U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 29549
----------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED MARCH 31, 1996
Commission File Number 33-67528
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PINNACLE FINANCIAL CORPORATION
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(Exact name of small business issuer as specified in its charter)
Georgia 58-1538862
- - ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
884 Elbert Street,
P.O. Box 430, Elberton, Georgia 30635-0430
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (706) 283-2854
--------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of April 30, 1996 there were 768,000 shares of common stock outstanding.
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<PAGE>
PINNACLE FINANCIAL CORPORATION
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Position at
March 31, 1996 and December 31, 1995 1
Consolidated Statements of Income for the Three
Months ended March 31, 1996 and 1995 2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995 3
Item 2. Managements Discussion and Analysis or Plan of
Operation 6
PART II - OTHER INFORMATION 11
I
<PAGE>
PINNACLE FINANCIAL CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
II
<PAGE>
<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------- -----------
Assets
- - ------
<S> <C> <C>
Cash and due from banks $7,169,431 $6,079,376
Federal funds sold 4,414,160 8,062,879
Securities available for sale 82,434,935 77,875,874
Loans, net of allowance for credit losses
of $1,710,327 and $1,828,722, respectively 122,217,705 119,637,013
Premises and equipment 4,716,009 4,766.974
Accrued interest receivable 2,680,678 2,514,723
Foreclosed real estate 566,336 584,523
Other assets 1,210,069 1,123,889
----------- -----------
Total assets $225,409,323 $220,645,251
============ ============
Liabilities
- - -----------
Demand deposits $29,168,801 $30,196,769
Savings and NOW deposits 61,607,533 61,403,287
Other time deposits 101,484,887 96,318,071
----------- -----------
Total deposits 192,261,221 187,918,127
Accrued interest and other liabilities 2,475,898 2,267,921
----------- -----------
Total liabilities 194,737,119 190,186,048
----------- -----------
Shareholders' equity
- - --------------------
Common stock, $10 par value; 5,000,000 shares
authorized, 768,000 shares issued and outstanding 7,680,000 7,680,000
Capital surplus 7,280,000 7,280,000
Retained earnings 15,264,590 14,589,472
Net unrealized appreciation on securities available for sale,
net of taxes of $230,589 and $468,649, respectively 447,614 909,731
----------- -----------
Total shareholders' equity 30,672,204 30,459,203
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $225,409,323 $220,645,251
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
YTD YTD
March 31, March 31,
1996 1995
--------- ---------
<S> <C> <C>
Interest income
- - ---------------
Loans $3,200,327 $2,997,906
Securities available for sale 1,186,465 1,075,001
Federal funds sold 98,564 41,856
--------- ---------
Total interest income 4,485,356 4,114,763
--------- ---------
Interest expense
- - ----------------
Deposits 1,767,118 1,510,049
--------- ---------
Total interest expense 1,767,118 1,510,049
--------- ---------
Net interest income 2,718,238 2,604,714
- - -------------------
Provision for credit losses 171,000 75,000
--------- ---------
Net interest income after provision for credit losses 2,547,238 2,529,714
--------- ---------
Other income
- - ------------
Service charges on deposit accounts 322,340 292,995
Other service charges and fees 101,868 119,718
Other income 37,917 39,999
--------- ---------
Total other income 462,125 452,712
--------- ---------
Other expenses
- - --------------
Salaries and employee benefits 930,294 870,183
Occupancy expense 229,013 209,974
Net realized losses on sales of securities available for sale 0 17,280
Other expenses 426,378 468,514
--------- ---------
Total other expenses 1,585,685 1,565,951
--------- ---------
Income before income taxes 1,423,678 1,416,475
Income tax expense 426,000 380,000
--------- ---------
Net income $997,678 1,036,475
- - ---------- ========= =========
Net income per share of common stock $1.30 $1.35
===== =====
Average shares outstanding 768,000 768,000
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2<PAGE>
<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $997,678 $1,036,475
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 99,485 105,070
Provision for credit losses 171,000 75,000
Deferred income taxes ---- ----
Net realized losses on securities available for sale 0 (17,280)
