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 QUARTERLY PERIOD ENDED JUNE 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 July 31, 2000 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 Statements of Financial Position at
June 30, 2000 and December 31, 1999 1
Consolidated Statements of Income for the Three
Months ended June 30, 2000 and 1999 2
Consolidated Statements of Income for the Six
Months ended June 30, 2000 and 1999 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 4
Item 2. Managements Discussion and Analysis or Plan of
Operation 6
PART II - OTHER INFORMATION 13
I
<PAGE>
PINNACLE FINANCIAL CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
II
<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,705,660 $ 9,418,050
Federal funds sold 1,370,000 430,000
Securities available for sale 89,440,283 95,100,720
Loans, net of allowance for loan losses
of $2,223,080 and $2,113,735, respectively 166,638,354 154,270,583
Premises and equipment 8,261,058 8,145,809
Accrued interest receivable 2,619,178 2,678,597
Other assets 5,352,087 3,033,386
------------- -------------
TOTAL ASSETS $ 284,386,620 $ 273,077,145
============= =============
LIABILITIES
Noninterest-bearing deposits $ 45,774,393 $ 41,717,909
Interest-bearing deposits 179,819,607 176,626,532
------------- -------------
Total deposits 225,594,000 218,344,441
Borrowings 15,400,000 10,500,000
Accrued interest and other liabilities 4,016,304 5,771,902
------------- -------------
Total liabilities 245,010,304 234,616,343
------------- -------------
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 26,184,577 25,060,148
Accumulated other comprehensive income (loss) (1,768,261) (1,559,346)
------------- -------------
Total shareholders' equity 39,376,316 38,460,802
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 284,386,620 $ 273,077,145
============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
1
<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
---------- -----------
<S> <C> <C>
Interest income
---------------
Loans, including fees $4,181,947 $3,535,976
Securities available for sale 1,388,456 1,446,819
Federal funds sold and other 19,018 77,661
---------- ----------
Total interest income 5,589,421 5,060,456
---------- ----------
Interest expense
----------------
Deposits 2,042,572 1,844,384
Borrowings 146,649 0
---------- ----------
Total interest expense 2,189,221 1,844,384
---------- ----------
NET INTEREST INCOME 3,400,200 3,216,072
Provision for loan losses 90,000 75,000
---------- ----------
Net interest income after provision for loant losses 3,310,200 3,141,072
---------- ----------
Other income
------------
Service charges on deposit accounts 336,114 336,723
Other service charges and fees 153,484 218,332
Net realized gains on sales of securities available for sale 5,911 0
Other income 61,992 72,084
---------- ----------
Total other income 557,501 627,139
---------- ----------
Other expenses
--------------
Salaries and employee benefits 1,190,138 1,142,628
Occupancy expense 321,534 286,056
Net realized losses on sales of securities available for sale 0 5,969
Other expenses 459,792 465,985
---------- ----------
Total other expenses 1,971,464 1,900,638
---------- ----------
Income before income taxes 1,896,237 1,867,573
Income tax expense 618,000 581,000
---------- ----------
NET INCOME $1,278,237 $1,286,573
========== ==========
Net income per share of common stock $ 1.66 $ 1.68
========== ==========
Average shares outstanding 768,000 768,000
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
YTD YTD
JUNE 30, JUNE 30,
2000 1999
---- ----
<S> <C> <C>
Interest income
---------------
Loans, including fees $ 8,119,895 $ 7,045,816
Securities available for sale 2,829,470 2,853,365
Federal funds sold and other 39,958 173,443
----------- -----------
Total interest income 10,989,323 10,072,624
----------- -----------
Interest expense
----------------
Deposits 3,980,981 3,734,369
Borrowings 249,740 0
----------- -----------
Total interest expense 4,230,721 3,734,369
----------- -----------
NET INTEREST INCOME 6,758,602 6,338,255
Provision for loan losses 180,000 150,000
----------- -----------
Net interest income after provision for loan losses 6,578,602 6,188,255
----------- -----------
Other income
------------
Service charges on deposit accounts 665,818 668,778
Other service charges and fees 312,389 448,725
Net realized gains on sales of securities available for sale 0 0
Other income 108,100 106,481
----------- -----------
Total other income 1,086,307 1,223,984
----------- -----------
Other expenses
--------------
Salaries and employee benefits 2,745,293 2,309,819
Occupancy expense 634,505 567,846
Net realized losses on sales of securities available for sale 30,676 5,969
Other expenses 1,210,406 921,038
----------- -----------
Total other expenses 4,620,880 3,804,672
----------- -----------
Income before income taxes 3,044,029 3,607,567
Income tax expense 998,000 1,138,000
----------- -----------
NET INCOME $ 2,046,029 $ 2,469,567
