U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
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 OCTOBER 31, 2000 THERE WERE 768,000 SHARES OF COMMON STOCK OUTSTANDING.
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<PAGE>
PINNACLE FINANCIAL CORPORATION
INDEX
PAGE NO.
PART I - FINANCIAL INFORMATION
Financial Statements
Consolidated Statements of Financial Position at
September 30, 2000 and December 31, 1999 1
Consolidated Statements of Income for the Three
Months ended September 30, 2000 and 1999 2
Consolidated Statements of Income for the Nine
Months ended September 30, 2000 and 1999 3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 4
Management's Discussion and Analysis or Plan of Operation 6
PART II - OTHER INFORMATION 13
SIGNATURES 14
i
<PAGE>
PINNACLE FINANCIAL CORPORATION
PART I - FINANCIAL INFORMATION
FINANCIAL STATEMENTS
ii
<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
<S> <C> <C>
ASSETS
------
Cash and due from banks $ 8,960,688 $ 9,418,050
Federal funds sold 310,000 430,000
Securities available for sale 84,306,931 95,100,720
Loans, net of allowance for loan losses
of $2,276,660 and $2,113,735, respectively 166,357,955 154,270,583
Premises and equipment 8,296,313 8,145,809
Accrued interest receivable 2,507,980 2,678,597
Other assets 4,894,562 3,033,386
------------ ------------
TOTAL ASSETS $ 275,634,429 $ 273,077,145
============ ============
LIABILITIES
Noninterest-bearing deposits $ 44,477,334 $ 41,717,909
Interest-bearing deposits 175,443,863 176,626,532
------------ ------------
Total deposits 219,921,197 218,344,441
Borrowings 10,700,000 10,500,000
Accrued interest and other liabilities 4,140,320 5,771,902
------------ ------------
Total liabilities 234,761,517 234,616,343
------------ ------------
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 6,717,967 25,060,148
Accumulated other comprehensive income (805,055) (1,559,346)
------------ ------------
Total shareholders' equity 40,872,912 38,460,802
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 275,634,429 273,077,145
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
1
<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
<S> <C> <C>
INTEREST INCOME
---------------
Loans, including fees $ 4,283,749 $ 3,672,412
Securities available for sale 1,313,093 1,490,846
Federal funds sold and other 32,978 36,135
---------- ----------
Total interest income 5,629,820 5,199,393
---------- ----------
INTEREST EXPENSE
----------------
Deposits 2,075,653 1,836,740
Borrowings 224,631 3,618
---------- ----------
Total interest expense 2,300,284 1,840,358
---------- ----------
NET INTEREST INCOME 3,329,536 3,359,035
Provision for loan losses 90,000 75,000
---------- ----------
Net interest income after provision for loan losses 3,239,536 3,284,035
---------- ----------
OTHER INCOME
------------
Service charges on deposit accounts 328,042 325,355
Other service charges and fees 160,322 190,593
Net realized gains on sales of securities available for sale 0 3,864
Other income 63,071 61,282
---------- ----------
Total other income 551,435 581,094
---------- ----------
OTHER EXPENSES
--------------
Salaries and employee benefits 1,163,118 1,128,751
Occupancy expense 317,426 314,232
Net realized losses on sales of securities available for sale 389,621 0
Other expenses 493,116 473,461
---------- ----------
Total other expenses 2,363,281 1,916,444
---------- ----------
Income before income taxes 1,427,690 1,948,685
Income tax expense 433,500 596,000
---------- ----------
NET INCOME $ 994,190 $ 1,352,685
---------- ----------
Net income per share of common stock $ 1.29 $ 1.76
---------- ----------
Average shares outstanding 768,000 768,000
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
YTD YTD
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
<S> <C> <C>
INTEREST INCOME
---------------
Loans, including fees $12,403,644 $10,718,228
Securities available for sale 4,142,563 4,344,211
Federal funds sold and other 72,936 209,578
---------- ----------
Total interest income 16,619,143 15,272,017
---------- ----------
INTEREST EXPENSE
----------------
Deposits 6,056,634 5,571,109
Borrowings 474,371 3,618
---------- ----------
Total interest expense 6,531,005 5,574,727
---------- ----------
NET INTEREST INCOME 10,088,138 9,697,290
Provision for loan losses 270,000 225,000
---------- ----------
Net interest income after provision for loan losses 9,818,138 9,472,290
---------- ----------
OTHER INCOME