Increase in accrued interest and other assets (252,135) (68,159)
Increase (Decrease) in accrued expenses and other liabilities 283,977 (4,577)
---------- -----------
Total adjustments 302,327 90,054
---------- ----------
Net cash provided by operating activities 1,300,005 1,126,529
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold 3,648,719 (4,190,000)
Purchase of securities available for sale (11,452,559) (1,523,550)
Proceeds from sales of securities available for sale 0 1,713,290
Proceeds from maturities of securities available for sale 6,278,568 3,916,170
Net increase in loans (2,656,692) (2,698,655)
Purchases of premises and equipment (48,520) (44,121)
----------- -----------
Net cash used by investing activities (4,230,484) (2,826,866)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in non-interest bearing demand deposits,
Savings and NOW deposit accounts (823,722) 1,967,749
Net increase in time deposits 5,166,816 1,751,263
Net decrease in federal funds purchased 0 (540,000)
Dividends paid (322,560) (307,200)
----------- ------------
Net cash provided by financing activities 4,020,534 2,871,812
----------- ------------
Net increase in cash and due from banks 1,090,055 1,171,475
Cash and cash equivalents at January 1 6,079,376 7,320,285
----------- -----------
Cash and cash equivalents at March 31 $7,169,431 $8,491,760
=========== ===========
Interest paid $1,831,633 $4,634,033
=========== ===========
Income taxes paid $0 $330,000
== ========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Pinnacle
Financial Corporation (the Company) and its wholly-owned commercial bank
subsidiaries, First National Bank in Elberton and Tri-County Bank of
Royston. All significant intercompany accounts have been eliminated in
consolidation.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary for fair statements of the consolidated
financial position and the results of operations of the Company for the
interim periods. The results of operations for the three month period
ended March 31, 1996 are not necessarily indicative of the results which
may be expected for the entire year.
(2) INVESTMENT SECURITIES
As of December 31, 1994, the Company adopted FAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". All investment
securities are classified as available-for-sale and are recorded at their
estimated fair market values in accordance with the provision of FAS No.
115. From time to time, the Company may decide to sell certain
securities prior to maturity for liquidity, tax planning and other valid
business purposes. Gains and losses are determined using the specific
identification method when securities are sold.
(3) INCOME TAXES
Deferred income taxes are recorded as required by FAS No. 109,
"Accounting for Income Taxes", using the liability method under which
deferred tax assets and liabilities are determined based on the
differences between the financial accounting and tax basis of assets and
liabilities.
(4) ACCOUNTING FOR IMPAIRED LOANS
FAS 114, "Accounting by Creditors for Impairment of a Loan" was
adopted as of January 1, 1995 as required. Loans having carrying values
of $910,000 as of March 31, 1996 have been recognized as impaired in
conformity with FAS 114. The total allowance for credit losses related
to the impaired loans was $306,000. For impairment recognized in
conformity with FAS 114, the entire change in the present value of
expected cash flows is reported as bad debt expense in the same manner in
which the initial impairment was recognized or as a reduction in the
amount of bad debt expense that otherwise would be reported. The company
has recognized specific allowances in prior periods for each of these
loans based on previous methodology for calculating its allowance for
credit losses.
4
<PAGE>
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations of Pinnacle analyses the major elements of
Pinnacle's consolidated balance sheets and statements of income. This
section reflects the results of its two subsidiary banks, First National
Bank in Elberton and Tri-County Bank of Royston.
Pinnacle continues to weigh the merits of additional business
combinations while maintaining a focus on its general mission to
responsibly serve the needs of its customers and communities and to
enhance profit potential and shareholder value. First National filed an
application with the Southeastern District office of the Comptroller of
the Currency on May 8, 1996 to establish a branch office in Hartwell,
Georgia after July 1, 1996 as allowed by Section 12 U.S.C. 36(c) and
Georgia statutes Sections O.C.G.A. 7-1-601, 7-1-602 and 7-1-394.