=========== ===========
Net income per share of common stock $ 2.66 $ 3.22
=========== ===========
Average shares outstanding 768,000 768,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
JUNE 30, JUNE 30,
2000 1999
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 2,046,029 $ 2,469,567
------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 300,308 310,006
Provision for loan losses 180,000 150,000
Net realized (gains) losses on securities available for sale 30,676 5,969
Net change in accrued interest and other assets (2,259,282) (628,856)
Net change in accrued expenses and other liabilities (1,755,598) (256,570)
------------ ------------
Total adjustments (3,503,896) (419,451)
------------ ------------
Net cash provided by operating activities (1,457,867) 2,050,116
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale (6,907,292) (28,634,779)
Proceeds from sales of securities available for sale 9,411,466 1,511,094
Proceeds from maturities, prepayments and calls
of securities available for sale 2,916,672 18,155,789
Net change in loans (12,547,771) 845,963
Purchases of premises and equipment (415,557) (44,927)
------------ ------------
Net cash used by investing activities (7,542,482) (8,166,860)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 7,249,559 2,964,722
Repayment of borrowings (18,950,000) 0
Proceeds from borrowings 23,850,000 0
Cash dividends paid (921,600) (844,800)
------------ ------------
Net cash provided by financing activities 11,227,959 2,119,922
------------ ------------
Net change in cash and cash equivalents 2,227,610 (3,996,822)
Cash and cash equivalents at January 1 9,848,050 17,233,914
------------ ------------
Cash and cash equivalents at June 30 $ 12,075,660 $ 13,237,092
============ ============
Interest paid $ 4,158,691 $ 3,664,007
============ ============
Income taxes paid $ 1,006,492 $ 1,055,635
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 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 reclassifcations have been made to the prior year persentation
to conform to the current year. The results of operations for the six-month
period ended June 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
$865,000 as of June 30, 2000 have been recognized as impaired. The total
allowance for credit losses related to these impaired loans is $550,000.
5
<PAGE>
ITEM 2. 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") analyses the major elements of
Pinnacle's consolidated balance sheets and statements of income. 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; material unforseen 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), Federal Home Loan Bank advances, and the
investment securities portfolio. At June 30, 2000, 2.2% of the investment
securities portfolio had maturity dates within the next year and an additional
69.7% 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 installment loans and repayment of maturing single
payment loans. Pinnacle retains short term borrowing relationships with two
6
<PAGE>
correspondent banks that could provide up to $12.75 million of Federal Funds
Purchased on short notice. Additionally, the Bank has established membership in
the Federal Home Loan Bank of Atlanta (hereinafter the "FHLB") and has granted a
blanket floating lien on its mortgage portfolio that collaterizes either short
term or long term borrowings up to 15% of assets (approximately $42 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 June 30, 2000, the
liquidity ratio for Pinnacle was 33%.
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 six months of 2000 from December 31, 1999 levels by
$2.2 million while securities available for sale decreased by $5.7 million or
6.0% during the same time period. The average balance in these investment
securities decreased by $3.7 million in the current year compared to the six
months ended June 30, 1999. The average balance of Federal Funds sold during the
first six months of 2000 and 1999 was $1.3 million and $7.1 million,
respectively. The general decline in investments and Federal Funds sold reflects
their use to meet increased loan demand during the second half of 1999 and all
of 2000.
Total interest-earning assets increased by $7.6 million or 3.1% for the
current period when compared with December 31, 1999. Average net loans increased
$21.8 million (15.4%) to $163.5 million in the six months ended June 30, 2000
from the same 1999 period. The increase reflects continued growth in loan demand
that began in the second half of 1999 and has continued into 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 slightly at $2.2 million from $2.1 million at June 30, 2000
and December 31, 1999, respectively. The Bank experienced loan charge-offs of
$168,000 in the six months ended June 30, 2000 compared to $210,000 in the same
period of 1999. Net charge-offs amounted to $71,000 in 2000 compared to $131,000
for the six months ended June 30, 1999. The allowance for loan losses represents
1.3% of total loans outstanding at June 30, 2000.