------------
Service charges on deposit accounts 993,860 994,133
Other service charges and fees 472,711 639,318
Net realized gains on sales of securities available for sale 0 0
Other income 171,171 167,763
---------- ----------
Total other income 1,637,742 1,801,214
---------- ----------
OTHER EXPENSES
--------------
Salaries and employee benefits 3,908,411 3,438,570
Occupancy expense 951,931 882,078
Net realized losses on sales of securities available for sale 420,297 2,105
Other expenses 1,703,522 1,394,499
---------- ----------
Total other expenses 6,984,161 5,717,252
---------- ----------
Income before income taxes 4,471,719 5,556,252
Income tax expense 1,431,500 1,734,000
---------- ----------
NET INCOME $ 3,040,219 $ 3,822,252
========== ==========
Net income per share of common stock $ 3.96 $ 4.98
========== ==========
Average shares outstanding 768,000 768,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 3,040,219 $ 3,822,252
---------- ----------
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 455,258 469,819
Provision for loan losses 270,000 225,000
Net realized (gains) losses on securities available for sale 420,297 2,105
Net change in accrued interest and other assets (1,690,559) (1,154,065)
Net change in accrued expenses and other liabilities (1,631,582) (92,133)
---------- ----------
Total adjustments (2,176,586) (549,274)
---------- ----------
Net cash provided by operating activities 863,633 3,272,978
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale (11,974,541) (35,742,875)
Proceeds from sales of securities available for sale 19,252,275 3,025,625
Proceeds from maturities, prepayments, and calls
of securities available for sale 3,850,059 22,124,190
Net change in loans (12,357,382) (6,553,038)
Purchases of premises and equipment (605,762) (80,276)
---------- ----------
Net cash used by investing activities (1,835,351) (17,226,374)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 1,576,756 4,169,560
Repayment of borrowings (28,850,000) 3,210,000
Proceeds from borrowings 29,050,000 0
Cash dividends paid (1,382,400) (1,267,200)
---------- ----------
Net cash provided by financing activities 394,356 6,112,360
---------- ----------
Net change in cash and cash equivalents (577,362) (7,841,036)
Cash and cash equivalents at January 1 9,848,050 17,233,914
---------- ----------
Cash and cash equivalents at September 30 $ 9,270,688 $ 9,392,878
========== ==========
Interest paid $ 6,303,441 $ 5,372,360
========== ==========
Income taxes paid $ 1,610,492 $ 1,702,635
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(1) BASIS OF PRESENTATION
---------------------
The consolidated financial statements include the accounts of Pinnacle
Financial Corporation (the Company) and its wholly-owned commercial bank
subsidiary, Pinnacle Bank, N.A. 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. Certain reclassifications have been made to the prior year presentation
to conform to the current year. The results of operations for the nine-month
period ended September 30, 2000 are not necessarily indicative of the results
which may be expected for the entire year.
(2) CASH AND CASH EQUIVALENTS
-------------------------
For the purpose of presentation in the consolidated statements of cash
flows, cash and cash equivalents include cash and due from banks and federal
funds sold, all of which mature within ninety days. The prior year cash flow
statement has been changed to be comparable to this presentation.
(3) INCOME TAXES
------------
Deferred income taxes assets and liabilities are determined using the
liability (or balance sheet) method. Under this method, the net deferred tax
asset or liability is determined based on the tax effects of the temporary
differences between the book and tax bases of the various balance sheet assets
and liabilities and gives current recognition to changes in tax rates and laws.
(4) ACCOUNTING FOR IMPAIRED LOANS
-----------------------------
A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement. Impairment is measured on a loan by loan basis by either the
present value of expected future cash flows discounted at the loan's effective
interest rate, the loan's obtainable market price, or the fair value of the
collateral if the loan is collateral dependent. Loans having carrying values of
$3,734,000 as of September 30, 2000 have been recognized as impaired. The total
allowance for loan losses related to these impaired loans is $890,000.
