<PAGE>
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, 1997
Commission File Number 33-67528
PINNACLE FINANCIAL CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Georgia 58-1538862
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization
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, 1997 THERE WERE 768,000 SHARES OF COMMON STOCK OUTSTANDING.<PAGE>
PINNACLE FINANCIAL CORPORATION
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996 1
Consolidated Statements of Income for the Three
Months ended March 31, 1997 and 1996 2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 3
Item 2. Managements Discussion and Analysis or Plan of
Operation 5
PART II - OTHER INFORMATION 10
I<PAGE>
PINNACLE FINANCIAL CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
II<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- -----------
<S> <C> <C>
Assets
- ------
Cash and due from banks $ 8,747,970 $ 7,025,730
Federal funds sold 2,111,756 661,972
Securities available for sale 86,340,065 87,148,507
Loans, net of allowance for credit losses
of $1,884,692 and $1,842,152, respectively 133,321,614 131,392,264
Premises and equipment 6,519,932 5,558,659
Accrued interest receivable 2,887,050 2,864,465
Foreclosed real estate 425,400 491,859
Other assets 1,432,203 1,354,405
----------- -----------
Total assets $241,785,990 $ 36,497,861
=========== ===========
Liabilities
- -----------
Demand deposits $ 34,343,193 $ 32,507,926
Savings and NOW deposits 63,405,591 60,903,412
Other time deposits 108,216,828 107,460,818
----------- -----------
Total deposits 205,965,612 200,872,156
Federal funds purchased 0 110,000
Accrued interest and other liabilities 2,276,381 2,249,414
----------- -----------
Total liabilities 208,241,993 203,231,570
----------- -----------
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 18,694,914 17,830,536
Net unrealized appreciation on securities available for sale,
net of taxes of ($57,139) and $245,086, respectively (110,917) 475,755
----------- -----------
Total shareholders' equity 33,543,997 33,266,291
Total liabilities and shareholders' equity $241,785,990 $236,497,861
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
YTD YTD
March 31, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Interest income
- ---------------
Loans $3,499,066 $3,200,327
Securities available for sale 1,360,042 1,186,465
Federal funds sold 47,538 98,777
--------- ---------
Total interest income 4,906,646 4,485,569
--------- ---------
Interest expense
- ----------------
Deposits 1,830,681 1,767,118
Fed Funds Purchased 470 213
--------- ---------
Total interest expense 1,831,151 1,767,331
--------- ---------
Net interest income
- -------------------- 3,075,495 2,718,238
Provision for credit losses 83,000 171,000
--------- ---------
Net interest income after provision for credit losses 2,992,495 2,547,238
--------- ---------
Other income
- ------------
Service charges on deposit accounts 329,184 322,340
Other service charges and fees 80,069 101,868
Other income 50,742 37,917
--------- ---------
Total other income 459,995 462,125
--------- ---------
Other expenses
- --------------
Salaries and employee benefits 1,049,561 930,294
Occupancy expense 236,254 229,013
Net realized losses on sales of securities available for sale 1,781 0
Other expenses 453,916 426,378
--------- ---------
Total other expenses 1,741,512 1,585,685
--------- ---------
Income before income taxes 1,710,978 1,423,678
Income tax expense 501,000 426,000
--------- ---------
Net income
- ---------- $1,209,978 $ 997,678
========= =========
Net income per share of common stock $1.58 $1.30
==== ====
Average shares outstanding 768,000 768,000
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $1,209,978 $997,678
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 104,178 99,485
Provision for credit losses 83,000 171,000
Deferred income taxes ---- ----
Net realized losses on securities available for sale (1,781) 0
Increase in accrued interest and other assets (33,924) (252,135)
Increase (Decrease) in accrued expenses and other liabilities 26,966 283,977
--------- ---------
Total adjustments 178,439 302,327
--------- ---------
Net cash provided by operating activities 1,388,417 1,300,005
--------- ---------
Cash flows from investing activities
Net (increase) decrease in federal funds sold (1,449,784) 3,648,719
Purchase of securities available for sale (7,938,972) (11,452,559)
Proceeds from sales of securities available for sale 0 0
Proceeds from maturities of securities available for sale 8,162,525 6,278,568
Net increase in loans (2,012,350) (2,656,692)
Purchases of premises and equipment (1,065,451) (48,520)
--------- ---------
Net cash used by investing activities (4,304,032) (4,230,484)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in non-interest bearing demand deposits,
Savings and NOW deposit accounts 4,337,445 (823,722)
Net increase in time deposits 756,010 5,166,816
Net decrease in federal funds purchased (110,000) 0
Dividends paid (345,600) (322,560)
--------- ---------
Net cash provided by financing activities 4,637,855 4,020,534
Net increase in cash and due from banks 1,722,240 1,090,055
Cash and cash equivalents at January 1 7,025,730 6,079,376
--------- ---------
Cash and cash equivalents at March 31 $8,747,970 $7,169,431
========= =========
Interest paid $1,808,566 $1,831,633
========= =========
Income taxes paid $ 0 $ 0
===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts
of Pinnacle Financial Corporation (the Company) and its wholly-
owned commercial bank subsidiaries, Pinnacle Bank, National
Association (formerly First National Bank in Elberton) and Pinnacle
Bank (formerly Tri-County Bank of Royston). The name change
was effective April 4, 1997 in preparation for the merger of the
two bank subsidiaries with a proposed consummation date of
December 31, 1997. 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,
1997 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 $2.7 million as of March 31, 1997 have been
recognized as impaired in conformity with FAS 114. The total
allowance for credit losses related to the impaired loans was
$338,000. 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. Included
in the impaired loan totals above are three loans with balances
totaling $2.0 million which paid out on May 7, 1997. 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, Pinnacle Bank, National Association (formerly
First National Bank in Elberton) and Pinnacle Bank (formerly
Tri-County Bank of Royston). The name change was effective
April 4, 1997 in preparation for the merger of the two bank
subsidiaries with a proposed consummation date of December 31,
1997.
