SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NO. 33-67528
PINNACLE FINANCIAL CORPORATION
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(Name of small business issuer in its charter)
Georgia 58-1538862
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
884 Elbert Street, P.O. Box 430, Elberton, Georgia 30635-0430
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 283-2854
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Check whether the Issuer (1) has 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.
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no-disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. Not Applicable.
Registrant is not required to be registered under the Securities Exchange Act of
1934.
State Issuer's revenue for its most recent fiscal year: $22,866,244
State the aggregate market value of the voting stock held by non-affiliates
(which for purposes hereof are all holders other than executive officers and
directors and JAM Family Partnership II, L.P.). As of March 15, 2000, there were
350,232 shares of Common Stock, $10.00 par value outstanding held by
non-affiliates of the issuer, with an aggregate value of $28,719,024 (based upon
approximate market value of $82/share) (the last sale price known to the
Registrant for the Common Stock, for which there is no established trading
market).
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 15, 2000, Common Stock,
-----------------------------------
$10.00 par value - 768,000 shares outstanding.
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<PAGE>
PINNACLE FINANCIAL CORPORATION
FORM 10-KSB
INDEX
<TABLE>
<CAPTION>
PAGE
----
Part I
<S> <S> <C>
Item 1. Description of Business.................................................................... 1
Item 2. Description of Property.................................................................... 11
Item 3. Legal Proceedings.......................................................................... 12
Item 4. Submission Of Matters To A Vote Of Security Holders........................................ 12
Part II
Item 5. Market For Common Equity And Related Stockholder Matters................................... 12
Item 6. Management's Discussion and Analysis or Plan of Operation.................................. 13
Item 7. Financial Statements ...................................................................... 30
Item 8. Changes In And Disagreements With Accountants On Accounting
And Financial Disclosure................................................................... 30
Part III
Item 9. Directors and Executive Officers, Promoters and Control
Persons.................................................................................... 31
Item 10. Executive Compensation......................................................................33
Item 11. Security Ownership Of Certain Beneficial Owners And
Management..................................................................................36
Item 12. Certain Relationships And Related Transactions..............................................36
Item 13. Exhibits and Reports on Form 8-K............................................................38
SIGNATURES............................................................................................39
</TABLE>
<PAGE>
PART I.
Item 1. DESCRIPTION OF BUSINESS
General
Pinnacle Financial Corporation (hereinafter "Pinnacle" or the
"Company") is a registered one-bank holding company, headquartered in Elberton,
Georgia. The Company's full service banking activities are conducted by its
wholly-owned banking subsidiary, Pinnacle Bank, N.A. (the "Bank"), based in
Elberton, Georgia with eight offices which are located in Elbert, Franklin and
Hart Counties, Georgia. Pinnacle was incorporated under the laws of Georgia in
1982. In 1983, the Company acquired 100% of the outstanding shares of First
National Bank in Elberton ("Elberton") and in 1994 acquired Tri-County Bank of
Royston (Royston). The two subsidiary banks merged as of January 1, 1998 and
became Pinnacle Bank, N.A. The Bank has been organized as a national banking
association since 1934.
The Bank is community-oriented and offers such customary banking
services as consumer and commercial checking accounts, NOW accounts, savings
accounts, certificates of deposit, lines of credit, MasterCard and VISA accounts
and money transfers. The Bank finances commercial and consumer transactions,
makes secured and unsecured loans, and provides a variety of other banking
services.
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As of December 31, 1999, Pinnacle had total assets of approximately
$273.1 million, total deposits of approximately $218.3 million, net loans of
approximately $154.3 million and shareholders' equity of approximately $38.5
million. The principal executive office of Pinnacle is located at 884 Elbert
Street, Elberton, Georgia 30635-0430, and its telephone number at that address
is (706) 283-2854.
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.
Markets. Pinnacle conducts banking activities through the Bank
primarily in Elbert, Franklin and Hart Counties. Customers of the Bank are
generally consumers and small businesses.
Deposits. The Bank offers a full range of depository accounts and
services to both consumers and businesses. At December 31, 1999, the Bank's
deposit base, totaling approximately $218.3 million, consisted of approximately
$41.7 million in noninterest bearing demand deposits (19.1% of total deposits),
approximately $51.6 million in interest-bearing demand deposits (including money
market accounts) (23.6% of total deposits), approximately $17.8 million in
savings deposits (8.2% of total deposits), approximately $81.3 million in time
deposits of less than $100,000 (37.2% of total deposits), and approximately
$25.9 million in time deposits of $100,000 or more (11.9% of total deposits).
Interest Rate Sensitivity. Management seeks to maximize net interest
income as a result of changing interest rates, but to do so without subjecting
the interest margin to an imprudent degree of risk. Pinnacle attempts to do this
by structuring the balance sheet so that repricing opportunities exist for both
assets and liabilities in roughly equivalent amounts at approximately the same
time intervals. Imbalances in these repricing opportunities at any point in time
constitutes a bank's interest sensitivity.
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An indicator of the interest rate sensitivity structure of a financial
institution's balance sheet is the difference between its interest rate
sensitive assets and interest rate sensitive liabilities, which is referred to
as the "gap". Pinnacle attempts to keep the gap between rate- sensitive assets
and rate-sensitive liabilities at a minimum, preferring to increase the spread
between matched assets and liabilities rather than place earnings at risk by
attempting to predict the frequency, direction and magnitude of interest rate
fluctuations.
Table 8 in the statistical information reflects the gap position of
Pinnacle's consolidated balance sheet as of December 31, 1999. At December 31,
1999, the gap analysis reflects a negative gap at the one-year interval
equivalent to 36.3% of earning assets, as compared to 39.6% at December 31,
1998.
The rate sensitivity analysis table is designed to demonstrate
Pinnacle's sensitivity to changes in interest rates by setting forth in
comparative form the repricing maturities of Pinnacle's assets and liabilities
for the period shown. A ratio of interest earning assets to interest bearing
liabilities (more interest earnings assets repricing in a given period than
interest bearing liabilities) greater than 100% indicates that an increase in
interest rates will generally result in an increase in net income for Pinnacle
and a decrease in interest rates will result in a decrease in net income. A
ratio of earning assets to interest-bearing liabilities of less than 100%
indicates that a decrease in interest rates will generally result in an increase
in net income for Pinnacle and an increase in interest rates will result in a
decrease in net income. Since all interest rates and yields do not adjust at the
same velocity, the interest sensitivity gap is only an indicator of the
potential effects of interest rate changes on net interest income. See also the
Asset/Liability Management section below.
Loans. The Bank makes both secured and unsecured loans to individuals,
firms and corporations, and both consumer and commercial lending operations
include various types of credit for its customers. Secured loans include first
and second real estate mortgage loans. The Bank also makes direct installment
loans to consumers on both a secured and unsecured basis. At December 31, 1999,
consumer, real estate (including mortgage and construction loans) and commercial
loans represented approximately 17.3%, 70.3%, and 12.4%, respectively, of
Pinnacle's total loan portfolio. The real estate loans made by the Bank include
residential real estate construction, acquisition and development loans, as well
as loans for other purposes which are secured by real estate.
Lending Policy. The current lending strategy of the Bank is to make
loans only to persons who reside or work in the Bank's primary trade areas.
Unsecured loans normally are made only to persons who maintain depository
relationships with the Bank. Secured loans are made to persons who are well
established and have net worth, collateral and cash flow to support the loan.
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Real estate loans usually are made only when such loans are secured by real
property located in Elbert, Franklin and Hart Counties, the Bank's market area.
The Bank provides each lending officer with written guidelines for
lending activities. Lending authority is delegated by the Board of Directors of
the Bank to loan officers, each of whom is limited in the amount of loans which
he can make to a single borrower or related group of borrowers. All loans in
excess of $100,000 must have the approval of the President or CEO of the Bank
prior to being committed. Lending relationships exceeding $200,000 must be
approved by one of the Officer Loan Committees. These committees consist of the
Bank's Chief Credit officer, President, CEO and other loan officers. All loans
over $500,000 require Senior Loan Committee approval. The Senior Loan Committee
consists of the Bank's executive officers and other senior loan officers.
Lending relationships exceeding $500,000 are reviewed annually by the Executive
Loan Committee which includes outside directors.
Making loans to businesses to fund working capital is a traditional
function of commercial banks. Such loans are expected to be repaid out of the
current earnings of the commercial entity, and the ability of the borrower to
service its debt is dependent upon the success of the commercial enterprise. It
is the Bank's policy to secure these loans with collateral. Many of the Bank's
commercial loans are secured by real estate because such collateral is superior
to other types of collateral available to small businesses. Loans secured by
commercial real estate, however, particularly if collateral dependent, are
subject to certain inherent risks. Commercial real estate may be substantially
illiquid and commercial real estate values are difficult to ascertain and
subject to wide fluctuation depending upon economic conditions.