The balance of Other Real Estate Owned (included in other assets)
increased by $321,000 to $496,000 from December 31, 1999 to June 30, 2000 as the
result of foreclosing on five properties and disposing of one property in the
period. The accrual of interest has been discontinued on loans totaling $151,000
as of June 30, 2000 representing .1% of total loans compared to $49,000
at December 31, 1999. Unrecorded income on these loans for the six
7
<PAGE>
months ended June 30, 2000 was approximately $8,000. Non-accrual loans at June
30, 2000 are classified as: real estate, $90,000, secured by other collateral,
$52,000, and unsecured loans, $9,000.
Pinnacle continues to maintain a concentration of core deposits from an
established customer base which provides a stable funding source. Deposits
increased $7.3 million to $225.6 million at June 30, 2000 from $218.3 million at
December 31, 1999, due primarily to normal growth. Non-interest bearing deposits
increased $4.1 million to $45.8 million from December 31, 1999. Interest bearing
deposits increased $3.2 million for the six months ended June 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. The bank repaid all $7.5 million of
the short term FHLB advances that existed as of December 31, 1999 and
subsequently borrowed another $12.4 million, primarily in the second quarter, to
fund loan growth. Pinnacle had no federal funds purchased as of June 30, 2000
but averaged approximately $850,000 outstanding in such borrowings during the
first half of 2000. The Bank anticipates continued use of these sources of funds
to enhance its earnings while continuing to monitor the maturities and interest
rate risk of interest-bearing assets and liabilities.
Shareholders' equity increased to $39.4 million at June 30, 2000 when
compared to December 31, 1999. Net earnings retained during the six months
amounted to $1.1 million while equity decreased $209,000 as a result of an
increase in net unrealized losses on securities available for sale. Dividends
declared and paid increased by $76,800, from $1.10 per share to $1.20 per share,
for the first six 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 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 13.9% during the first six months of
2000, compared to 15.3% for the year which ended December 31, 1999.
Management is not aware of any known 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
8
<PAGE>
management reasonably expects will materially impact future operational trends.
Results of Operations (for the three month period ended June 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 $529,000 from
the same quarter in 1999 as an increase in average yields from 8.2% to 8.6%
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 first half of 2000
as compared to 1999. Interest expense increased by $345,000 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 second quarters of 2000 and 1999 were 3.7% and
3.3%, 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 June
30, 2000 increased $184,000, or 5.7% as compared to the same period for the
previous year. Management continues to match rate sensitive assets with rate
sensitive liabilities in such a way that net interest margins have increased
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 June 30, 2000 and 1999, repectively. The increased provision in
2000 is largely the result of the increase in the loan portfolio during the
period.
Other income declined by $70,000 during the three months ended June 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 June 30, 2000
increased $70,000 from the same period in the previous year. The increase is
attributable to normal increases in compensation and related expenses, and
increased maintenance expenses on the bank's buildings and equipment.
Pinnacle's income tax expense increased $37,000 for the quarter
compared to the
9
<PAGE>
same period in the previous year due to higher taxable income and an increase in
the effective income tax rate during the quarter from 31.1% in 1999 to 32.6% in
2000. The effective rate increase is primarily the result of higher state income
taxes due to lower tax exempt security income.
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 June 30, 2000 was
$1.3 million and represents annualized returns of 13.1% on average shareholders'
equity and 1.8% on average assets. Comparable amounts during the same period of
1999 were $1.3 million, 12.6% and 1.91%, respectively.
Results of Operations (for the six month period ended June 30, 2000)
---------------------
Interest income on interest bearing assets for the six months ended
June 30, 2000 increased by $916,000 from the same period in 1999. An increase in
average yield from 8.1% to 8.5%, reflecting a general increase in interest
rates, combined with the increase in average loans outstanding, provided this
increased income. Interest expense increased by $497,000 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 six months ended June 30, 2000 and 1999 were 3.6% and 3.3%,
respectively. Net interest income in the six months ended June 30, 2000
increased by $421,000 or 6.8% as compared to the same period for the previous
year.
