522,000, or 2.14%, of total loans at
September 30, 1995, compared to 1.70% at December 31, 1994. The increase in the
allowance is mainly attributed to the acquisition of AFC.
Effective January 1, 1995, Pinnacle adopted Statements of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan", and its amendment No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosure". The adoption of these standards had
no effect on the financial position and results of operations of Pinnacle.
Total nonperforming assets totalled $9,161,000 at September 30, 1995, an
increase of $5,445,000, over the $3,716,000 at December 31, 1994. While the
increase is significant, approximately two-thirds of the rise resulted from the
AFC acquisition. Non-performing assets consisted of $4,766,000 in non-accrual
loans, $1,333,000 in loans past due greater than 90 days and still accruing,
$962,000 in restructured loans (acquired from AFC), and $2,100,000 in other real
estate owned. Subsequent to quarter end, one parcel of other real estate owned
totalling $1,791,000 was sold, reducing nonperforming assets to $7,370,000.
NONINTEREST INCOME AND EXPENSE
The major components of Pinnacle's noninterest income consist of service
charges on deposit accounts and other banking income, trust fees and net gains
or losses on the sale of securities. Fees on banking services and other income
were $3,691,000 for the nine months ended September 30, 1995 compared to
$2,720,000 in the same period of 1994. The acquisition accounted for
approximately 66% of the increase, while a gain on the sale of an installment
note included in Other assets accounted for the remaining increase. Trust fees
increased 19% on a period-to-period basis. Total trust assets under management
amounted to $231,000,000 at September 30, 1995, up 36% from a year ago. The
increase is primarily due to the acquisition of trust assets of AFC.
Gains on the sale of securities, on a pre-tax basis, were $4,448,000 for
the first nine months of 1995 compared to net losses of $(6,608,000) in the same
period of 1994. Approximately $3,603,000 of the gains related to the sales of
U. S. Treasury Bills. The remaining gains relate to the sale of an equity
security issue held by Pinnacle and the sale of securities acquired through the
AFC purchase. The net gains realized in the first nine months of 1995 consisted
of gross gains of $4,702,000 and gross losses of $(254,000). The net losses
realized in the same period of 1994 consisted of gross gains of $2,595,000 and
gross losses of $(9,203,000). The net losses recorded in the first nine months
of 1994 also related mainly to Pinnacle's U. S. Government securities portfolio.
The majority of the loss taken on securities in the first nine months of 1994
was due to the significant rise in interest rates since the beginning of 1994.
Security sales relating to Pinnacle's U. S. Government securities
portfolio are made as part of Pinnacle's disciplined portfolio funds management
system. The timing of these sales and the determination of the acceptable
maturity for the reinvestment of the proceeds is made dependent on the slope of
the yield curve and on management's assessment of the acceptable interest rate
risk for Pinnacle. The use of the securities portfolio to manage interest rate
risk is especially crucial to Pinnacle because of the fact its loan to asset
ratio is an unusually low 38%. This results in a securities portfolio
significantly larger than comparable financial institutions. At September 30,
1995, Pinnacle's term securities portfolio, comprising of 45% of total assets,
had a remaining maturity of six months. Management has continued to view the
gains recorded on this program as closely related to its net interest income as
opposed to one-time security gains or losses.
9
<PAGE>
Noninterest expense increased 18% for the first nine months of 1995
compared to the same period last year. The increase was mainly the result of
the acquisition of AFC. Employee compensation and benefits increased 26% while
occupancy expense increased 61%. Also included in occupancy expense was a
planned write-off of $434,000 relating to the demolition of an old branch office
building. A new building contiguous to the old site was opened in June, 1995.
Other operating expenses decreased 2%. In the third quarter of 1995, other
operating expenses were reduced by approximately $364,000 as a result of the
FDIC insurance premium rebate. Included in other operating expenses in the same
period of 1994 was a $750,000 loss contingency charge related to a court
decision which is in appeal. Absent the FDIC insurance rebate in 1995 and the
loss contingency charge in 1994, other operating expenses would have increased
20%. This increase, in addition to the affect of the acquisition of AFC, was
caused by equipment and data processing costs associated with the conversion to
a new data processing system for Pinnacle that was completed in the second
quarter of 1995.
INCOME TAXES
Pinnacle's Federal income tax return is prepared on a consolidated basis
including the accounts of its subsidiary banks. The provision for income taxes
was $2,438,000 for the first nine months of 1995 compared with a benefit of
$(1,146,000) for the first nine months of 1994. The higher provision for taxes
in the first nine months of 1995 was the result of higher pre-tax income for
those same months than the comparable period of a year ago.