For a comprehensive presentation of Pinnacle's financial condition
and results of operations, the following analysis should be viewed along
with other information contained in this report, including the financial
statements and accompanying disclosures. All amounts throughout this
section are rounded to the nearest 1,000 dollars, the nearest .1 million
dollars and to the nearest .1 percent to represent approximations of
reported amounts.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to maintain cash flows
adequate to meet immediate and ongoing future needs of credit demand,
deposit withdrawal, maturing liabilities and corporate operating
expenses. Pinnacle seeks to meet liquidity requirements primarily
through the management of federal funds and the investment securities
portfolio. At March 31, 1996, 32.8% of the investment securities
portfolio had maturity dates within the next year and an additional 56.6%
matures within the next 5 years. During the first three months of 1996,
federal funds sold averaged $7.1 million thereby providing sufficient
funds to meet immediate needs. Other sources of liquidity are payments
on commercial and installment loans and repayment of maturing single
payment loans. Also, Pinnacle retains relationships with four
correspondent banks which could provide funds to it on short term notice,
if needed. Presently, Pinnacle has arrangements with commercial banks
for short term unsecured advances up to $9.8 million. Pinnacle's
management intends to continue to closely monitor and maintain
appropriate levels of interest bearing assets and liabilities in future
periods so that maturities of assets are such that adequate funds are
provided to meet customer withdrawals and loan requests while net
interest margins are maximized.
Regulatory policy generally requires the maintenance of a liquidity
ratio of 25%, which is generally defined as cash plus liquid investments
divided by deposits plus borrowings due within one year. The desired
5
<PAGE>
level of liquidity is determined by management based in part on
Pinnacle's commitment to make loans and an assessment of its ability to
generate funds. At March 31, 1996, liquidity ratios were: Pinnacle
45.3%, First National 51.0% and Tri-County Bank 37.7%.
Yields on interest bearing assets averaged 8.6% for the current
quarter compared to 8.0% for the same period the year before. Total
interest bearing assets increased by $15.8 million or 8.2% for the
current period when compared with the quarter ended March 31, 1995.
Average net loans increased $6.0 million or 5.3% in the three months
ended March 31, 1996 from the same 1995 period, primarily as a result of
a healthy economy in Northeast Georgia. Average net loans during the
quarter for First National were $65.8 million while Tri-County Bank's
average net loans were $54.8 million.
Only minor changes occurred in other real estate owned during the
first three months of 1996, resulting in $566,000 held at March 31, 1996
compared to $585,000 at December 31, 1995. Non-performing loans totaled
$780,000 as of March 31, 1996 representing .6% of total loans at March
31, 1996 compared to $621,000 at December 31, 1995, which represented .5%
of total loans at that date. Accrued interest as of March 31, 1996 on
non-performing loans totaled $24,000 which is not reported as income.
Non-performing loans at March 31, 1996 are classified as: real estate,
$648,000; other collateralized loans, $118,000; and unsecured, $14,000.
Pinnacle continues to maintain a concentration of core deposits from
an established customer base which provides a stable funding source.
Deposits increased $4.4 million to $192.3 million at March 31, 1996 from
$187.9 million at December 31, 1995, due primarily to normal growth and
continued economic expansion in Northeast Georgia. Non-interest bearing
deposits decreased $1.0 million to $29.2 million compared to December 31,
1995 balance of $30.2 million. Interest bearing deposits increased $5.4
million at March 31, 1996.
Management continues to give priority to the importance of
maintaining high levels of assets with interest rate sensitivity. Cash
and cash equivalents decreased during the first three months of 1996 from
December 31, 1995 levels by $2.6 million and investment securities
increased $4.5 million from December 31, 1995 levels. This reflected a
decision by management to maximize interest income by purchasing
investments with higher yields than federal funds.