Inter-agency guidelines adopted by federal bank regulators including
the Office of the Comptroller of the Currency mandate that financial
institutions establish real estate lending policies and establishing certain
minimum real estate loan-to-value standards. The Bank has adopted these federal
standards as its minimum standards. These standards limit loan-to-value ratios
for various types of real estate loans as set forth below, although the Bank may
make exceptions to the standards, which exceptions must be accounted for and
tracked:
Loan category Loan-to Value Limit (percent)
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Raw Land 65
Land Development 75
Construction:
Commercial, multifamily <F1> and
Other nonresidential 80
1- to 4- family residential 85
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[FN]
<F1> Multifamily construction includes condominiums and cooperatives.
</FN>
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Improved Property 85
Owner-occupied 1- to 4- family and <F2>
home equity
Loan Review and Nonperforming Assets. The Bank reviews its loan
portfolio to determine deficiencies and corrective action to be taken. Senior
lending officers conduct periodic reviews of borrowers with total direct and
indirect indebtedness of $100,000 or more and ongoing review of all past due
loans. Past due loans are reviewed at least weekly by lending officers and a
summary report is reviewed monthly by the Board of Directors of the Bank. The
Board of Directors reviews all loan relationships over $500,000, whether current
or past due, at least once annually.
Asset/Liability Management. A committee composed of officers is charged
with managing the Bank's assets and liabilities. The committee's task is to
manage asset growth, liquidity and capital. To meet these objectives while
maintaining prudent management of risks, the committee directs the Bank's
overall acquisition and allocation of funds. At its quarterly meetings, the
committee reviews and discusses (a) growth and performance of the bank compared
to projections and the annual budget, (b) peer group comparisons, (c)
simulations prepared by an independent outside vendor summarizing the interest
rate risk inherent in the balance sheet of the institution, (d) the ratio of
loan loss reserve to outstanding loans and (e) other variables, such as expected
loan demand, investment opportunities, core deposit growth within specified
categories, regulatory changes, monetary policy adjustments and the overall
state of the economy.
Investment Policy. The Bank's investment portfolio policy is to
maximize income consistent with liquidity, asset quality and regulatory
constraints. The policy is reviewed from time to time by the Board of Directors.
Individual transactions and investment portfolio composition, characteristics,
and performance are reviewed periodically by the Board of Directors.
Management has classified all investment securities as available for
sale and believes specific gains and losses are temporary. Management recognizes
the bond market may significantly fluctuate from time to time and has no plan to
sell large amounts of its investment securities portfolio. Management has
confidence in the diversity of its securities portfolio and is prepared to sell
certain securities before
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[FN]
<F2> A loan-to-value limit has not been established for permanent mortgage
or home equity loans on owner-occupied, 1- to 4- family residential
property. However, for any such loan with a loan-to-value ratio that
equals or exceeds 90 percent at origination, appropriate credit
enhancements in the form of either mortgage insurance or readily
marketable collateral is required.
</FN>
5
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maturity as needed for liquidity, tax planning, and other valid business
purposes.
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.
It is possible, however, that if "Year 2000" problems are incurred by
the customers of the Bank, such problems could have a negative impact on future
operations and financial performance of the Bank, although the Bank has not been
able to specifically identify any such problems among its clients or suppliers.
Furthermore, the Year 2000 problem may impact other entities with which the Bank
transacts business and the Bank cannot predict the effect of the Year 2000
problem on such entities or the resulting effect on the Bank.
Employees. At December 31, 1999, the Bank had 100 full-time and 13
part-time employees. Pinnacle has no employees. The Bank is not a party to any
collective bargaining agreement, and the Bank believes that their employee
relations are good.
Competition. The banking business is highly competitive. The Bank
competes with seven other commercial banks in Elbert, Franklin and Hart
Counties. The Bank also competes with other financial service organizations,
including savings and loan associations, finance companies, credit unions and
certain governmental agencies. To the extent that banks must maintain
noninterest-earning reserves against deposits, they may be at a competitive
disadvantage when compared with other financial service organizations that are
not required to maintain reserves against substantially equivalent sources of
funds. Further, the increased competition from investment bankers and brokers
and other financial service organizations may have a significant impact on the
competitive environment in which the Bank operates.
At December 31, 1999, the Bank ranked on the basis of total deposits
and assets of $218.3 million and $273.1 million, respectively, as one of the
larger depository institutions located in Elbert, Franklin and Hart Counties.
Supervision and Regulation. Pinnacle is a registered bank holding
company subject to regulation by the Board of Governors of the Federal Reserve
under the Bank Holding Company Act of 1956, as amended (the "Act"). Pinnacle is
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required to file financial information with the Federal Reserve periodically and
is subject to periodic examination by the Federal Reserve.
The Act requires every bank holding company to obtain the prior
approval of the Federal Reserve (I) before it may acquire direct or indirect
ownership or control of more than 5% of the voting shares of any bank that is
not already controlled; (ii) before it or any of its subsidiaries, other than a
bank, may acquire all or substantially all of the assets of a bank; and (iii)
before it may merge or consolidate with any other bank holding company. In
addition, a bank holding company is generally prohibited from engaging in, or
acquiring direct or indirect control of voting shares of any company engaged in
non-banking activities. This prohibition does not apply to activities listed in
the act found by the Federal Reserve, by order or regulation, to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. Some of the activities that the Federal Reserve has determined by
regulation or order to be closely related to banking are: making or servicing
loans and certain types of leases; performing certain data processing services;
acting as fiduciary or investment or financial advisor; providing brokerage
services; and making investments in corporations or projects designed primarily
to promote community welfare.
In addition, effective March 11, 2000, bank holding companies whose
banking subsidiaries are all well-capitalized and well-managed may apply to
become a financial holding company. Financial holding companies have the
authority to engage in activities that are "financial in nature" that are not
permitted for other bank holding companies. Some of the activities that the Act
provides are financial in nature are:
o lending, exchanging, transferring, investing for others or safeguarding
money or securities;
o insuring, guaranteeing, or indemnifying against loss, harm, damage,
illness, disability, or death, or providing and issuing annuities, and
acting as principal, agent, or broker with respect thereto;
o providing financial, investment, or economic advisory services,
including advising an investment company;
o issuing or selling instruments representing interests in pools of
assets permissible for a bank to hold directly; and
o underwriting, dealing in or making a market in securities.
We have no immediate plans to register as a financial holding company.
Pinnacle must also register with the Georgia Department of Banking and
Finance (DBF) and must file periodic information with the DBF. Such registration
includes information with respect to the financial condition, operations,
management and intercompany relationships of Pinnacle and the Bank and related
matters. The DBF may also require such other information as is necessary to keep
itself informed as to whether the provisions of Georgia law and the regulations
and orders issued thereunder
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by the DBF have been complied with, and the DBF may examine Pinnacle and the
Bank.
Pinnacle is an "affiliate" of the Bank under the Federal Reserve Act,
which imposes certain restrictions on (I) loans by the Bank to Pinnacle, (ii)
investments in the stock or securities of Pinnacle by the Bank, (iii) the Bank
taking the stock or securities of an "affiliate" as collateral for loans by it
to a borrower and (iv) the purchase of assets from Pinnacle by the Bank.
Further, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.
The Bank is a National Bank chartered under the National Bank Act and
is subject to the supervision of, and is regularly examined by, the Office of
the Comptroller of the Currency (the "OCC"). The OCC regulates or monitors all
areas of its operations and activities, including reserves, loans, mergers,
issuances of securities, payments of dividends, interest rates and establishment
of branches. The Financial Institutions Reform, Recovery and Enforcement Act of
1989 provides that a bank can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC in connection with the default
of a commonly controlled institution.
Payment of Dividends. Pinnacle is a legal entity separate and distinct
from the Bank. Most of the revenues of Pinnacle result from dividends paid to it
by the Bank. There are statutory and regulatory requirements applicable to the
payment of dividends by the Bank as well as by Pinnacle to its shareholders.
The Bank is regulated by the OCC. Under the regulations of the OCC
dividends may be declared out of net profits of the association. The approval of
the OCC is required if the total of all dividends declared by such association
exceed the total of its net profits for the year combined with its retained net
profits for the preceding two years.
The payment of dividends of Pinnacle and its bank subsidiary may also
be affected or limited by other factors, such as the requirements to maintain
adequate capital above regulatory guidelines. In addition, if, in the opinion of
the applicable regulatory authority, a bank under its jurisdiction is engaged in
or is about to engage in an unsafe or unsound practice (which, depending upon
the financial condition of the bank, could include the payment of dividends),
such authority may require, after notice and hearing, that such bank cease and
desist from such practice. The FDIC has issued a policy statement which provides
that insured banks should generally only pay dividends out of current operating
earnings.