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.
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, 1997,
10.8% of the investment securities portfolio had maturity dates
within the next year and an additional 77.9% matures within the
next 5 years. During the first three months of 1997, federal
funds sold averaged $3.9 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 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,
1997, liquidity ratios were: Pinnacle 42.1%, Pinnacle Bank,
National Association 48.2% and Pinnacle Bank 32.5%.
5<PAGE>
Yields on interest bearing assets averaged 8.7% for the
current quarter compared to 8.6% for the same period the year
before. Total interest bearing assets increased by $15.4 million
or 7.3% for the current period when compared with the quarter
ended March 31, 1996. Average net loans increased $11.6 million
or 9.5% in the three months ended March 31, 1997 from the same
1996 period, primarily as a result of loans made in the new
offices at Hartwell and Lavonia and a healthy economy in
Northeast Georgia. Average net loans during the quarter for
Pinnacle Bank, National Association were $71.8 million while
Pinnacle Bank's average net loans were $60.3 million.
Only minor changes occurred in other real estate owned
during the first three months of 1997, resulting in $425,000 held
at March 31, 1997 compared to $492,000 at December 31, 1996.
Non-performing loans totaled $291,000 as of March 31, 1997
representing .2% of total loans at March 31, 1997 compared to
$235,000 at December 31, 1996, which represented .2% of total
loans at that date. Accrued interest as of March 31, 1997 on
non-performing loans totaled $23,000 which is not reported as
income. Non-performing loans at March 31, 1997 are classified
as: real estate, $216,000; other collateralized loans, $67,000;
and unsecured, $8,000.
Pinnacle continues to maintain a concentration of core
deposits from an established customer base which provides a
stable funding source. Deposits increased $5.1 million to $206
million at March 31, 1997 from $200.9 million at December 31,
1996, due primarily to deposits at the new offices in Hartwell
and Lavonia and normal growth and continued economic expansion in
Northeast Georgia. Non-interest bearing deposits increased $1.8
million to $34.3 million compared to December 31, 1996 balance of
$32.5 million. Interest bearing deposits increased $3.3 million
for the three months ended March 31, 1997.
Management continues to give priority to the importance
of maintaining high levels of assets with interest rate
sensitivity. Cash and cash equivalents increased during the
first three months of 1997 from December 31, 1996 levels by $3.2
million and investment securities decreased $808,000 from
December 31, 1996 levels. This reflected managements ability to
maximize interest income by investing in loans with higher yields
than federal funds or other customary investments.
Shareholders' equity increased $278,000 to $33.5
million at March 31, 1997 from $33.2 million at December 31,
1996. Earnings retained during the three months amounted to
$864,000 and equity was decreased $587,000 as a result of a
decline in net unrealized gains during the first three months due
to a decline in values 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, as measured by its average equity
to average assets ratio, of 14.1% during the first three months
of 1997, compared to 13.7% for the year which ended December 31,
1996.
6
<PAGE>
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,
1997 increased 13.1% as a result of increased loan volume
creating 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 $64,000 or 3.6% while interest income increased
$421,000 or 9.4% in the three months ended March 31, 1997
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 $83,000 for loan
losses in the three months ended March 31, 1997 and $171,000 for
the same period in 1996. Pinnacle experienced loan charge-offs
in the three months ended March 31, 1997 of $49,000 compared to
$312,000 in the same period in 1996. The allowance for loan
losses increased $56,000 to $1.9 million at March 31, 1997
compared to $1.8 million at March 31, 1996. Pinnacle's allowance
for loan losses represents 1.4% of total loans outstanding at
March 31, 1997. Its net charge-offs were $40,000 during the
three months ended March 31, 1997 and $289,000 during the same
period in 1996.