Shareholders' equity increased $.2 million to $30.7 million at March
31, 1996 from $30.5 million at December 31, 1995. Earnings retained
during the three months amounted to $675,000 and equity was decreased
$462,000 as a result of a decline in net unrealized gains during the
first three months due to a decline in the bond market. FAS 115 which
was adopted on December 31, 1994 requires that unrealized gains/losses on
certain marketable securities be recorded in shareholder's equity.
Pinnacle continues to maintain adequate capital ratios (see "Risk
Based Capital Ratios" below and see "Results of Operations" below for
discussion of dividend levels.) Pinnacle maintained a level of capital,
6
<PAGE>
as measured by its average equity to average assets ratio, of 13.8%
during the first three months of 1996, compared to 13.4% for the year
which ended December 31, 1995.
Management is not aware of any known trends, events or uncertainties
that are reasonably likely to have a material effect on the registrants
liquidity, capital resources, or results of operation. Pinnacle is not
aware of any current recommendations by the regulatory authorities which,
if they were implemented, would have such an effect. Loans classified
for regulatory purposes as loss, doubtful, substandard or special mention
do not represent trends or uncertainties which management reasonably
expects will materially impact future operational trends.
RESULTS OF OPERATIONS
Pinnacle's operational results primarily depend on the earnings of
the banks. Their earnings depend to a large degree on net interest
income, which is the difference between the interest income received from
investments (such as loans, investment securities, federal funds sold,
etc.) and the interest expense which is paid on deposit liabilities.
Net interest income in the three months ended March 31, 1996
increased 4.4% as a result of more favorable rate spreads and
management's ability to match rate sensitive assets with rate sensitive
liabilities in such a way that net interest margins have increased from
the same period the prior year. As a result of increased deposits,
interest expense increased $257,000 or 17.0% while interest income
increased $371,000 or 9.0% in the three months ended March 31, 1996
compared to the same period the year before.
The provision for possible loan losses is the charge to operating
expenses that management believes is necessary to fund the reserve for
possible loan losses. The provision reflects management's estimate of
potential loan losses and the creation of an allowance for loan losses
adequate to absorb losses inherent in the portfolio. Pinnacle provided
$171,000 for loan losses in the three months ended March 31, 1996 and
$75,000 for the same period in 1995. Pinnacle experienced loan charge-
offs in the three months ended March 31, 1996 of $312,000 compared to
$131,000 in the same period in 1995. Management charged off a large loan
totaling $258,000 and subsequently increased the provision for possible
loan losses to a level which management deems adequate based on their
review of the portfolio. This large charge-off does not indicate a trend
or uncertainty which management reasonably expects will materially impact
future operational results. The allowance for loan losses remained $1.7
million at March 31, 1996 as it was at March 31, 1995. Pinnacle's
allowance for loan losses represents 1.4% of total loans outstanding at
March 31, 1996. Its net charge-offs were $289,000 during the three
months ended March 31, 1996 and $103,000 during the same period in 1995.
Other operating expenses for Pinnacle during the three months ended
March 31, 1996 of $1.6 million remained the same as 1995 levels.
7<PAGE>
Pinnacle's income tax expense increased $46,000 for the quarter
compared to the same period in the previous year due primarily to
increased taxable income. The effective income tax rate during the
quarter of 29.9% is an increase of 3.1% over the quarter in 1995.
Results of operations can be measured by various ratio analyses.
Two widely recognized performance indicators are return on average equity
and return on average assets. Net income during the three months ended
March 31, 1996 was $1.0 million and represents annualized returns of
12.9% on average shareholders' equity and 1.9% on average assets.
Comparable amounts during the same period of 1995 were $1.0 million,
15.9% and 2.0%, respectively. As detailed in previous paragraphs, the
decrease in net income of $39,000 was primarily due to the increase in
allowance for loan losses.
Dividends declared during the first three months of 1996 increased
$.02 per share to $.42 from $.40 per share during the same period of
1995.