Monetary Policy. The results of operations of the Bank are affected by
credit policies of monetary authorities, particularly the Federal Reserve. The
instruments of monetary policy employed by the Federal Reserve include open
market operations in U.S. government securities, changes in the discount rate on
bank borrowings and changes in
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reserve requirements against bank deposits. In view of changing conditions in
the national economy and in the money markets, as well as the effect of action
by monetary and fiscal authorities, including the Federal Reserve, no prediction
can be made as to possible future changes in interest rates, deposit levels,
loan demand, or the business and earnings of the Bank.
Capital Adequacy. The Federal Reserve, the FDIC and the OCC have
implemented substantially identical risk-based rules for assessing bank and bank
holding company capital adequacy. These regulations establish minimum capital
standards in relation to assets and off-balance sheet exposures as adjusted for
credit risk. Banks and bank holding companies are required to have (1) a minimum
level of total capital (as defined) to risk weighted assets of eight percent
(8%); (2) a minimum Tier One Capital (as defined) to risk weighted assets of
four percent (4%); and (3) a minimum stockholders' equity to risk weighted
assets of four percent (4%). In addition, the Federal Reserve, the FDIC and the
OCC have established a minimum four percent (4%) leverage ratio of Tier One
Capital to average total assets for the most highly rated banks and bank holding
companies. "Tier One Capital" generally consists of common equity, minority
interests in equity accounts of consolidated subsidiaries and certain perpetual
preferred stock less certain intangibles. The Federal Reserve, the FDIC and the
OCC will require a bank holding company and a bank, respectively, to maintain a
leverage ratio greater than four percent (4%) if it is experiencing or
anticipating significant growth or is operating with less than well diversified
risks in the opinion of the Federal Reserve. The Federal Reserve, the FDIC and
the OCC use the leverage ratio in tandem with the risk based ratio to assess
capital adequacy of banks and bank holding companies.
The FDIC, the OCC and the Federal Reserve have amended, effective
January 1, 1997, the capital adequacy standards to provide for the consideration
of interest rate risk in the overall determination of a bank's capital ratio,
requiring banks with greater interest rate risk to maintain adequate capital for
the risk. The revised standards have not had a significant effect on the
Company's capital requirements.
The Federal Deposit Insurance Corporation Improvement Act of 1991
requires prompt corrective active provisions to be established by all depository
institution regulators. The prompt corrective action provisions set forth five
regulatory zones in which all banks are placed largely based on their capital
positions. Regulators are permitted to take increasingly harsh action as a
bank's financial condition declines. Regulators are also empowered to place in
receivership or require the sale of a bank to another depository institution
when a bank's capital leverage ratio reaches two percent. Better capitalized
institutions are generally subject to less onerous regulation and supervision
than banks with lesser amounts of capital.
The OCC has adopted regulations implementing the prompt corrective
action provisions of the 1991 Act, which place financial
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institutions in the following five categories based upon capitalization ratios:
(1) a "well capitalized" institution has a total risk-based capital ratio of at
least 10%, a Tier One risk-based ratio of at least 6% and a leverage ratio of at
least 5%; (2) an "adequately capitalized" institution has a total risk-based
capital ratio of at least 8%, a Tier One risk-based ratio of at least 4% and a
leverage ratio of at least 4%; (3) an "undercapitalized" institution has a total
risk-based capital ratio of under 8%, a Tier One risk- based ratio of under 4%
or a leverage ratio of under 4%; (4) a "significantly undercapitalized"
institution has a total risk-based capital ratio of under 6%, a Tier One
risk-based ratio of under 3% or a leverage ratio of under 3%; and (5) a
"critically undercapitalized" institution has a leverage ratio of 2% or less.
Institutions in any of the three undercapitalized categories would be prohibited
from declaring dividends or making capital distributions. The OCC's regulations
also establish procedures for "downgrading" an institution to lower capital
category based on supervisory factors other than capital. Under the OCC's
regulations the Bank is a "well capitalized" institution.
The following table presents the Bank's capital ratios at December 31, 1999:
Minimum Minimum
Capital for well
Actual Requirement Capitalized
------ ----------- -----------
Tier 1 Capital to
Risk weighted
Assets 22.36% 4.0% 6.0%
Total Capital to
Risk weighted
Assets 23.57% 8.0% 10.0%
Leverage Ratio (Tier 1
Capital to Total
Average Assets) 14.40% 4.0% 5.0%
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Recent Legislative and Regulatory Action. On November 12, 1999,
President Clinton signed the Gramm-Leach-Bliley Act, a very significant piece of
legislation intended to modernize the financial services industry. The bill
repeals the anti-affiliation provisions of the 1933 Glass-Steagall Act to allow
for the merger of banking and securities organizations and permits banking
organizations to engage in insurance activities including insurance
underwriting. The bill also allows bank holding companies to engage in financial
activities that are "financial in nature or complementary to a financial
activity." The act lists the expanded areas that are financial in nature and
includes insurance and securities underwriting and merchant banking among
others. The bill also:
o prohibits non-financial entities from acquiring or establishing a
thrift while grandfathering existing thrifts owned by non- financial
entities.
o establishes state regulators as the appropriate functional regulators
for insurance activities but provides that state regulators cannot
"prevent or significantly interfere" with affiliations between banks
and insurance firms.
o contains provisions designed to protect consumer privacy. The bill
requires financial institutions to disclose their policy for collecting
and protecting confidential information and allows consumers to "opt
out" of information sharing except with unaffiliated third parties who
market the institutions' own products and services or pursuant to joint
agreements between two or more financial institutions.
o provides for functional regulation of a bank's securities activities by
the Securities and Exchange Commission.
Various portions of the bill have different effective dates, ranging from
immediately to more than a year for implementation.
Item 2. DESCRIPTION OF PROPERTY
The Company's main office is located at 884 Elbert Street, Elberton,
Georgia 30636-0430, and its telephone number at that office is (706) 283-2854.
The Bank has six branches that it owns while it leases one supermarket branch.
The Bank's main office is located at 884 Elbert Street in Elberton,
Georgia and consists of approximately 22,500 square feet of usable office space.
The downtown Elberton office is located at 32 College Avenue, Elberton, Georgia
and consists of approximately 4,200 square feet of usable office space. The
Bowman office is located at 27 North Broad
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Street, Bowman, Georgia and contains approximately 2,700 square feet of usable
office space. The Hartwell office is located at 135 East Franklin Street,
Hartwell, Georgia and consists of approximately 4,200 square feet of usable
office space. The Royston location is located at 861 Church Street, Royston,
Georgia and contains approximately 9,440 square feet of usable office space. The
Franklin Springs branch is located at 2311 West Main Street, Franklin Springs,
Georgia and contains approximately 2,300 square feet of office space. The
Lavonia office is located at 12321 Augusta Road, Lavonia, Georgia and has
approximately 4,200 square feet of usable office space. The supermarket branch,
which is leased from Dill's Food City supermarket, is located at 721 Cook Street
and contains approximately 540 square feet of space. Management of the Bank
believes that these properties are adequately covered by insurance.
Item 3. LEGAL PROCEEDINGS
Pinnacle Bank, N.A. is 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 alleges unlawful conversion
of assets and seeks damages of $270,000 plus interest, attorneys fees, and
punitive damages. The outcome of the litigation is uncertain at this time.
Management believes, based on the advice of legal counsel, that any ultimate
loss will be immaterial to the financial statements. Legal costs are being
expensed as incurred.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of its fiscal year.
PART II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Stock. There is no established public trading market for the Company's
Common Stock. As of March 15, 2000, the Company had 375 shareholders of record.
Management is aware of 14 sales of Pinnacle stock in 1999, aggregating
approximately 3,858 shares in blocks ranging from 10 shares to 1,464 shares at
prices ranging from $70 to $82 per share. Management is aware of eight sales of
its stock in 1998, aggregating approximately 945 shares in blocks ranging from
20 shares to 500 shares at prices ranging from $65 to $78 per share.
Dividends. In 1999 and 1998, the Company declared cash dividends
aggregating $4,684,800 ($6.10 per share) and $1,651,200 ($2.15 per share),
respectively. The 1999 amount includes $1,497,600 ($1.95 per share)
12
<PAGE>
that was not paid until January 2000. The Company intends to continue paying
cash dividends on a quarterly basis. However the amount and frequency of
dividends will be determined by the Company's Board of Directors in light of
earnings, capital requirements and the financial condition of the Company, and
no assurances can be given that dividends will be paid in the future.
Information on restrictions on the amount of dividends payable by the Company
appears in Note 18 to the Company's consolidated financial statements.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Management's Discussion and Analysis or Plan of Operation of Pinnacle
analyzes 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.
On January 1, 1998, First National Bank in Elberton and Tri- County
Bank in Royston merged, with the resulting bank being named Pinnacle Bank, N.A.
Management believes the merger is a positive move that will increase Pinnacle's
ability to operate as a strong, well-capitalized regional bank. Customer
convenience has been greatly enhanced by having more banking locations.
Management has maintained all the banks' officers and staff throughout the
consolidation while reducing duplication of duties by moving personnel to
frontline positions working directly with customers. Name recognition for
Pinnacle Bank has been improved through coordinated advertising over the entire
trade area.