NET INCOME - THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
- -----------------------------------------------------------
Consolidated net income was $2,023,000, or $0.46 per share, on a fully
diluted basis for the three months ended September 30, 1995 (the "third
quarter"), compared to $2,752,000, or $0.61 per share, earned in the third
quarter of 1994. The annualized return on average assets was 1.01% for the
third quarter of 1995 and 1.58% for the third quarter of 1994. For each period,
the return on average equity was 11.5% and 17.5%, respectively.
The decrease in net income resulted primarily from the decline in net
interest income. Net interest income decreased $589,000, or 8%. Net securities
gains of $183,000 were recorded in the third quarter compared to net losses of
$(126,000) for the same period a year ago. Other income, exclusive of
securities transactions, increased $320,000, or 24%. Other expense increased
$390,000, or 8%. Both increases, in other income and other expense, resulted
primarily from the acquisition of AFC.
NET INTEREST INCOME
During the third quarter of 1995, Pinnacle's average earning assets were
$736,629,000, or 15% higher than the comparable period of the previous year.
The increase in average earning assets was the result of the acquisition of AFC
in the first quarter of 1995. The net interest margin of the third quarter of
1995 was 3.72% compared to 4.65% for 1994. The significant decrease in the net
interest margin was a result of a high volume of short term, low yielding U. S.
Government securities, coupled with the increasing costs of deposits. Both
factors were a product of a relatively flat yield curve. Net interest income on
a fully taxable equivalent basis was $6,844,000 for the third quarter of 1995,
or 8% lower than the comparable period in 1994. Actual net interest income
decreased 8%.
The yield earned on total earning assets was 7.23% for the third quarter
of 1995 compared to 7.29% for the same period of 1994. While the increase in
earning assets, due to the acquisition of AFC and the generally higher interest
rates in the third quarter of 1995 than the same quarter of 1994
10
<PAGE>
resulted in an increase in interest income, the high level of short-term U. S.
Government securities whose yield decreased 3 basis points, and the maturing and
calls of older, high-yielding nontaxable securities resulted in the slight
decrease in the yield. The yield on nontaxable securities decreased 281 basis
points. In particular, higher yielding, zero coupon bonds were called in 1995.
The increase in loans as a percent of average earning assets due to the
acquisition of AFC was a factor in the increased yield on loans. The average
rate on loans increased 11 basis points while the percent of loans to earning
assets increased to 42% versus 39% of a year ago. Volume of interest-bearing
deposits and Federal funds sold increased $13,465,000 due to the acquisition of
AFC, and yield on this category increased 246 basis points. Total interest
income, on a fully taxable equivalent basis increased $1,597,000 resulting from
the positive factor of increased earning assets.
The average cost of interest-bearing liabilities increased 100 basis
points to 4.09% from the 3.09% paid in the third quarter of 1994. The average
rates paid on interest-bearing demand deposits and savings deposits increased 41
basis points, money market deposits increased 43 basis points and other time
deposits increased 148 basis points. Due to the generally rising interest rate
environment and the disintermediation of funds experienced by Pinnacle, as
previously discussed, led management to increase rates and introduce certain
higher yielding deposit products.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $75,000 for the third quarter of 1995,
compared to $300,000 for the third quarter of 1994. Pinnacle had net recoveries
of $68,000 in the third quarter of 1995 compared to net charge-offs of $94,000
in the third quarter of 1994.
NONINTEREST INCOME AND EXPENSE
Fees on banking services and other income were $1,141,000 for the three
months ended September 30, 1995 compared to $916,000 in the same period of 1994,
an increase of 25% as a result of the acquisition of AFC. Trust fees increased
21% to $545,000 as a result of the acquisition of AFC.
On a pre-tax basis, net gains on the sale of securities were $183,000
compared to net losses on the sale of securities of $(126,000) in the same
period of 1994. The net gains in the third quarter of 1995 consisted of gross
gains of $396,000 and gross losses of $(213,000). The net losses realized in
the third quarter of 1994 consisted of gross gains of $537,000 and gross losses
of $(663,000).
Almost all of the net securities gains recorded by Pinnacle in the third
quarter of 1995 related to its U. S. Government securities portfolio while
almost all of the net securities losses recorded in 1994 also related to its
U. S. Government securities portfolio.
Noninterest expense increased 8%, with employee compensation and
benefits, occupany and amortization of goodwill increasing due to the
acquisition of AFC. Other operating expenses decreased 23%, primarily as a
result of the $364,000 FDIC insurance rebate received in the third quarter of
1995. Absent this rebate, other operating expenses remained relatively stable
with increases resulting from the acquisition of AFC and data processing
conversion being offset by decreases in expenses relating to other real estate
owned and related legal expenses.
INCOME TAXES
The provision for income taxes was $729,000 for the third quarter of
1995 compared with a provision of $125,000 for the same period a year ago,
resulting from the increase in taxable income for both Federal and State tax
purposes.