5
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
BASIS OF PRESENTATION
----------------------
Management's Discussion and Analysis of Pinnacle Financial Corporation
(hereinafter "Pinnacle" or the "Company") provides information regarding
Pinnacle's financial condition as of September 30, 2000 and its results of
operations for the three and nine months ended September 30, 2000 in comparison
with the same periods ended September 30, 1999. The financial condition and
operating results of Pinnacle are primarily determined by its wholly-owned
subsidiary bank, Pinnacle Bank, N.A.(hereinafter the "Bank").
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.
FORWARD-LOOKING STATEMENTS
--------------------------
This discussion contains forward-looking statements under the Private
Securities Litigation Reform Act of 1995 that involve risk and uncertainties.
Although Pinnacle believes that the assumptions underlying the forward-looking
statements contained in the discussion are reasonable, any of the assumptions
could be inaccurate, and therefore, no assurance can be made that any of the
forward-looking statements in this discussion will be accurate. Factors that
could cause actual results to differ from results discussed in forward-looking
statements include, but are not limited to: economic conditions (both generally
and in the markets where the Company operates), competition from other providers
of financial services offered by the Bank, government regulations and
legislation, changes in interest rates, and material unforeseen changes in the
financial stability and liquidity of the Bank's credit customers; all of which
are difficult to predict and which may be beyond the control of the Company.
Pinnacle undertakes no obligation to revise forward-looking statements to
reflect events or changes after the date of this discussion or to reflect the
occurrence of unanticipated events.
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 (both sold and purchased) and the investment securities portfolio. At
September 30, 2000, 2.3% of the investment securities portfolio had maturity
dates within the next year and an additional 65.2% matures within the next 5
years. All investment securities are classified as available for sale and may be
sold or used as a source of collateralized borrowings in the event of a
liquidity shortfall. Other sources of liquidity are payments on commercial and
6
<PAGE>
installment loans and repayment of maturing single payment loans. The Bank has
short term borrowing relationships with two correspondent banks that could
provide up to $22.0 million of Federal Funds Purchased on short notice.
Additionally, the Bank has established a membership in the Federal Home Loan
Bank of Atlanta (the "FHLB") and has granted a blanket floating lien on its
mortgage portfolio that collateralizes either short term or long term borrowings
up to 15% of assets (approximately $41 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 September 30, 2000, the
liquidity ratio for Pinnacle was 30.1%.
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 nine months of 2000 from December 31, 1999 levels by
$.6 million while securities available for sale decreased by $10.8 million or
11.4% during the same time period. The average balance in these investment
securities decreased by $7.1 million in the current year compared to the nine
months ended September 30, 1999. The average balance of Federal Funds sold
during the first nine months of 2000 and 1999 was $1.4 million and $5.6 million,
respectively. The decline in investments and Federal Funds sold reflects their
use to meet increased loan demand in the first half of the year and a security
restructuring transaction in the third quarter of 2000. This transaction
involved the sale of $9.8 million of securities at a pretax loss of
approximately $390,000. The proceeds were used to purchase approximately $4.1
million of longer term, higher yielding securities and to repay short term
borrowings of the Bank.
Total interest-earning assets increased by $1.2 million or 0.5% for the
current period when compared with December 31, 1999. Average net loans increased
$20.4 million (14.3%) to $163.3 million in the nine months ended September 30,
2000 from the same 1999 period. This increase reflects continued growth in loan
demand in the second half of 1999 and the first half of 2000.
The allowance for loan losses is established by management at a level
estimated to be adequate to absorb losses inherent in the loan portfolio. The
allowance increased to $2.3 million from $2.1 million at September 30, 2000 and
December 31, 1999. The Bank experienced loan charge-offs of $290,000 in the nine
months ended September 30, 2000 compared to $262,000 in the same period of 1999.