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,
selected statistical information and accompanying disclosures. All amounts
throughout this section are rounded to the nearest 1,000 dollars, the nearest .1
million dollars or 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 for credit demand, deposit
withdrawal, maturing liabilities and corporate operating expenses. Pinnacle
seeks to meet liquidity requirements primarily through the
13
<PAGE>
management of federal funds (both sold and purchased) and the investment
securities portfolio. At December 31, 1999, 5.3% of the investment securities
portfolio had maturity dates within the next year and an additional 64.4%
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. The Bank has short term borrowing relationships with two
correspondent banks that could provide up to $10.75 million 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 collateralizes up to $20 million of borrowings on a
short or long term basis. 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 available to meet customer withdrawals and loan requests
while net interest margins are maximized. Pinnacle's Asset/Liability management
policies are outlined in more detail on page 4 of this Form 10-KSB.
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 December 31, 1999,
Pinnacle's liquidity ratio was 36.9%.
Management continues to give priority to the importance of maintaining
high levels of assets with interest rate sensitivity while attempting to
minimize the amount of cash and overnight investments held. Cash and cash
equivalents decreased from December 31, 1998 levels by $7.4 million while
securities available for sale increased by $2.3 million from December 31, 1998
to December 31, 1999. The average balance in these investment securities
increased by $8.9 million in the current year compared to 1998. These changes
reflect management's closer monitoring of cash and overnight investments. The
average balance of Federal Funds sold during 1999 was $4.6 million. It is
anticipated that average Federal Funds sold will decrease as a percentage of
assets in the future. See discussion below regarding sources of funds.
Total interest-earning assets increased by $7.8 million or 3.2% from
December 31, 1998 to December 31, 1999. Average net loans increased $2.7 million
or 1.9% to $145.1 million in 1999 over 1998. As reflected in Table 4 of the
statistical information presented below, fixed rate mortgages increased $14.4
million to $74.6 million at December 31, 1999 while variable rate mortgages
increased $766,000 to $28.8 million at that same date. The higher percentage of
fixed rate mortgages reflects borrower's preference for and the availability of
fixed rate financing in Pinnacle's lending area.
14
<PAGE>
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 remained at $2.1 million December 31, 1999 and December 31, 1998. The
Bank experienced loan charge-offs of $425,000 in the year ended December 31,
1999 compared to $333,000 in 1998. Net charge-offs amounted to $256,000 in 1999
compared to $193,000 in 1998. The allowance for loan losses represents 1.4% of
total loans outstanding at December 31, 1999 and 1998.
Loans with carrying values of $651,000 and $1.7 million have been
recognized as impaired in conformity with SFAS 114, Accounting by Creditors for
Impairment of a Loan, as of December 31, 1999 and December 31, 1998,
respectively. The total allowance for loan losses associated with those loans
was $477,000 and $726,000, respectively. The average investment in impaired
loans was $1.1 million in both years. The accrual of interest has been
discontinued on loans totaling $49,000 as of December 31, 1999 compared to
$139,000 at December 31, 1998. Unrecorded income on nonaccrual loans for 1999
was $9,000. Real estate secures $41,000 of the nonaccual loans while the
remainder are unsecured.
The balance of foreclosed real estate declined from $496,000 at
December 31, 1998 to $175,000 at December 31, 1999. This decrease is the net
result of the sale of six properties and the foreclosure of two new properties
during 1999.
Pinnacle continues to maintain a concentration of core deposits from an
established customer base which provides a stable funding source. Deposits
decreased $2.6 million to $218.3 million at December 31, 1999 from $220.9
million at December 31, 1998. This decrease resulted in large part from unusual
end of year activity by a few large customers; average deposits for December
1999 were actually up from December 1998 by $2.1 million. Demand deposits
increased $300,000 to $41.7 million at December 31, 1999 while interest bearing
deposits decreased $2.9 million to $176.6 million at December 31, 1999.
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. As a consequence, 1999 includes increased use of federal funds
purchased and, for the first time, borrowings from the FHLB. The $10.5 million
of FHLB advances existing at December 31, 1999 were used to purchase $3 million
of investment securities to improve the net interest income of Pinnacle and to
meet short term liquidity needs at the end of the year. All short term advances
existing at December 31, 1999 were repaid by February 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 declined $2.2 million to $38.5 million at December
31, 1999 from $40.7 million at December 31, 1998. Net earnings retained during
the year amounted to $400,000 while equity decreased $2.6 million due to a
15
<PAGE>
decline from a $1 million net unrealized gain on investments available for sale
to an unrealized loss of $1.6 million (all unrealized amounts are reported net
of their tax impact). The shift from an unrealized gain to loss resulted in the
recording of a deferred tax asset, causing much of the increase in other assets
from December 31, 1998. The change in unrealized amounts reflects the
significant increase in interest rates from December 31, 1998 and widening of
spreads on non-treasury instruments.
Dividends declared increased by $3.95 per share from $2.15 per share in
1998 to $6.10 in 1999 due to the declaration of two special dividends by
Pinnacle's Board of Directors in the fourth quarter of 1999. These two
dividends, totaling approximately $3.0 million, were declared and paid in
recognition of the Bank's earnings history and strong capital position.
Approximately $1.5 million of the special dividend was paid in December 1999,
with the remainder paid in January 2000. The declared but unpaid dividend is
reflected in the balance sheet at December 31, 1999 as a liability, with the
amount reduced from retained earnings.
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 15.3% in 1999.
Pinnacle's financial statements include a disclosure of the fair value
of financial instruments. The fair value and carrying amounts of Pinnacle's
financial assets at December 31, 1999 amounted to $273.2 million and $273.1
million, respectively, compared to the fair value and carrying amounts of
liabilities of $223.5 million and $234.6 million, respectively. Comparable
values of assets at December 31, 1998 were $265.9 million and $265.2 million,
respectively, while comparable liability values at December 31, 1998 were $216.4
million and $224.5 million. The details of the fair value estimates and
assumptions can be found in Note 17 of the financial statements.
The bank is a defendant in a lawsuit that alleges unlawful conversion
of assets and seeks damages of $270,000 plus interest, attorneys fees, and
punitive damages. The outcome of the litigation is uncertain but management
believe, based upon the advice of legal counsel, that any ultimate loss will be
immaterial to the financial statements. Legal expenses of the lawsuit are being
expensed as incurred.
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 operations. Pinnacle is not aware of any current
recommendations by the regulatory authorities that, 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 reasonable expects will materially impact future operational trends.
16
<PAGE>
Results Of Operations
- ---------------------
Pinnacle's operational results primarily depend on the earnings of the
Bank. The 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 decreased by $107,000 as a
decline in average yields from 8.3% to 8.2% offset an increase in average
earning assets in 1999. The slight decline in yield reflects a general decline
in interest rates during much of the period, a higher proportion of total assets
being investment securities, and increasing competition for loans, resulting in
the need to price more competitively. Interest expense declined by $450,000 from
1998 even though average deposits increased by approximately $4.0 million. The
decrease in interest expense resulted from more non-interest bearing deposits
and lower interest rates paid on all deposit accounts. Consequently, net
interest income in the year ended December 31, 1999 increased by $342,000 or
2.7% as compared to 1998. Management continues to match rate sensitive assets
with rate sensitive liabilities in such a way that net interest margins have
remained stable from the prior year. The analysis of interest rates and the
interest differential in the selected statistical information, included
elsewhere in this report, illustrates the trends occurring in interest rates
during 1999.
The provision for loan losses is the charge to operating expenses that
management believes is necessary to fund 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 $300,000 in 1999 and $225,000 for possible loan
losses in 1999 and 1998, respectively.
Pinnacle's other income decreased by $131,000 to $2.3 million in 1999.
The decline is associated with a decrease of approximately $150,000 in fees
related to the origination of mortgage loans. Other fee income and service
charges were stable in 1999. Operating expenses decreased $158,000 as declines
in various expenses areas offset increased branch occupancy expenses related to
branches open in late 1998. The largest expense decline was in professional
expenses as they declined by approximately $120,000.
Pinnacle's income tax expense increased $147,000 in 1999 over 1998 as
the effective income tax rate increased to 31.1% in 1999 from 30.3% in 1998 and
taxable income increased. The increased effective tax rate primarily resulted
from decreased tax-exempt interest income.
Net income for the year ended December 31, 1999 was $5.1 million and
represents returns of 12.3% on average shareholders' equity and 1.9% on average
assets. Comparable amounts during 1998 were $4.9 million, 12.6% and 1.9%,
respectively. As indicated above, net income increased primarily due to
increased net interest income offsetting a slight increase in operating expenses
while the operating ratios reflect the increased earnings compared to a slightly
larger asset and equity base.