11
<PAGE>
BALANCE SHEET
Total consolidated assets were $805,809,000 at September 30, 1995, or an
18% increase from year-end 1994. The increase in total assets relates to the
acquisition of AFC on January 6, 1995.
Pinnacle's securities portfolio is its most significant balance sheet
asset. Total securities were $429,457,000 at September 30, 1995 and consisted
of U. S. Government securities amounting to $365,871,000, mortgage-backed
securities and CMO's of $12,384,000, state and municipal bonds of $29,926,000,
and corporate and other securities of $21,276,000. The total securities
outstanding at September 30, 1995 were up 11% from year-end 1994 due to the AFC
acquisition; however, the portfolio at quarter end retained relatively the same
mix.
U. S. Government securities amounted to $365,871,000 or 45% of assets at
September 30, 1995. The remaining maturity of these securities was six months.
U. S. Government securities are part of Pinnacle's term taxable securities
strategy which has been designed to manage Pinnacle's interest rate risk and to
take advantage of the slope in the yield curve. The decision to undertake
intermittent sales of these securities is based on management's assessment of
economic conditions. For example, management will undertake sales of securities
based on the slope of the yield curve and its determination that the
reinvestment of the proceeds into a longer- or shorter-term security is an
acceptable alternative given management's assessment of interest rate risk. At
September 30, 1995, U. S. Government securities had gross unrealized losses
of $(70,000) on a pre-tax basis.
Other securities held by Pinnacle, amounting to $63,586,000 at September
30, 1995, consisted of mortgage-backed, CMO's, state and municipal, and
corporate and equity securities. At quarter end, these securities had gross
unrealized gains of $8,580,000 and gross unrealized losses of $(284,000) on a
pre-tax basis. Currently, Pinnacle is not using any derivatives for hedging or
other purposes.
Total loans amounted to $304,093,000 at September 30, 1995, up 22% from
year-end 1994. The increase is due to the acquisition. At September 30, 1995,
29% of the loans were commercial, real estate loans amounted to 55%, and
installment loans were 16% of total loans. Pinnacle's loan to asset ratio was
38% at September 30, 1995.
Goodwill and other intangibles amounted to $19,649,000, or 25% of
stockholders' equity at September 30, 1995. Goodwill of approximately
$12,000,000 was recorded upon the acquisition of AFC.
Total deposits were $697,060,000 at September 30, 1995, or 16% higher
than year-end 1994. The increase in deposits are attributed to the acquisition
of AFC. Absent the effect of the acquisition, savings deposits have dropped
approximately $25,000,000 and interest-bearing demand deposits have decreased
approximately $5,000,000. Other time deposits have increased approximately
$14,000,000. The increase in other time deposits excludes high-yielding public
fund time deposits acquired from AFC and were not renewed at maturity date due
to the "non-core deposit" features of this money. The majority of these public
fund deposits matured in the first quarter of 1995. Management believes the
drop in savings and interest-bearing deposits is the result of the previous low
interest rate environment in years prior to 1994 where customers earned similar
rates on their savings deposits as they would have with time deposits without
long-term commitment of funds. As the rates began to rise, customers attempted
to earn higher rates by moving to non-bank products and special term deposits at
other financial institutions. Changing demographics of certain of the banking
center locations has also led to the shift and loss of deposits. During the
last half of 1994, and continuing into 1995, management has taken steps to
increase interest rates on deposits and provide products and contact to reduce
the disintermediation of funds. As indicated by the shift of deposits, these
steps have slowed the disintermediation of funds and indicates customers are
more willing to commit their funds to defined periods of time. At September 30,
1995, the percentage of total deposits for each category were:
12
<PAGE>
Noninterest-bearing deposits, 13%; Interest-bearing demand deposits, 12%;
Savings accounts (including Money Market accounts), 38%; and Other time
deposits, 37%.
Pinnacle's notes payable were $22,400,000 at September 30, 1995. The
increase from year-end 1994 was primarily due to the acquisition which was
funded by debt.
CAPITAL RESOURCES
Total stockholders' equity of Pinnacle was $78,387,000 at September 30,
1995 and $68,836,000 at December 31, 1994. The ratio of equity to assets was
9.73% and 10.05% at each period end, respectively.
The Federal Reserve Board ("Board") regulations prescribe capital
requirements for bank holding companies. Pinnacle must have a Leverage Capital
Ratio with a minimum level of Tier One capital to total assets of 3.00%. Tier
One capital consists of common stock, additional paid-in capital and retained
earnings, and is exclusive of Pinnacle's allowance for loan losses, goodwill and
other intangibles, and unrealized gains (losses) on securities available for
sale. In addition, the Board has issued Risk-Based Capital Guidelines with a
minimum standard of total regulatory capital to risk weighted assets of 8.00%.
The structure of Pinnacle's balance sheet results in a Risk-Based Capital Ratio
significantly in excess of the guidelines.