Net charge-offs amounted to $107,000 for the nine months ended September 30,
2000 compared to $123,000 for the nine months ended September 30, 1999. The
allowance for loan losses represents 1.4% of total loans outstanding at
September 30, 2000.
The balance of other real estate owned (included in other assets) has
increased by $268,000 to $443,000 from December 31, 1999 to September 30, 2000
as the result of foreclosing on seven properties and disposing of four
properties in the period. The accrual of interest has been discontinued on loans
7
<PAGE>
totaling $3,063,000 as of September 30, 2000, representing 1.8% of loans,
compared to $49,000 at December 31, 1999. This significant increase in
nonperforming assets is the result of one large commercial relationship that is
experiencing operating problems. Management does not believe the increase
represents a trend in the entire portfolio. Unrecorded income on these loans for
the nine months ended September 30, 2000 was approximately $43,000. Non-accrual
loans at September 30, 2000 are classified as: real estate, $2,970,000, and
secured by other collateral, $93,000.
Pinnacle continues to maintain a concentration of core deposits from an
established customer base which provides a stable funding source. Deposits
increased $1.6 million to $219.9 million at September 30, 2000 from $218.3
million at December 31, 1999, due primarily to normal growth. Non-interest
bearing deposits increased $2.8 million to $44.5 million from $41.7 million at
December 31, 1999 while interest-bearing deposits decreased $1.2 million for the
nine months ended September 30, 2000.
As indicated above, Bank management actively manages its liquidity
position and has obtained several sources of both secured and unsecured borrowed
funds. These sources have allowed the bank to invest a higher percentage of its
funds in loans and investment securities that earn a higher yield than overnight
investments. The Bank has continued to use both Federal Funds borrowed and FHLB
advances to meet short term liquidity needs and to leverage its existing
capital. The Bank repaid all $7.5 million of the short term FHLB advances that
existed as of December 31, 1999 ($3 million of the borrowings were long term)
and subsequently increased its borrowings as needed by $7.7 million, primarily
to fund loan growth. As part of the third quarter securities restructuring
transaction mentioned above, the Bank extended the maturity of some of its
borrowings so that a total of $6 million of FHLB advances now have a maturity of
one year or greater. Pinnacle had no federal funds purchased as of September 30,
2000 but averaged approximately $665,000 outstanding in such borrowings during
the first nine months of 2000. The Bank anticipates increasing use of these
sources of funds in an attempt to enhance its earnings while continuing to
monitor the maturities and interest rate risk of interest-bearing assets and
liabilities.
Shareholders' equity increased to $40.9 million at September 30, 2000
from $38.5 million at December 31, 1999. Net earnings retained during the nine
months amounted to $1.7 million while equity increased $754,000 as a result of a
decrease in net unrealized losses on securities available for sale. Much of the
decrease in the unrealized loss is a result of the loss recognized upon the
securities restructuring mentioned above. Dividends declared and paid increased
by $115,200, from $1.65 per share to $1.80 per share, for the first nine months
of 2000 compared to the same period in 1999. Additionally, $1.5 million of
dividends declared in December 1999 (reflected in other liabilities in the
December 1999 balance sheet) were paid in January 2000.
Pinnacle continues to maintain adequate capital ratios (see "Risk Based
Capital Ratios" below). Pinnacle maintained a level of capital, as measured by
its average equity to average assets ratio, of 14.2% during the first nine
months of 2000, compared to 15.3% for the year which ended December 31, 1999.
8
<PAGE>
Management is not aware of any trends, events, or uncertainties that
are reasonably likely to have a material effect on Pinnacle's liquidity, capital
resources, or results of operation. Pinnacle is not aware of any current
recommendations by the regulatory authorities which, if 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 (for the three month period ended September 30, 2000)
---------------------
Pinnacle's operating results primarily depend on the earnings of the
Bank. Its earnings depend to a large degree on net interest income, the
difference between the interest income received from investments (such as loans,
investment securities, federal funds sold, etc.) and the interest expense paid
on deposits and borrowings.