17
<PAGE>
The following tables present Pinnacle's regulatory capital position at December
31, 1999:
<TABLE>
<CAPTION>
(Rounded to nearest thousand)
<S> <C> <C>
Total Risk Adjusted Assets $176,336
=======
Risk Based Capital Ratios:
TIER 1 CAPITAL
Common stock $ 7,680 4.36%
Surplus 7,280 4.13%
Retained earnings 25,060 14.21%
------ -----
Total Tier 1 capital 40,020 22.70%
Tier 1 minimum requirement 7,053 4.00%
------ -----
Excess (shortfall) $ 32,967 18.70%
======= =====
TOTAL CAPITAL
Tier 1 from above $ 40,020 22.70%
Allowance from loan losses, limited to 1.25%
of risk weighted assets 2,114 1.20%
------ -----
Total Tier 2 capital 42,134 23.89%
Tier 2 minimum requirement 14,107 8.00%
------ -----
Excess (shortfall) $ 28,027 15.89%
======= =====
LEVERAGE RATIO
Tier 1 capital $ 40,020 14.59%
Minimum requirement 10,786 4.00%
------ -----
Excess (shortfall) $ 29,234 10.59%
======= =====
Average total assets, net of goodwill $269,640
=======
</TABLE>
18
<PAGE>
Selected Statistical Information
The following section presents consolidated statistical information for
Pinnacle, which supplements the financial data discussed elsewhere herein.
Index to Selected Statistical Information
Table 1 Average Balance Sheets and Net Interest Earnings
Table 2 Volume-Rate Analysis
Table 3 Investment Portfolio
Table 4 Loan Portfolio
Table 5 Allowance for Loan Losses
Table 6 Deposits
Table 7 Selected Ratios
Table 8 Analysis of Interest Rate Sensitivity
19
<PAGE>
Table 1
Pinnacle Financial Corporation and Subsidiary
Average Balance Sheets and Net Interest Earnings
<TABLE>
<CAPTION>
_____________ 1999 _____________ _________________ 1998 ____________________
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balances Expense Rate Balances Expense Rate
------------ ---------- ------ ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans (including loan fees) $145,141,797 $14,527,573 10.01% $142,418,653 $14,850,838 10.43%
Investment securities:
Taxable 80,885,666 4,905,061 6.06% 74,335,476 4,602,324 6.19%
Nontaxable (a) 17,161,110 1,354,012 7.89% 14,771,090 1,202,689 8.14%
Federal funds sold 4,591,789 242,797 5.29% 7,501,804 385,785 5.14%
------------- ----------- ----- ------------ ----------- -----
Total interest-earning assets 247,780,362 21,029,443 8.49% 239,027,023 21,041,636 8.80%
Noninterest earning assets:
Cash and due from bank 8,750,038 7,781,657
Premises & equipment 8,399,884 7,838,467
Other assets 4,710,160 4,743,047
------------ -------------
Total assets $269,640,444 $259,390,194
============ ============
Liabilities and shareholders' equity:
Interest bearing liabilities:
Interest bearing demand deposits $51,450,881 1,277,067 2.48% $47,241,779 1,226,874 2.60%
Savings deposits 18,385,791 485,745 2.64% 17,501,057 528,857 3.02%
Time deposits 110,188,748 5,637,386 5.12% 112,620,899 6,171,025 5.48%
Borrowings 1,330,767 77,179 5.80% 11,178 657 5.88%
-------------- --------- ----- ------------- -------- -----
Total interest bearing liabilities 181,356,187 7,477,377 4.12% 177,374,913 7,927,413 4.47%
Noninterest bearing liabilities:
Noninterest bearing demand 43,410,734 39,613,496
Other liabilities 3,733,700 3,396,896
------------ ------------
228,500,621 220,385,305
Shareholders' equity 41,139,823 39,004,889
------------- ------------
Total liabilities and shareholders'
equity $269,640,444 $259,390,194
============ ============
Excess of interest-earning assets over
interest bearing liabilities $66,424,175 $61,652,110
Ratio of interest-earning assets to
interest-bearing liabilities 136.63% 134.76%
Net interest income $13,552,066 $13,114,223
=========== ===========
Net interest spread 4.37% 4.33%
Net interest yield on interest earning assets 5.47% 5.49%
</TABLE>
Non-accrual loans and the interest income which was recorded on these loans
(both prior and subsequent to the time the loans were placed on non-accrual
status, if any) are not material and are included in the yield calculation for
loans in all periods reported.
(a) Tax exempt income is calculated on a tax equivalent basis using a 34% tax
rate.
20
<PAGE>
Table 1 - (continued)
Pinnacle Financial Corporation and Subsidiary
Average Balance Sheets and Net Interest Earnings
<TABLE>
<CAPTION>
______________ 1997 ______________
Interest
Average Income/ Yield/
Balances Expense Rate
-------- ------- ----
<S> <C> <C> <C>
Assets:
Interest-earning assets:
Loans (including loan fees) $135,338,705 $14,536,043 10.74%
Investment securities:
Taxable 70,188,579 4,436,518 6.32%
Nontaxable (a) 14,862,542 1,288,067 8.67%
Federal funds sold 3,374,104 184,154 5.46%
---------- ------------ ----
Total interest-earning assets 223,763,930 20,444,782 9.14%
Noninterest earning assets:
Cash and due from banks 7,450,484
Premises & equipment 6,562,675
Other assets 4,507,345
----------
Total assets $242,284,434
===========
Liabilities and shareholders' equity:
Interest bearing liabilities:
Interest bearing demand deposits $43,971,090 1,148,097 2.61%
Savings deposits 16,864,104 515,858 3.06%
Time deposits 109,036,301 5,930,099 5.44%
Borrowings 215,501 11,184 5.19%
------------- ----------- -----
Total interest bearing liabilities 170,086,996 7,605,238 4.47%
Noninterest bearing liabilities:
Noninterest bearing demand 34,808,902
Other liabilities 2,605,010
-----------
207,500,908
Shareholders' equity 34,783,526
-----------
Total liabilities and shareholders'
equity $242,284,434
===========
Excess of interest-earning assets over
interest bearing liabilities $53,676,934
Ratio of interest-earning assets to
interest-bearing liabilities 131.56%
Net interest income $12,839,544
===========
Net interest spread 4.67%
Net interest yield on interest earning assets 5.74%
</TABLE>
Table 2
Pinnacle Financial Corporation and Subsidiaries
Volume/Rate Analysis
21
<PAGE>
The following table shows a summary of the changes in interest income and
interest expense resulting from changes in volume and changes in rates for each
major category of interest earning assets and interest-bearing liabilities for
1999 over 1998 and 1998 over 1997.
<TABLE>
<CAPTION>
1999 over 1998 1998 over 1997
-------------- --------------
Increase (decrease) due to changes in: Increase (decrease) due to changes in:
-------------------------------------- --------------------------------------
Interest income on:
Volume Rate Total Volume Rate Total
------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Loans (including loan fees) $ 284,024 $( 607,289) $(323,265) $ 818,482 $( 503,687) $314,795
Investment securities:
Taxable 399,373 ( 96,636) 302,737 269,504 ( 103,698) 165,806
Non-taxable (a) 188,251 ( 36,928) 151,323 ( 7,651) ( 77,727) ( 85,378)
Federal funds sold (154,241) 11,253 (142,988) 238,967 ( 37,336) 201,631
-------- --------- -------- --------- --------- -------
Total interest earning assets $ 717,407 $( 729,600) $ ( 12,193) $1,319,302 $( 722,448) $596,854
======== ========= ========= ========= ========= =======
Interest expense on:
Deposits:
Interest-bearing demand $ 106,883 $( 56,690) $ 50,193 $ 87,675 $( 8,898) $ 78,777
Savings 26,719 ( 69,831) ( 43,112) 19,879 6,880) 12,999
Time (133,282) 400,357) ( 533,639) 196,889 44,037
240,926
Borrowings 76,531 ( 9) 76,522 ( 12,244) 1,717 ( 10,527)
--------- --------- -------- --------- -------- --------
Total interest-bearing liabilities $ 76,851 $( 526,887) $(450,036) $ 292,199 $ 29,976 $ 322,175
========= ========= ======== ========= ======== ========
</TABLE>
Rate/volume variances were allocated on a weighted average basis between volume
and rate.
(a) Tax exempt income is calculated on a tax equivalent basis.
22
<PAGE>
Table 3
Pinnacle Financial Corporation and Subsidiary
Investment Portfolio
The following table presents the amortized cost and market value of investments
by category at December 31, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Amortized Amortized Amortized
--------- --------- ---------
Cost Market Cost Market Cost Market
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
U.S. Gov't Agencies $75,792,343 $73,592,108 $74,446,250 $75,410,866 $66,422,877 $66,834,518
State, county and municipal 19,571,315 19,296,812 15,736,579 16,391,370 15,086,787 15,727,218
Other investments 2,252,136 2,211,800 982,069 1,005,050 134,400 134,400
---------- ---------- ---------- ---------- ---------- ----------
Totals $97,615,794 $95,100,720 $91,164,898 $92,807,286 $81,644,064 $82,696,136
========== ========== ========== ========== ========== ==========
</TABLE>
The following table presents the maturities of investment securities using
market values and the weighted average yields for each range of maturities
presented. The weighted average yields reflect taxable equivalent adjustments
using a tax rate of 34% on nontaxable securities.