The following table provides an analysis of the minimum capital
requirements (as defined), ratios and the excess over the minimum which Pinnacle
holds as capital as of September 30, 1995, in thousands (except percentages).
<TABLE>
<CAPTION>
MINIMUM MINIMUM EXCESS
REQUIRED REQUIRED ACTUAL ACTUAL OVER
RATIO AMOUNT RATIO AMOUNT MINIMUM
<S> <S> <C> <C> <C> <C>
Leverage Capital . . . . . . . . 3.00% $23,373 6.63% $51,664 $28,291
Risk-based Capital:
Tier One . . . . . . . . . . . 4.00 12,507 16.52 51,664 39,157
Total (Tier Two) . . . . . . . 8.00 25,014 17.77 55,573 30,559
</TABLE>
At December 31, 1994, Pinnacle's total risk-based capital ratio was
23.85%. The decrease in this ratio is due to the higher risk weight given to
certain assets acquired from AFC (certain loans and investments) and the
goodwill attributed to the acquisition.
In addition, each of Pinnacle's subsidiary banks must meet similar
minimum capital requirements as prescribed by Federal and state banking
regulatory authorities. At September 30, 1995, Pinnacle and each of its
subsidiary banks was in compliance with the current capital guidelines and
are considered "well-capitalized" under regulatory standards.
Book value per share was $17.85 at September 30, 1995 compared to $15.62
at December 31, 1994. Dividends amounting to $0.87 per share were paid in the
first nine months of 1995.
LIQUIDITY
As characteristic of the banking industry, Pinnacle's indicators of
liquidity are principally its deposit base, loan and investment portfolios. On a
short term basis, adjustments are made in these categories based on deposit
fluctuations and loan demand. Longer term, liquidity is determined by growth
objectives, rate pricing policies and the ability to borrow debt or raise
equity. In general, Pinnacle is able to meet deposit withdrawals and to fund
loan demand through earnings and the maturity
13
<PAGE>
or sale of securities. Pinnacle would also be able to respond to short term
cash flow needs through short-term borrowings. On a longer term basis, Pinnacle
has the ability to incur debt or to raise equity through the sale of preferred
or common stock.
Pinnacle's cash flows are comprised of three general types. Cash flows
and uses from operating activities are primarily Pinnacle's net income, adjusted
for non-cash items. Cash flows from investing activities consist of loans made
to and collected from customers; and purchases, sales and maturities of
securities. Cash flows from financing activities are determined by Pinnacle's
deposit base and from Pinnacle's ability to borrow and repay debt and issue or
repurchase stock. For the nine months ended September 30, 1995, cash flows were
generated from a $23,000,000 decrease in securities, a $20,200,000 decrease in
loans, a $12,000,000 decrease in interest-bearing deposits, and a $17,000,000
increase in notes payable primarily to fund the acquisition of AFC. Cash flow
uses and needs included $5,200,000 from operating activities, $14,800,000 net
cash outlay for the acquisition of AFC; a $33,800,000 decrease in deposits; a
$4,800,000 decrease in short-term borrowings, and $3,800,000 to pay dividends.
Pinnacle's net cash position increased $7,400,000 with the increase primarily in
Federal funds sold of $7,000,000.
Pinnacle's subsidiary banks have a relatively stable base of deposits
and any increased loan demand can be sufficiently funded without a material
change in its balance sheet. Pinnacle's corporate strategy includes profitable
acquisitions. These acquisitions would be primarily funded with debt.
Reductions of debt would be made from Pinnacle's earnings.
At September 30, 1995, Pinnacle had a line of credit of $7,000,000 from
which $2,400,000 had been drawn. A $20,000,000 note relating to the AFC
acquisition was outstanding at quarter-end, secured by the stock of Pinnacle's
subsidiary banks. A principal payment of $3,000,000 has been made on that note
to date. Both the line of credit and the note were with the same unaffiliated
bank.