Other operating expenses for Pinnacle increased by
$157,000 to $1.7 million during the three months ended March 31,
1997 compared to $1.6 million during the same period in 1996 as a
result of increases in salaries and employee benefits associated
with the new offices in Hartwell and Lavonia.
Pinnacle's income tax expense increased $75,000 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 29.3% is an decrease of .6% from the
same quarter in 1996.
Results of operations can be measured by various ratio
analyses. Two widely recognized performance indicators are
7<PAGE>
return on average equity and return on average assets. Net
income during the three months ended March 31, 1997 was $1.2
million and represents annualized returns of 14.4% on average
shareholders' equity and 2.0% on average assets. Comparable
amounts during the same period of 1996 were $1.0 million, 12.9%
and 1.9%, respectively. As detailed in previous paragraphs, the
increase in net income of $212,000 was primarily due to the
increase in net interest margin and the decrease in allowance for
loan losses.
Dividends declared during the first three months of
1997 increased $.03 per share to $.45 from $.42 per share during
the same period of 1996.
8<PAGE>
The following tables present Pinnacle's Regulatory capital
position at March 31, 1997:
(Rounded to the nearest thousand)
<TABLE>
<CAPTION>
<S> <C> <C>
Total Risk Adjusted Assets $143,929
Risk Based Capital Ratios:
TIER 1 CAPITAL
Common stock $7,680 5.34%
Surplus 7,280 5.06%
Retained Earnings 18,584 12.91%
Less: Goodwill 0 0.00%
------- ------
Total Tier 1 capital 33,544 23.31%
Tier 1 minimum requirement 5,757 4.00%
------- ------
Excess (shortfall) $ 27,787 19.31%
======= ======
TIER 2 CAPITAL
Tier 1 from above $33,544 23.31%
Subordinated Debentures 0 0.00%
Allowance for loan losses, limited to 1.25%
of risk weighted assets 1,799 1.25%
------- -----
Total Tier 2 capital 35,343 24.56%
Tier 2 minimum requirement 11,514 8.00%
------- ------
Excess (shortfall) $23,829 16.56%
======= ======
LEVERAGE RATIO
Tier 1 capital $33,544 13.93%
Minimum requirement 7,222 3.00%
------- ------
Excess (shortfall) $26,322 10.93%
======= ======
Average total assets, net of goodwill $240,750
========
</TABLE>
9
<PAGE>
PINNACLE FINANCIAL CORPORATION
PART II
ITEM 2. 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 3. CHANGES IN SECURITIES
None.
ITEM 4. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 18, 1997 the Registrant held its annual meeting of
Shareholders where the following directors were elected at the meeting
for one year terms:
L. Jackson McConnell James E. Purcell
Lint W. Eberhardt Maurice Bond
C. Lewis Shurbutt Steve Williams
Robert H. Hardy H. Thomas Brown
Charles Bradshaw
645,838 Shares (84%) were cast in favor of the directors.
There were no shares cast against any of the directors or broker non-
votes cast.
ITEM 6. OTHER INFORMATION
None.
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K - None
<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 12, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,747,970
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,111,756
<TRADING-ASSETS> 86,340,065
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 133,321,614
<ALLOWANCE> 7,884,692
<TOTAL-ASSETS> 241,785,990
<DEPOSITS> 205,965,612
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,276,380
<LONG-TERM> 0
0
0
<COMMON> 7,680,000
<OTHER-SE> 25,863,997
<TOTAL-LIABILITIES-AND-EQUITY> 241,785,990
<INTEREST-LOAN> 3,499,066
<INTEREST-INVEST> 1,407,580
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,906,646
<INTEREST-DEPOSIT> 1,830,682
<INTEREST-EXPENSE> 1,831,151
<INTEREST-INCOME-NET> 3,075,495
<LOAN-LOSSES> 83,000
<SECURITIES-GAINS> 1,075
<EXPENSE-OTHER> 1,739,725
<INCOME-PRETAX> 1,710,978
<INCOME-PRE-EXTRAORDINARY> 1,209,978
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,209,978
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.58
<YIELD-ACTUAL> 8.7
<LOANS-NON> 201,976
<LOANS-PAST> 2,281,819
<LOANS-TROUBLED> 235,515
<LOANS-PROBLEM> 2,714,811
<ALLOWANCE-OPEN> 1,842,152
<CHARGE-OFFS> 49,223
<RECOVERIES> 8,763
<ALLOWANCE-CLOSE> 1,884,692
<ALLOWANCE-DOMESTIC> 343,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,541,692
</TABLE>