8
<PAGE>
,The following tables present Pinnacle's Regulatory capital position at
March 31, 1996:
</TABLE>
<TABLE>
<CAPTION>
(Rounded to the nearest thousand)
<S> <C>
Total Risk Adjusted Assets $135,093
Risk Based Capital Ratios:
TIER 1 CAPITAL
Common stock $7,680 5.68%
Surplus 7,280 5.39%
Retained Earnings 15,265 11.30%
Less: Goodwill 0 0.00%
------- ------
Total Tier 1 capital 30,225 22.37%
Tier 1 minimum requirement 5,404 4.00%
------- ------
Excess (shortfall) $24,821 18.37%
======== =====
TIER 2 CAPITAL
Tier 1 from above $30,225 22.37%
Subordinated Debentures 0 0.00%
Allowance for loan losses, limited to 1.25%
of risk weighted assets 1,689 1.25%
------- ------
Total Tier 2 capital 31,914 23.62%
Tier 2 minimum requirement 10,808 8.00%
------- ------
Excess (shortfall) $21,106 15.62%
======= ======
LEVERAGE RATIO
Tier 1 capital $30,225 14.42%
Minimum requirement 6,289 3.00%
------- ------
Excess (shortfall) $23,936 11.42%
======= ======
Average total assets, net of goodwill $209,617
========
</TABLE>
9<PAGE>
PINNACLE FINANCIAL CORPORATION
PART II
ITEM 1. LEGAL PROCEEDINGS
Pinnacle is not aware of any material pending legal proceedings to
which Pinnacle or any of its subsidiaries is a party or to which any of
their property is subject.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 19, 1996 the Registrant held its annual meeting of
Shareholders at which the following directors were elected for one year
terms:
L. Jackson McConnell James E. Purcell
Lint W. Eberhardt Maurice Bond
C. Lewis Shurbutt Anderson Dilworth
William F. Grant H. Thomas Brown
Charles Bradshaw
597,011 of the Registrant's outstanding shares (78%) were cast in
favor of each of the Directors other than William F. Grant. 595,991 of the
Registrant's outstanding shares (78%) were case in favor of Mr. Grant, and the
holder of 1,020 shares (less than 1%) abstained from voting with respect to
the election of Mr. Grant.
There were no shares cast against any of the directors.
There were no broker non-votes cast.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K - None.
10<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PINNACLE FINANCIAL CORPORATION
Date: May 9, 1996 By: /s/ L. Jackson McConnell
L. Jackson McConnell
Chairman and Chief Executive Officer
(Principal Executive and Financial Officer)
11
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000910678
<NAME> PINNACLE FINANCIAL CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 7,169,431
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,414,160
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,434,935
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 123,928,032
<ALLOWANCE> 1,710,327
<TOTAL-ASSETS> 225,409,323
<DEPOSITS> 192,261,221
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,475,898
<LONG-TERM> 0
0
0
<COMMON> 7,680,000
<OTHER-SE> 22,992,204
<TOTAL-LIABILITIES-AND-EQUITY> 225,409,323
<INTEREST-LOAN> 3,200,327
<INTEREST-INVEST> 1,285,029
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,485,356
<INTEREST-DEPOSIT> 1,767,118
<INTEREST-EXPENSE> 1,767,118
<INTEREST-INCOME-NET> 2,718,238
<LOAN-LOSSES> 171,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,585,685
<INCOME-PRETAX> 1,423,678
<INCOME-PRE-EXTRAORDINARY> 997,678
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 997,678
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
<YIELD-ACTUAL> 8.6
<LOANS-NON> 296,420
<LOANS-PAST> 483,533
<LOANS-TROUBLED> 19,554
<LOANS-PROBLEM> 130,344
<ALLOWANCE-OPEN> 1,828,722
<CHARGE-OFFS> 312,305
<RECOVERIES> 22,910
<ALLOWANCE-CLOSE> 1,710,327
<ALLOWANCE-DOMESTIC> 306,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,404,327
</TABLE>