Regulatory requirements exist which influence Pinnacle's liquidity and
cash flow needs. These requirements include the maintenance of satisfactory
capital ratios on a consolidated and subsidiary bank basis, restrictions on the
amount of dividends which a subsidiary bank may pay and reserve requirements
with the Federal Reserve Bank. Based on these restrictions, at October 1, 1995,
bank subsidiaries could have declared approximately $2,875,000 in dividends
without requesting approval of the applicable Federal or State regulatory
agency. In addition, Pinnacle has made loan commitments which could result in
increased cash flow requirements for loans. Management is of the opinion that
these regulatory requirements and loan commitments will not have a significant
impact on the liquidity of Pinnacle. Management is not aware of any known
trends, events or uncertainties that will have, or that are reasonably likely
to have, a material effect on Pinnacle. Management is also not aware of any
current recommendations by the regulatory authorities which, if implemented,
would have an adverse material effect on Pinnacle. Currently, the Federal
Deposit Insurance Corporation ("FDIC") has reduced the deposit insurance rate
for well-capitalized banks from $0.23 per $100 of deposits to $0.04 per $100 of
deposits. This reduction will, in effect, reduce FDIC insurance premiums by
approximately $1,000,000 on an annual basis. However, pending before Congress
is a plan to recapitalize the SAIF fund for thrifts and banks which have "Oakar"
deposits (deposits purchased from failed thrift institutions). This plan
includes potential one-time charges of $0.85 per $100 of deposits on thrift
deposits and $0.66 per $100 of "Oakar" deposits. After this recapitalization,
the insurance rate would then be the same as now assessed by the FDIC. This
one-time charge, anticipated to be levied when enacted by law on January 1,
1996, would basically negate the savings on the aforementioned FDIC rate
reduction for the Pinnacle banks over a one-year period of time. Management
had no significant commitments for capital expenditures at September 30, 1995
or December 31, 1994, except as related to the acquisition of AFC, effective
January 6, 1995 and previously discussed.
14
<PAGE>
ANALYSIS OF NET INTEREST INCOME
PINNACLE BANC GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1995
----------------------------------- --------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Interest-bearing deposits and Federal funds sold $ 15,503 $ 217 5.60% $ 18,507 $ 752 5.40%
Taxable securities . . . . . . . . . . . . . . . 377,680 5,652 5.99 374,959 17,696 6.28
Nontaxable securities. . . . . . . . . . . . . . 37,636 912 9.69 38,277 3,203 11.13
Loans. . . . . . . . . . . . . . . . . . . . . . 305,810 6,536 8.55 310,754 19,895 8.51
-------- ------- ---- -------- ------- -----
Total interest-earning assets. . . . . . . . . 736,629 13,317 7.23 742,497 41,546 7.44
Noninterest-earning assets:
Cash and due from banks. . . . . . . . . . . . . 22,304 23,795
Allowance for loan losses. . . . . . . . . . . . (6,463) (6,351)
Other assets . . . . . . . . . . . . . . . . . . 51,451 50,162
------- --------
Total assets . . . . . . . . . . . . . . . . . $803,921 $810,103
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing demand deposits . . . . . . . . $ 84,564 $ 430 2.03% $ 86,165 $1,277 1.97%
Savings deposits . . . . . . . . . . . . . . . . 216,828 1,709 3.15 222,510 5,179 3.10
Money market deposits. . . . . . . . . . . . . . 50,048 378 3.02 51,112 1,113 2.90
Other time deposits. . . . . . . . . . . . . . . 259,200 3,556 5.49 256,233 9,968 5.17
Short-term borrowings. . . . . . . . . . . . . . -0- -0- 0.00 876 39 5.92
Notes payable. . . . . . . . . . . . . . . . . . 22,735 400 7.04 25,920 1,528 7.84
------- ------- ---- ------- ----- ----
Total interest-bearing liabilities . . . . . . 633,375 6,473 4.09 642,816 19,104 3.95
Noninterest-bearing liabilities:
Demand deposits. . . . . . . . . . . . . . . . . 91,485 90,672
Other liabilities. . . . . . . . . . . . . . . . 8,978 8,071
Stockholders' equity . . . . . . . . . . . . . . 70,083 68,544
-------- -------
Total liabilities and stockholders' equity . . $803,921 $810,103
-------- --------
-------- --------
Net interest income and margin . . . . . . . . . . . $ 6,844 3.72% $22,442 4.02%
------- ---- -------- ----
------- ---- -------- ----
</TABLE>
Interest income is adjusted to taxable equivalents for the tax-exempt assets
based upon a Federal income tax rate of 34% for 1995. The fully taxable
equivalent adjustment to interest income for the three and nine months
ended September 30, 1995 was $347 and $1,188, respectively. The average
balance on nonaccrual loans is included in the total loans category.
The average balances do not include the effects of SFAS No. 115.