Interest income on interest bearing assets increased by $430,000 from
the same quarter in 1999 as an increase in average yields from 8.6% to 8.8%
combined with increases in loans outstanding to enhance the revenues of
Pinnacle. The increase in yield reflects the impact of a general increase in
interest rates during the year as well as a change in mix of the assets of the
Bank. As indicated above, the Bank invested significantly more funds in higher
yielding loans and less in low rate Federal Funds sold in the three months ended
September 30, 2000 as compared to the same period in 1999. Interest expense
increased by $460,000 from the same quarter of 1999 as a result of increased
deposits, increased borrowings, and higher interest rates paid on deposits,
particularly certificates of deposit. The average cost of funds for the third
quarters of 2000 and 1999 were 3.9% and 3.1%, respectively. The Bank's cost of
funds has increased in recent months and is expected to continue to increase in
the near term as a result of increases in short term interest rates. Net
interest income in the three months ended September 30, 2000 decreased $29,000,
or 0.1% as compared to the same period for the previous year. Management
continues to attempt to match rate sensitive assets with rate sensitive
liabilities in such a way that net interest margins have remained stable from
the same period in the prior year.
The provision for loan losses is the charge to operating expenses that
management believes is necessary to maintain the allowance for 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 $90,000 and $75,000 for loan losses in the
quarters ended September 30, 2000 and 1999, respectively. The increased
provision in 2000 is largely the result of the increase in the loan portfolio
during the period.
Other income declined by $30,000 during the three months ended
September 30, 2000 as compared to 1999. This decline is attributable to
decreased revenues on the origination of mortgage loans.
Other operating expenses during the three months ended September 30,
2000 increased $447,000 from the same period in the previous year. Approximately
$390,000 of the increase resulted from the nonrecurring loss on the sale of
securities from the security restructuring mentioned previously. This
restructuring allowed the Bank to increase its future operating earnings by
disposing of underperforming assets and increasing the yield on the investment
9
<PAGE>
portfolio. The transaction resulted from management's regular review of its
operating results, investment opportunities, and interest rate risk. All other
expenses increased by $57,000, or 3%, due to normal increases in compensation
and related expenses, and increased maintenance expenses on the bank's buildings
and equipment.
Pinnacle's income tax expense decreased $163,000 for the quarter
compared to the same period in the previous year due primarily to decreased
taxable income as a result of the securities restructuring transaction and a
decrease in the effective income tax rate during the quarter from 30.6% in 1999
to 30.4% in 2000.
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 September 30, 2000
was $1.0 million and represents annualized returns of 9.9% on average
shareholders' equity and 1.4% on average assets. These measures would have been
$1.3 million, 12.6%, and 1.8%, respectively, without the loss on investment
securities. Comparable amounts during the same period of 1999 were $1.4 million,
13.2%, and 2.0%, respectively.
RESULTS OF OPERATIONS (for the nine month period ended September 30, 2000)
---------------------
Interest income on interest bearing assets for the nine months ended
September 30, 2000 increased by $1.3 million from the same period in 1999. An
increase in average yield from 8.3% to 8.6%, reflecting a general increase in
interest rates, combined with the increase in average loans outstanding,
provided this increased income. Interest expense increased by $956,000 from the
same period of 1999 as a result of slightly increased deposits, increased use of
borrowed funds, and general increases in the levels of interest rates. The
average cost of funds for the nine months ended September 30, 2000 and 1999 were
3.7% and 3.3%, respectively. Net interest income, before provision for loan
losses, in the nine months ended September 30, 2000 increased by $391,000 or
4.0% as compared to the same period for the previous year.
The provision for loan losses and its purpose is explained above.
Pinnacle provided $270,000 for losses in the period ended September 30, 2000 and
$225,000 in the period ended September 30, 1999.
Other income during the nine months ended September 30, 2000 declined
by $163,000 from the same period in 1999. This decrease is attributable to
decreased revenues on the origination of mortgage loans resulting from higher
interest rates in the year 2000.