The provision for loan losses and its purpose is explained above.
Pinnacle provided $180,000 for losses in the period ended June 30, 2000 and
$150,000 in the period ended June 30, 1999.
Other income during the six months ended June 30, 2000 declined by
$138,000 to $1,086,000 from $1,224,000 from the same period in 1999. This
decrease is totally attributable to decreased revenues on the origination of
mortgage loans resulting from higher interest rates in the year 2000.
Other operating expenses during the six months ended June 30, 2000
increased $816,000 to $4.6 million from $3.8 million for the same period in the
previous year. The majority of the increase in operating expenses reflects two
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. The Company 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
will result in charges to the established liability account and will
not have an impact on future earnings. The second charge is the result of
an unfavorable ruling in a lawsuit disclosed in previous filings and
10
<PAGE>
herein. The court granted Capital Resource Funding ("CRF") a motion for summary
judgement on its claim regarding unlawful conversion of assets. While the court
did not rule on the issue of damages, Pinnacle recorded an estimate of the
expected loss. In May 2000, Pinnacle reached an agreement with CRF and paid
approximately $325,000, the amount of the established liability. Other increases
in expenses during the period included normal increases in compensation and
related expenses, and increased occupancy expenses (especially equipment and
property maintenance).
Pinnacle's income tax expense decreased $140,000 for the six months
ended June 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 32.8% is an increase of 1.3% from the effective rate of 31.5% in 1999.
Net income during the six months ended June 30, 2000 was $2.0 million
and represents annualized returns of 10.5% on average shareholders' equity and
1.50% on average assets. Comparable amounts during the same period of 1998 were
$2.5 million, 12.3% and 1.85%, respectively. As indicated above, net income
declined primarily due to increased operating expenses while the operating
ratios reflect the decreased earnings compared to a slightly larger asset and
equity base.
Year 2000
---------
The Bank did not experience any material disruptions in its operations
or activities as a result of the so-called "Year 2000" problem. The Bank did not
incur material expenses in correcting perceived or suspected Year 2000 problems.
In addition, the Bank is not aware that any of its suppliers or customers has
experienced any material disruptions in their operations or activities. The Bank
does not expect to encounter any such problems in the foreseeable future,
although it continues to monitor its computer operations for signs or
indications of such problem.
11
<PAGE>
The following tables present Pinnacle's Regulatory capital position at June 30,
2000:
(Rounded to the nearest thousand)
Total Risk Adjusted Assets $191,774
Risk Based Capital Ratios:
TIER 1 CAPITAL
Common stock $ 7,680 4.00%
Surplus 7,280 3.80%
Retained earnings 26,185 13.65%
-------- -----
Total Tier 1 capital 41,145 21.45%
Tier 1 minimum requirement 7,671 4.00%
-------- -----
Excess (shortfall) $ 33,474 17.45%
======== =====
TIER 2 CAPITAL
Tier 1 from above $ 41,145 21.45%
Allowance for loan losses, limited to 1.25%
of risk weighted assets 2,223 1.14%
-------- -----
Total Tier 2 capital 43,368 22.59%
Tier 2 minimum requirement 15,342 8.00%
-------- -----
Excess (shortfall) $ 28,026 14.59%
======== =====
LEVERAGE RATIO
Tier 1 capital $ 41,145 14.72%
Minimum requirement 11,178 4.00%
-------- -----
Excess (shortfall) $ 29,967 10.72%
======== =====
Average total assets, net of goodwill $279,446
========
12
<PAGE>
PINNACLE FINANCIAL CORPORATION
PART II
ITEM 1. 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, the amount of the established liability. Legal
costs were expensed as incurred.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 27. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 - Financial Data Schedule (for SEC use only).
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PINNACLE FINANCIAL CORPORATION
Date: AUGUST 9, 2000 By: /s/ L. JACKSON MCCONNELL
-------------- ------------------------
L. Jackson McConnell
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: AUGUST 9, 2000 By: /s/ LINT W. EBERHARDT.
-------------- ----------------------
Lint W. Eberhardt
President
14