15
<PAGE>
ANALYSIS OF NET INTEREST INCOME
PINNACLE BANC GROUP, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1994
----------------------------- ----------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- --------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Interest-bearing deposits and Federal funds
sold . . . . . . . . . . . . . . . . . . . . . $ 2,038 $ 16 3.14 % $ 1,591 $ 39 3.26 %
Taxable securities . . . . . . . . . . . . . . . 358,852 5,403 6.02 372,014 13,925 4.98
Nontaxable securities. . . . . . . . . . . . . . 34,090 1,065 12.50 35,491 3,381 12.67
Loans. . . . . . . . . . . . . . . . . . . . . . 248,208 5,236 8.44 247,815 15,246 8.18
-------- ------- ----- ------- ------ -----
Total interest-earning assets. . . . . . . . . 643,188 11,720 7.29 656,911 32,591 6.60
Noninterest-earning assets:
Cash and due from banks. . . . . . . . . . . . . 17,939 18,075
Allowance for loan losses. . . . . . . . . . . . (4,222) (3,952)
Other assets . . . . . . . . . . . . . . . . . . 33,666 34,257
-------- ------
Total assets . . . . . . . . . . . . . . . . . $690,571 $705,291
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing demand deposits . . . . . . . . $ 72,503 $ 337 1.86 % $ 74,219 $ 1,021 1.83 %
Savings deposits . . . . . . . . . . . . . . . . 215,119 1,407 2.62 219,048 4,243 2.58
Money market deposits. . . . . . . . . . . . . . 50,161 325 2.59 50,521 966 2.54
Other time deposits. . . . . . . . . . . . . . . 193,713 1,940 4.01 195,539 5,363 3.65
Short-term borrowings. . . . . . . . . . . . . . 12,714 146 4.60 13,233 400 4.02
Notes payable. . . . . . . . . . . . . . . . . . 4,079 87 8.48 3,247 182 7.44
-------- ------ ---- ------- ------- ----
Total interest-bearing liabilities . . . . . . 548,289 4,242 3.09 555,807 12,175 2.91
Noninterest-bearing liabilities:
Demand deposits. . . . . . . . . . . . . . . . . 74,413 75,045
Other liabilities. . . . . . . . . . . . . . . . 5,508 6,585
Stockholders' equity . . . . . . . . . . . . . . 62,361 67,854
-------- -------
Total liabilities and stockholders' equity . . $690,571 $705,291
-------- --------
-------- --------
Net interest income and margin . . . . . . . . . . . $7,478 4.65 % $20,416 4.13 %
------ ---- ------- ----
------ ---- ------- ----
</TABLE>
Interest income is adjusted to taxable equivalents for the tax-exempt assets
based upon a Federal income tax rate of 34% for 1994. The fully taxable
equivalent adjustment to interest income for the three and nine months ended
September 30, 1994 was $392 and $1,235, respectively. The average balance of
nonaccrual loans is included in the total loans category. The average balances
do not include the effects of SFAS No. 115.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibit is filed as part of this Form 10-Q.
DESCRIPTION NO. UNDER
EXHIBIT ITEM 601 OF EXHIBIT
NUMBER REGULATIONS-K DESCRIPTION
------ ------------- -----------
1 (20) Report furnished to
securities holders.
Third Quarter Report.
2 (27) Financial Data
Schedule.
(b) Reports on Form 8-K.
None.
17
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
PINNACLE BANC GROUP, INC.
Dated: November 6, 1995 By: /s/ John J. Gleason, Jr.
---------------- ------------------------------
John J. Gleason, Jr.
Director and Vice Chairman
By: /s/ Sara J. Mikuta
------------------------------
Sara J. Mikuta
Chief Financial Officer
18
<PAGE>
________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________
EXHIBITS
TO
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
____________________________________________________
PINNACLE BANC GROUP, INC.
(Exact name of registrant as specified in its charter)
________________________________________________________________________________
<PAGE>
EXHIBIT 1. REPORT FURNISHED TO SECURITIES HOLDERS.
<PAGE>
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[LOGO]
THIRD QUARTER REPORT
SEPTEMBER 30, 1995
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<PAGE>
FINANCIAL HIGHLIGHTS
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<TABLE>
<CAPTION>
3RD QUARTER NINE MONTHS
(UNAUDITED; IN THOUSANDS -------------------- ------------------
EXCEPT PER SHARE DATA) 1995 1994 1995 1994
-------- -------- -------- ------
<S> <C> <C> <C> <C>
FOR THE PERIOD:
Net income......................... $ 2,023 $ 2,752 $10,085 $1,398
Return on average equity........... 11.5% 17.5% 19.6% 2.8%
Return on average assets........... 1.01 1.58 1.66 0.27
PER SHARE:
Net income -- fully diluted........ $ 0.46 $ 0.61 $ 2.28 $ 0.31
Dividends.......................... 0.29 0.27 0.87 0.81
Book value......................... 17.85 15.99
AT SEPTEMBER 30:
Total assets....................... $805,809 $690,980
Loans.............................. 304,093 248,481
Deposits........................... 697,060 601,372
Stockholders' equity............... 78,387 70,340
</TABLE>
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LETTER TO SHAREHOLDERS
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Dear Shareholder:
Pinnacle reported net income for the third quarter of 1995 of $2,023,000, or
$0.46 per share, compared to net income of $2,752,000, or $0.61 per share earned
in the third quarter of 1994, a decline of 25%. For the first nine months of
1995, net income totalled $10,085,000, or $2.28 per share, compared to net
income of $1,398,000, or $0.31 per share, for the first nine months of 1994.