Other operating expenses during the nine months ended September 30,
2000 increased $1.3 million to $7.0 million from $5.7 million for the same
period in the previous year. The majority of the increase in operating expenses
reflects three nonrecurring charges recognized by Pinnacle. The first item
relates to the retirement of the Bank's president that was announced in the
first quarter of 2000. Pinnacle recognized the expected payments to be made
under the terms of an employment security agreement between the former president
and the Bank as compensation expense in the amount of $237,000. Payments under
the agreement result in charges to the established liability account and do not
10
<PAGE>
have an impact on future earnings. The second charge is the result of an
unfavorable ruling in a lawsuit disclosed in previous filings and later in this
report. The court granted Capital Resource Funding ("CRF") a motion for summary
judgement on its claim regarding unlawful conversion of assets. In May 2000,
Pinnacle reached an agreement with CRF and paid a settlement of approximately
$325,000. Finally, the Bank restructured its investment portfolio in the third
quarter to sale underperforming assets, invest in higher yielding investment
securities, and decrease its reliance on short term debt. This transaction
resulted in a loss of approximately $390,000. These three transactions
cumulatively increased other expenses by $952,000. Other increases in expenses
during the period amounted to approximately $315,000, or 5.5%, and included
normal increases in compensation and related expenses, and increased occupancy
expenses (especially equipment and property maintenance).
Pinnacle's income tax expense decreased $303,000 for the nine months
ended September 30, 2000 compared to the same period in the previous year due
primarily to decreased taxable income. The effective income tax rate during the
period of 32.0% is an increase of 0.8% from the effective rate of 31.2% in 1999.
Net income during the nine months ended September 30, 2000 was $3.0
million and represents annualized returns of 10.2% on average shareholders'
equity and 1.45% on average assets. Comparable amounts during the same period of
1999 were $3.8 million, 12.5% and 1.9%, respectively. As indicated above, net
income decreased primarily due to increased operating expenses caused in large
part by three separate nonrecurring items, while the operating ratios reflect
the decreased earnings compared to a slightly larger asset base.
11
<PAGE>
The following tables present Pinnacle's Regulatory capital position at September
30, 2000:
<TABLE>
<CAPTION>
(Rounded to the nearest thousand)
<S> <C> <C>
Total Risk Adjusted Assets $ 190,148
Risk Based Capital Ratios:
TIER 1 CAPITAL
Common stock $ 7,680 4.04%
Surplus 7,280 3.83%
Retained Earnings 26,718 14.05%
Less: Goodwill 0 0.00%
--------- -------
Total Tier 1 capital 41,678 21.92%
Tier 1 minimum requirement 7,550 4.00%
--------- -------
Excess (shortfall) $ 34,128 17.92%
========= =======
TIER 2 CAPITAL
Tier 1 from above $ 41,678 21.92%
Subordinated Debentures 0 0.00%
Allowance for loan losses, limited to 1.25%
of risk weighted assets 2,277 1.20%
--------- -------
Total Tier 2 capital 43,955 23.12%
Tier 2 minimum requirement 15,100 8.00%
--------- -------
Excess (shortfall) 28,855 15.12%
========= =======
LEVERAGE RATIO
Tier 1 capital $ 41,678 14.91%
Minimum requirement 11,183 3.00%
--------- -------
Excess (shortfall) $ 30,495 11.91%
========= =======
Average total assets, net of goodwill $ 279,585
=========
</TABLE>
12
<PAGE>
PINNACLE FINANCIAL CORPORATION
PART II
LEGAL PROCEEDINGS
Pinnacle Bank, N.A. was a defendant in a lawsuit brought by Capital
Resource Funding in U.S. District Court for the Middle District of Georgia,
filed in March 1997, File No. 3;97-C-116 (HL) that alleged unlawful conversion
of assets and sought damages of $270,000 plus interest, attorney's fees, and
punitive damages. In May 2000, the two parties reached a settlement and Pinnacle
paid approximately $325,000. Legal costs were expensed as incurred.
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
13
<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: NOVEMBER 10, 2000 By: /s/ L. JACKSON MCCONNELL
----------------- ----------------------------------------
L. Jackson McConnell
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: NOVEMBER 10, 2000 By: /s/ LINT W. EBERHARDT
----------------- ----------------------------------------
Lint W. Eberhardt
President