<TABLE>
<CAPTION>
U.S. Treasury and State, County Other Weighted
Maturities at December 31, 1999 U.S. Gov't Agencies and Municipal Investments Average Yields
- ------------------------------- ------------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Within 1 year $ 2,003,737 $ 3,163,176 $ 0 8.09%
After 1 through 5 years 66,401,075 7,480,333 490,950 6.08%
After 5 through 10 years 5,187,296 4,808,741 497,550 6.61%
After 10 years 0 3,844,562 1,223,300 7.19%
---------- ---------- ---------- ----
Totals $73,592,108 $19,296,812 $2,211,800 6.33%
========== ========== ========== ====
</TABLE>
23
<PAGE>
Table 4
Pinnacle Financial Corporation and Subsidiary
Loan Portfolio
The following table presents loans by type at the end of each of the last five
years.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 19,369,499 $ 22,383,379 $ 23,267,802 $ 18,406,805 $ 17,273,462
Real estate - construction 6,602,735 5,017,757 5,780,973 2,975,741 1,495,269
Real estate - mortgage 103,411,277 88,232,782 87,272,975 88,013,785 80,136,557
Installment loans to individuals 27,000,807 28,461,144 28,004,470 23,838,085 22,560,447
----------- ---------- ---------- ----------- ----------
Totals $156,384,318 $144,095,062 $144,326,220 $133,234,416 $121,465,735
=========== =========== =========== =========== ===========
</TABLE>
As of December 31, 1999, maturities of loans in the indicated classifications
were as follows:
<TABLE>
<CAPTION>
Commercial,
Financial and Real Estate
Maturity Agricultural Construction Total
-------- ------------ ------------ -----
<S> <C> <C> <C>
Within 1 year $ 7,194,922 $6,284,908 $13,479,830
1 to 5 years 10,066,531 317,827 10,384,358
After 5 years 2,108,046 0 2,108,046
---------- --------- ----------
Totals $19,369,499 $6,602,735 $25,972,234
========== ========= ==========
</TABLE>
As of December 31, 1999, the interest terms of loans in the indicated
classifications for the indicated maturity ranges are as follows:
<TABLE>
<CAPTION>
Fixed Variable
Interest Rates Interest Rates Total
-------------- -------------- -----
<S> <C> <C> <C>
Commercial, financial and
agricultural:
1 to 5 years maturity $9,250,915 $ 815,616 $10,066,531
After 5 years maturity 161,037 1,947,009 2,108,046
-------- --------- ----------
9,411,952 2,762,625 12,174,577
--------- --------- ----------
Real estate-construction:
1 to 5 years maturity 317,827 -- 317,827
After 5 years maturity -- -- --
--------- --------- ----------
317,827 -- 317,827
--------- --------- ----------
$9,729,779 $2,762,625 $12,492,404
========= ========= ==========
</TABLE>
Pinnacle's commercial, financial and agricultural loans and installment loans to
individuals include secured and unsecured loans as detailed below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Commercial, financial and agricultural
Secured $16,680,933 $18,694,505 $19,626,449
Unsecured 2,688,566 3,688,874 3,641,353
---------- ---------- ----------
$19,369,499 $22,383,379 $23,267,802
========== ========== ==========
Installment loans to individuals
Secured $21,360,405 $22,646,210 $25,965,091
Unsecured 5,640,402 5,814,934 2,039,379
---------- ---------- ----------
$27,000,807 $28,461,144 $28,004,470
========== ========== ==========
</TABLE>
24
<PAGE>
Table 4
Pinnacle Financial Corporation and Subsidiary
Loan Portfolio - (continued)
The collateral for these various types of secured loans generally includes
vehicles, commercial and farm machinery and equipment, and stock.
Pinnacle's real estate - mortgage loans and consumer loans are primarily fixed
rate loans.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Real estate - mortgage:
Fixed $ 74,578,960 $60,166,600 $56,110,206
Variable 28,832,317 28,066,182 31,162,769
---------- ---------- ----------
$103,411,277 $88,232,782 $87,272,975
=========== ========== ==========
Installment loans to individuals:
Fixed $26,381,583 $26,048,737 $26,903,297
Variable 619,224 2,412,407 1,101,173
---------- ---------- ----------
$27,000,807 $28,461,144 $28,004,470
========== ========== ==========
</TABLE>
The following summarizes past due, non-accrual and restructured loans as of
December 31, 1999, 1998, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accruing loans 90 days or more past due $237,571 $233,337 $ 934,134 $2,669,721 $339,655
Non-accrual loans 48,641 139,087 102,185 234,594 282,434
Restructured loans 188,835 196,262 251,356 228,375 77,663
</TABLE>
Accruing loans 90 days or more past due as of December 31, 1996 includes three
loans to one group of three customers with outstanding balances totaling
$1,948,342 which paid out in May, 1997 as expected by management.
As a result of management's ongoing review of the loan portfolio, loans are
classified as non-accrual generally when they are past due in principal or
interest payments for more than 90 days or it is otherwise not reasonable to
expect collection of principal and interest under the original terms. Exceptions
are allowed for 90 day past due loans when such loans are well-secured and in
process of collection. Generally, payments received on non-accrual loans are
applied directly to principal.
The restructured loans are secured by real estate and approved by the Board of
Directors.
25
<PAGE>
Table 5
Pinnacle Financial Corporation and Subsidiary
Allowance for Loan Losses
The following table summarizes information concerning the allowance for loan
losses:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $2,070,005 $2,038,015 $1,842,152 $1,828,722 $1,774,567
--------- --------- --------- --------- ---------
Charge-offs:
Commercial, financial and agricultural 351,864 193,748 109,846 309,746 191,904
Real estate-construction -- -- -- -- --
Real estate-mortgage 55,049 80,992 -- -- 83,115
Installment loans to individuals 18,421 57,762 79,377 136,747 62,297
--------- --------- --------- --------- ---------
425,334 333,502 189,223 446,493 337,316
--------- --------- --------- --------- ---------
Recoveries:
Commercial, financial and agricultural 38,969 28,895 80,388 17,846 34,682
Real estate-construction -- -- -- -- --
Real estate-mortgage 110,335 92,380 52,801 10,780 2,390
Installment loans to individuals 19,760 18,217 17,897 21,997 24,399
--------- --------- --------- --------- ---------
169,064 139,492 151,086 50,623 61,471
--------- --------- --------- --------- ---------
Net charge-offs 256,270 193,010 38,137 395,870 275,845
--------- --------- --------- --------- ---------
Additions charged to operations 300,000 225,000 234,000 409,300 330,000
--------- --------- --------- --------- ---------
Balance at end of year $2,113,735 $2,070,005 $2,038,015 $1,842,152 $1,828,722
========= ========= ========== ========= =========
Ratio of net charge-offs during the period to
average loans outstanding during the period .18% .14% .03% .32% .25%
==== ==== ==== === ===
</TABLE>
The objective of management in establishing an allowance for loan losses is to
maintain a balance in the allowance which reflects an estimate of potential loan
losses and create an allowance adequate to absorb losses inherent in the
portfolio. The allowance for loan losses is evaluated by management on a
quarterly basis based upon the collectibility of the loans in light of
historical experience, the nature and size of the loan portfolio, adverse
situations that may affect the borrower's ability to repay, estimated value of
underlying collateral and prevailing economic conditions. Based on this review,
the provision necessary to maintain this allowance is recorded.
The following narrative addresses the risk elements in the loan portfolio and
the factors considered in determining the amount of the allowance for loan
losses:
The general risk elements which are found in the loan portfolio include changes
in the ability of the borrower to repay due to changing economic conditions
caused by unemployment, inflation, reduced cash flow, rising taxes, and
increased costs for borrowers on fixed incomes. Inherent credit risks include
possible undervalued collateral due to depreciation over time, environmental
concerns, and excessive indebtedness by individual borrowers.
26
<PAGE>
Table 5
Pinnacle Financial Corporation and Subsidiary
Allowance for Loan Losses (continued)
Specific risk elements associated with each lending category are as
follows:
Commercial, financial, and agricultural Industry concentrations, inability to
monitor the condition of collateral
(inventory, accounts receivable, and
vehicles), lack of management
expertise, increased competition and
specialized or obsolete equipment as
collateral.
Real estate - construction Inadequate collateral.
Real estate - mortgage Changes in local economy and
inadequate collateral.
Installment loans to individuals Loss of
employment, changes in local economy,
and the inability to monitor
collateral (vehicle, boats, mobile
homes).