The return on average equity for the first six months of 1995 was 19.6% and the
return on average assets amounted to 1.66%. Total assets were $805,809,000 at
September 30, 1995, or 17% higher than the same date of the previous year.
Equity capital amounted to $78,387,000, up 11% from the prior year.
The decline in earnings for the third quarter of 1995 as compared to the same
period one year earlier resulted from an 8% decrease in net interest income. A
high volume of short term U. S. Government securities coupled with the
increasing costs of deposits, which were repricing at higher rates than matured
time deposits, resulted in a significant decline in Pinnacle's net interest
margin to 3.72% for the third quarter of 1995. With the relative flatness of
the yield curve, Pinnacle's term securities portfolio, which comprises 45% of
total assets, had an average remaining maturity of six months as of quarter end.
Other operating income was up 24% in the third quarter. Other operating
expenses increased 8%. The higher levels in both categories were primarily the
effect of the acquisition of Acorn Financial Corp which was closed in the first
quarter of 1995. Other operating expenses in the third quarter were reduced by
approximately $364,000 as a result of the FDIC insurance premium rebate.
The increase in earnings for the first nine months of 1995 compared with the
same period of 1994 was primarily attributable to net securities gains recorded
in 1995 versus net securities losses booked in 1994. Net interest income was up
11% as a result of a 13% increase in earning assets resulting from the Acorn
acquisition. Other operating income increased 30% while other operating expense
was up 18%.
Non-performing assets totalled $9,161,000 at September 30, 1995. While the
amount of non-performing assets represented a significant increase from year-end
1994, approximately two-thirds of the rise resulted from the Acorn acquisition.
Total loans were 22% higher at September 30, 1995 compared with year-end 1994.
Pinnacle's reserve for loan losses totalled $6,522,000, or 2.14% of total loans
at quarter end. Non-performing assets were 2.99% of total loans and other real
estate owned and 1.14% of total assets at September 30, 1995.
At the Board of Directors' meeting on October 17, 1995, the Board declared a
dividend of $0.29 per share payable on November 9 to shareholders of record as
of October 30.
Sincerely,
/s/ John J. Gleason
----------------------
John J. Gleason
Chairman
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<PAGE>
CONSOLIDATED BALANCE SHEETS
PINNACLE BANC GROUP, INC. AND SUBSIDIARIES
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<TABLE>
<CAPTION>
(UNAUDITED; IN THOUSANDS SEPT. 30 DEC. 31 SEPT. 30
EXCEPT SHARE DATA) 1995 1994 1994
-------- -------- --------
<S> <C> <C> <C>
ASSETS:
Cash and due from banks................. $ 20,709 $ 20,265 $ 18,139
Federal funds sold...................... 7,000 -0- 450
Interest-bearing deposits............... 3,191 2,815 1,053
Securities -- Available for sale........ 429,457 386,500 394,237
Loans................................... 304,093 248,404 248,481
Less: Allowance for loan losses........ (6,522) (4,228) (4,339)
-------- -------- --------
NET LOANS......................... 297,571 244,176 244,142
Premises and equipment.................. 16,115 9,715 9,798
Goodwill and other intangibles.......... 19,649 7,965 8,385
Other assets............................ 12,117 13,456 14,776
-------- -------- --------
TOTAL............................ $805,809 $684,892 $690,980
-------- -------- --------
-------- -------- --------
LIABILITIES:
Demand deposits:
Noninterest-bearing.................. $ 89,808 $ 73,922 $ 70,910
Interest-bearing..................... 82,385 74,699 73,901
Savings deposits........................ 263,640 251,469 263,282
Other time deposits..................... 261,227 199,789 193,279
-------- -------- --------
TOTAL DEPOSITS.................... 697,060 599,879 601,372
Short term borrowings................... -0- 4,800 9,000
Notes payable........................... 22,400 5,400 5,100
Other liabilities....................... 7,962 5,977 5,168
-------- -------- --------
TOTAL LIABILITIES................. 727,422 616,056 620,640
-------- -------- --------
STOCKHOLDERS' EQUITY:
Common stock, $4.69 par value 20,586 20,653 20,624
20,000,000 shares authorized;
shares issued and outstanding:
9/30/95: 4,391,724
12/31/94: 4,406,046
9/30/94: 4,399,819
Additional paid-in capital.............. 17,873 17,551 17,432
Retained earnings....................... 32,855 27,584 27,999
Unrealized gains (losses) in securities
available-for-sale................... 7,073 3,048 4,285
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY........ 78,387 68,836 70,340
-------- -------- --------
TOTAL............................. $805,809 $684,892 $690,980
-------- -------- --------
-------- -------- --------
</TABLE>
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<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
PINNACLE BANC GROUP, INC. AND SUBSIDIARIES
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<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
(UNAUDITED; IN THOUSANDS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
EXCEPT PER SHARE DATA) --------------------- --------------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans............................................. $ 6,510 $ 5,207 $19,796 $15,161
Securities........................................ 6,245 6,106 19,811 16,156
Interest-bearing deposits and Federal funds sold.. 217 15 752 39
------- ------- ------- -------
INTEREST INCOME................................ 12,972 11,328 40,359 31,356
INTEREST EXPENSE:
Deposits.......................................... 6,074 4,009 17,539 11,593
Short term borrowings............................. 1 146 38 400
Notes payable..................................... 400 87 1,528 182
------- ------- ------- -------
INTEREST EXPENSE............................... 6,475 4,242 19,105 12,175
------- ------- ------- -------
NET INTEREST INCOME.................................. 6,497 7,086 21,254 19,181
Provision for loan losses......................... 75 300 225 900
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES...................................... 6,422 6,786 21,029 18,281
OTHER INCOME:
Banking services and other........................ 1,141 916 3,691 2,720
Trust services.................................... 545 450 1,569 1,316
Net securities gains (losses)..................... 183 (126) 4,448 (6,608)
------- ------- ------- -------
OTHER INCOME................................... 1,869 1,240 9,708 (2,572)
OTHER EXPENSE:
Employee compensation and benefits................ 2,945 2,348 8,849 7,011
Occupancy......................................... 632 454 2,274 1,411
Other expenses.................................... 1,962 2,347 7,091 7,035
------- ------- ------- -------
OTHER EXPENSE.................................. 5,539 5,149 18,214 15,457
INCOME BEFORE INCOME TAXES........................... 2,752 2,877 12,523 252
Provision for income taxes........................ 729 125 2,438 (1,146)
------- ------- ------- -------
NET INCOME.................................. $ 2,023 $ 2,752 $10,085 $ 1,398
------- ------- ------- -------
------- ------- ------- -------
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary........................................... 4,410 4,426 4,425 4,472
Fully diluted..................................... 4,410 4,426 4,426 4,472
EARNINGS PER SHARE:
Primary........................................... $ 0.46 $ 0.61 $ 2.28 $ 0.31
Fully diluted..................................... 0.46 0.61 2.28 0.31
</TABLE>
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<PAGE>
CORPORATE INFORMATION
------------------------------------------
CORPORATE HEADQUARTERS
2215 York Road, Suite 208
Oak Brook, Illinois 60521
(708) 574-3550
SUBSIDIARY BANKS
Pinnacle Bank
CICERO, BERWYN, NORTH RIVERSIDE,
LAGRANGE PARK, HARVEY,
OAK PARK, WESTMONT
Pinnacle Bank of the Quad-Cities
SILVIS, GREEN ROCK-COLONA
Batavia Savings Bank
BATAVIA, ELBURN
COMMON STOCK
Common stock is traded on NASDAQ
with the ticker symbol "PINN"
and listed with the
abbreviations "PinBG"
and "PinclBns"
PRINCIPAL MARKET MAKERS
The Chicago Corporation
Barron Chase Securities, Inc.
Howe Barnes Investments, Inc.
[LOGO]
---------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 20,708,652
<INT-BEARING-DEPOSITS> 3,191,368
<FED-FUNDS-SOLD> 7,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 429,456,941
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 304,092,642
<ALLOWANCE> 6,522,123
<TOTAL-ASSETS> 805,809,126
<DEPOSITS> 697,060,247
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,961,418
<LONG-TERM> 22,400,000
<COMMON> 20,585,973
0
0
<OTHER-SE> 57,801,488
<TOTAL-LIABILITIES-AND-EQUITY> 805,809,126
<INTEREST-LOAN> 19,796,179
<INTEREST-INVEST> 19,810,701
<INTEREST-OTHER> 752,375
<INTEREST-TOTAL> 40,359,255
<INTEREST-DEPOSIT> 17,538,673
<INTEREST-EXPENSE> 19,104,907
<INTEREST-INCOME-NET> 21,254,348
<LOAN-LOSSES> 225,000
<SECURITIES-GAINS> 4,447,894
<EXPENSE-OTHER> 18,214,470
<INCOME-PRETAX> 12,523,315
<INCOME-PRE-EXTRAORDINARY> 12,523,315
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,085,315
<EPS-PRIMARY> 2.28
<EPS-DILUTED> 2.28
<YIELD-ACTUAL> 4.13
<LOANS-NON> 4,766,000
<LOANS-PAST> 1,333,000
<LOANS-TROUBLED> 962,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,228,608
<CHARGE-OFFS> 80,000
<RECOVERIES> 203,000
<ALLOWANCE-CLOSE> 6,522,123
<ALLOWANCE-DOMESTIC> 3,154,833
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,367,290
</TABLE>