Allocation of the Allowance for Loan Losses:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial, financial and agricultural $ 563,252 $ 612,820 $ 483,911 $ 363,000 $ 246,000
Real Estate-construction 51,000 36,000 0 0 0
Real Estate-mortgage 84,300 99,300 241,777 155,000 141,500
Installment loans to individuals 82,852 122,500 92,706 18,000 17,000
Unallocated 1,332,331 1,199,385 1,219,621 1,306,152 1,424,222
--------- --------- --------- --------- ---------
$2,113,735 $2,070,005 $2,038,015 $1,842,152 $1,828,722
========= ========= ========= ========= =========
</TABLE>
27
<PAGE>
Table 6
Pinnacle Financial Corporation and Subsidiary
Deposits
The following table presents average balances of deposits and the average rates
paid on such deposits for 1999, 1998, and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ---------------------------- -------------------------------
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Noninterest bearing $ 43,410,734 -- $ 39,613,496 -- $ 34,808,902 --
Interest-bearing 51,450,881 2.48% 47,241,779 2.60% 43,971,090 2.61%
Savings deposits 18,385,791 2.64% 17,501,057 3.02% 16,864,104 3.06%
Time deposits 110,188,748 5.12% 112,620,899 5.48% 109,036,301 5.44%
----------- ----------- -----------
Totals $223,436,154 $216,977,231 $204,680,397
=========== =========== ===========
</TABLE>
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1999 are summarized as follows:
Time Certificates
of Deposit
Within 3 month $ 6,514,417
After 3 through 6 months 6,725,326
After 6 through 12 months 10,279,434
After 12 months 2,357,316
----------
Total $25,876,493
===========
Table 7
Selected Ratios
The following table sets out certain ratios of Pinnacle for the years indicated.
1999 1998 1997
---- ---- ----
Net income to:
Average shareholders' equity 12.34% 12.64% 14.54%
Average assets 1.88% 1.91% 2.08%
Dividends to net income 92.30% 33.50% 29.60%
Average equity to average assets 15.26% 15.04% 14.35%
28
<PAGE>
Table 8
Pinnacle Financial Corporation and Subsidiary
Analysis of Interest Rate Sensitivity
The following table includes a listing of earning assets and interest bearing
liabilities and the distribution according to the earliest repricing opportunity
or remaining maturity at December 31, 1999 with no prepayment assumptions. Also
included are the related periodic and cumulative gaps for each period.
<TABLE>
<CAPTION>
One Year
0-3 4-12 Through Over
Months Months Five Years Five Years Total
------ ------ ---------- ---------- -----
Earning assets:
- --------------
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 430,000 $ 0 $ 0 $ 0 $ 430,000
Taxable investment securities 199,866 2,211,065 67,419,358 7,434,695 77,264,984
Nontaxable investment securities 1,107,654 1,648,328 6,953,000 8,126,754 17,835,736
Loans 53,884,386 16,462,404 78,270,507 5,653,286 154,270,583
---------- ---------- ----------- ----------- -----------
Total earning assets $ 55,621,906 $ 20,321,797 $152,642,865 $21,214,735 $249,801,303
Interest bearing liabilities:
- ----------------------------
Time deposits $ 26,234,353 $ 63,509,458 $ 17,434,663 $ 2,284 $107,180,758
Other interest bearing deposits 69,445,774 0 0 0 69,445,774
Borrowings 7,500,000 0 3,000,000 0 10,500,000
----------- ---------- ----------- ------------ -----------
Total interest bearing liabilities $103,180,127 $ 63,509,458 $ 20,434,663 $ 2,284 $187,126,532
Gap summary
Periodic net earning assets ($47,558,221) ($43,187,661) $132,208,202 $ 21,212,451 $ 62,674,771
Cumulative net earnings assets ($47,558,221) ($90,745,882) $41,462,320 $ 62,674,771 $ 62,674,771
Cumulative ratio of earning assets
to interest bearing liabilities 53.91% 45.60% 122.16% 135.94% 133.49%
</TABLE>
The rate sensitivity analysis table is designed to demonstrate Pinnacle's
sensitivity to changes in interest rates by setting forth in comparative form
the repricing of Pinnacle's assets and liabilities for the period shown. A ratio
of greater than 100% of earning assets to interest bearing liabilities (more
interest earning assets repricing in a given period than interest bearing
liabilities) indicates that an increase in interest rates would generally result
in an increase in net income for Pinnacle and a decrease in interest rates will
result in a decrease in net income. Conversely, a ratio less than 100% of
earning assets to interest bearing liabilities (less interest earning assets
repricing in a given period than interest bearing liabilities) indicates that a
decrease in interest rates would generally result in an increase in net income
and an increase in interest rates would result in a decrease in net income.
However, shifts in the structure of interest sensitive assets and liabilities
are made by management in response to interest rate movements. These changes are
made by sale of investment securities with varying maturity ranges and/or by
varying the rates charged on loans and the rates paid on deposits.
29
<PAGE>
Item 7. FINANCIAL STATEMENTS
The financial statements and the independent auditor's report are
included in this report beginning at page F-1 of this Form 10-KSB.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During the Company's two most recent fiscal years, the Company did not
change accountants and had no disagreements with its accountants on any matters
of accounting principle or practices or financial statement disclosure.
30
<PAGE>
PART III.
Item 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS
The directors and executive officers of Pinnacle, their respective
ages, positions with Pinnacle, principal occupations and the Pinnacle common
stock owned beneficially by them as of January 31, 2000 are as follows. None of
Pinnacle's directors have directorships in other publicly owned companies.
Percentages of shares beneficially owned are based on 768,000 shares outstanding
on March 15, 2000.
<TABLE>
<CAPTION>
Number of
Shares Owned (Percent
Name Age Position with Pinnacle Beneficially of Class)
---- --- ---------------------- ------------- ---------
<S> <C> <S> <C> <C>
Maurice Bond 65 Director 896 *
Charles Bradshaw 76 Director 1,600 *
H. Thomas Brown 48 Director 100 *
Anderson Dilworth 70 Director 4,720 *
Linton W. Eberhardt 60 Vice-Chairman & Director 600<F1> *
Don C. Fortson 50 Senior Vice-President & Director 830 *
Ret. Judge William F. Grant 69 Director 5,064 *
Robert H. Hardy 51 Director 224 *
Calvin Hill 67 Director 2,104 *
Robert E. Lee, III 48 Director 400 *
J. Daniel McAvoy, M.D. 49 Director 612 *
L. Jackson McConnell 62 Chairman, Chief 201,323<F2> (26.2%)
Executive Officer & Director
L. Jackson McConnell, Jr. 33 Executive Vice-President 200 *
& Director
James E. Purcell 59 President, Chief Credit Officer 3,400 *
& Director
Steven A. Williams 46 Director 1,832 *
All directors and executive
officers as a group (15 persons) 223,905 (29.2%)
- -----------------
*Less than one percent.
<FN>
<F1> Does not include 193,863 shares held by the JAM Family Partnership II,
L.P. pursuant to which Mr. Eberhardt's wife, Alice Eberhardt has sole
voting and investment power and 300 shares held directly by Mrs.
Eberhardt. Mr. Eberhardt disclaims beneficial ownership with respect to
the shares to which Mrs. Eberhardt has voting power.
<F2> Includes 197,950 shares held by the JAM Family Partnership I, L.P.
pursuant to which Mr. McConnell has sole voting and investment power.
Does not include 333 shares held by Mr. McConnell's wife with respect
to which he disclaims beneficial ownership.
</FN>
</TABLE>
31
<PAGE>
The following is a brief description of the business experience of the
directors and executive officers of Pinnacle. Except as otherwise indicated,
each director has been or was engaged in his present or last principal
employment, in the same or a similar position, for more than five years. All
"Bank" dates are based upon the date of association with either Elberton or
Royston, the predecessors to Pinnacle Bank, N.A. Since 1998, all directors of
the bank have also served as directors of Pinnacle.
Mr. Bond is President and the owner of Bond Realty and has been a
director of the Bank since 1975 and director of Pinnacle since March 1996.
Mr. Bradshaw was the General Administrator of Advocate Press, a
printing company, until his retirement in 1991. He has been the Chairman of the
Board for Emmanuel College since 1979. Mr. Bradshaw has been a director the Bank
since 1969 and has been a director of Pinnacle since March 1996.
Mr. Brown is the CEO/President of Ty Cobb Healthcare System, Inc. in
Royston. He has been a director of the Bank since 1991 and a director of
Pinnacle since March 1996.
Mr. Dilworth is owner of Dill's Food City, a chain of retail grocery
stores. He has been a director of the Bank since 1981 and a director of Pinnacle
since March 1998.
Mr. Eberhardt has been a director of the Bank since 1972. He was the
Chairman, President, and CEO of Royston from 1986 to 1997. He was elected
President and a director of Pinnacle in March 1995 and has been Vice-Chairman of
Pinnacle since March 1997.
Mr. Fortson has been an officer of the Bank since 1975 and Senior Vice-
President since March 1997. He has been a director of the Bank since 1992 and a
director of Pinnacle since March 1998.
Judge Grant is a retired Superior Court Judge and has been a director
of the Bank since 1968. He has been a director of Pinnacle since March 1998.
Mr. Hardy is an owner of J. C. Poole Company, Inc., a retail clothing
and shoe store in Elberton. He has been a director of the Bank since 1991 and a
director of Pinnacle since March 1997.
Mr. Hill is owner of Hillcrest Granite Company, Inc. and has been a
director of the Bank since 1977 and a director of Pinnacle since March 1998.
Mr. Lee is co-owner of Elbert Insurance Agency and has been a director
of the Bank since 1987 and a director of Pinnacle since March 1998.
Dr. McAvoy is a physician in Elberton and has been a director of the
Bank since 1986 and a director of Pinnacle since March 1998.
Mr. L. Jackson McConnell has been Chairman and a director of Pinnacle
since 1983 and Chairman and CEO of the Bank since 1990. Mr. McConnell was also
President of the Bank from 1983 through March 1990. He has been a director of
the Bank since 1963.
32
<PAGE>
Mr. Jackson McConnell, Jr. has been an officer of the Bank since 1994
and has been Executive Vice-President since March 1999. He has been a director
of the Bank since 1994 and a director of Pinnacle since March 1998.
Mr. Purcell has been President of the Bank since 1992 and was
previously Executive Vice- President. He has been a Director of the Bank since
1977 and a director of Pinnacle since 1983. Mr. Williams is owner of Tri-State
Distributors, Inc., a heating and air conditioning wholesale distributing
business. He has been a director of the Bank since March 1997 and a director of
Pinnacle since 1997.
Mr. Eberhardt and Mr. L. Jackson McConnell are brothers-in-law and the
two McConnells are father and son. There are no other family relationships among
the directors of Pinnacle.
Item 10. EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation
paid to the chief executive officer and each executive officer of Pinnacle whose
salary and bonus exceeded $100,000 for fiscal years ending December 31, 1999,
1998, and 1997 (the "Named Executive Officers").
33
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
-------------------
Name and Principal All Other
Position Year Salary($)<F1> Compensation
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
L. Jackson McConnell 1999 $188,177 $28,667 <F3>
Chairman and Chief 1998 $187,963 $28,667 <F4>
Executive Officer 1997 $192,848 (<F2> $28,667 <F5>
James E. Purcell 1999 $172,235 $28,667 <F6>
President and Chief Credit 1998 $164,014 $28,032 <F7>
Officer 1997 $149,657 $25,996 <F8>
Linton W. Eberhardt 1999 $162,718 $27,632 <F9>
Vice Chairman 1998 $164,329 $28,069 <F10>
1997 $129,874 $23,611 <F11>
<FN>
<F1> Includes directors fees.
<F2> Includes salary and directors fees Mr. McConnell received in 1997 as an
officer and director of Royston.
<F3> Includes $28,000 and $667 contributed by Pinnacle to Mr. McConnell's
account in Pinnacle's profit sharing plan and 401-K Plan, respectively.
<F4> Includes $28,000 and $667 contributed by Pinnacle to Mr. McConnell's
account in Pinnacle's profit sharing plan and 401-K Plan, respectively.
<F5> Includes $28,000 and $667 contributed by Pinnacle to Mr. McConnell's
account in Pinnacle's ESOP and 401-K Plan, respectively.
<F6> Includes $28,000 and $667 contributed by Pinnacle to Mr. Purcell's
account in Pinnacle's profit sharing plan
and 401-K Plan, respectively.
<F7> Includes $27,048 and $984 contributed by Pinnacle to Mr. Purcell's
account in Pinnacle's profit sharing plan and 401-K Plan, respectively.
<F8> Includes $23,994 and $2,002 contributed by Pinnacle to Mr. Purcell's
account in Pinnacle's ESOP and 401-K Plan, respectively.
<F9> Includes $27,069 and $563 contributed by Pinnacle to Mr. Eberhardt's
account in Pinnacle's profit sharing plan and 401-K Plan, respectively.
<F10> Includes $27,104 and $965 contributed by Pinnacle to Mr. Eberhardt's
account in Pinnacle's profit sharing plan and 401-K Plan, respectively.
<F11> Includes $21,408 and $2,203 contributed by Pinnacle to Mr. Eberhardt's
account in Pinnacle's ESOP and 401-K Plan, respectively.
</FN>
</TABLE>
34
<PAGE>
Director's Compensation
- -----------------------
Compensation is paid for service as directors of the Bank. No
additional compensation is paid for service as a director of Pinnacle. During
1999 and the last nine months of 1998, directors received a monthly fee of $800.
The directors received a fee of $750 per month during the first three months of
1998.
Salary Continuation Agreement
- -----------------------------
L. Jackson McConnell, Chairman and Chief Executive Officer and a
Director of Pinnacle, James E. Purcell, President and Chief Credit Officer and a
Director of Pinnacle, Linton W. Eberhardt, Vice-Chairman and a Director of
Pinnacle, and Jackson McConnell, Jr., Executive-Vice President and a Director of
Pinnacle, have entered into non-qualified salary continuation agreements (the
"Salary Continuation Plans") with the bank which provides certain benefits upon
their retirement and upon their death. Both the retirement and death benefits
are determined at December 31st of each year based on the income performance of
a single premium split dollar life insurance policy. Generally, the annual
addition to their benefits is calculated based on the increase in the policy
surrender value less a calculated charge for the use of the bank's money to fund
the increase.
The Salary Continuation Plans provides that, upon their retirement at
age 65, the executive officers named above will receive annual retirement
benefits for their lifetime. In addition, the plan provides a death benefit to
their beneficiaries. If the executive officers should be discharged for cause,
all benefits under the Salary Continuation Plan will be forfeited. If the
executive officers are terminated after a change of control of Pinnacle (as
defined in the Salary Continuation Plan), they will be entitled to receive the
death benefits and the retirement benefits after reaching age 65 as if they had
been continually employed by their respective banks until that time. The table
below indicates the value of the death benefits and estimated retirement
benefits, which are dependent upon the income performance of the life insurance
policy, as of December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Estimated Estimated
Death Annual Death Annual
Benefit Retirement Benefit Retirement
Date of Value Benefits Value Benefits
ExecutiveOfficer Agreement 12/31/99 12/31/99 12/31/98 12/31/98
- ----------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
L. Jackson McConnell 10-24-95 $582,675 $28,949 $557,567 $30,947
James E. Purcell 12-16-94 $247,749 $25,834 $236,755 $21,748
Linton W. Eberhardt 11-10-94 $247,472 $18,299 $236,546 $20,212
Jackson McConnell, Jr. 03-19-99 $104,897 $61,496 N/A N/A
</TABLE>
Employment Security Agreement
- -----------------------------
James E. Purcell entered into an employment security agreement with the
bank on June 9, 1999 that provides, among other things, that the bank will
35
<PAGE>
continue to compensate Mr. Purcell at an annual rate of $125,000 from the time
of his retirement from the bank until age 62. No funding under the agreement
occurred in 1999. Mr. Purcell has announced his intention to retire and it is
anticipated such retirement will occur in the second quarter of 2000.
Pinnacle has never granted restricted stock, stock appreciation rights,
or similar awards to any of its present or past executive officers.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Principal Holders of Stock
The following table provides for each person who, to the best
information and knowledge of the Company, beneficially owned 5% or more of the
outstanding shares of Company Stock on March 15, 2000, the following
information: (a) the owner's name and address, (b) the number of shares of
Company Stock owned, and (c) the percentage such number represents of the
outstanding shares of Company Stock. Unless otherwise indicated, the listed
owners are the record owners of and have sole voting and investment powers over
their shares.
Number of Shares
Name and Address of Owned
Beneficial Owner (Percent of Class)
---------------- ---------------------
L. Jackson McConnell 201,123 <F1> (26.2%)
884 Elbert Street
Elberton, Georgia 30635
JAM Family Partnership I, L.P. 197,950 (25.8%)
884 Elbert Street
Elberton, Georgia 30635
Alice Eberhardt 194,163 <F2> (25.3%)
390 Virginia Hills Road
Royston, Georgia 30624
JAM Family Partnership II, L.P. 193,863 (25.2%)
390 Virginia Hills Road
Royston, Georgia 30624
[FN]
<F1> Includes 197,950 shares held by the JAM Family Partnership I, L.P.
pursuant to which Mr. McConnell has sole voting and investment power.
Does not include 333 shares held by Mr. McConnell's wife with respect
to which he disclaims beneficial ownership.
<F1> Includes 193,863 shares held by the JAM Family Partnership II, L.P.
pursuant to which Mrs. Eberhardt has sole voting and investment power.
Does not include 600 shares held by Mrs. Eberhardt's husband with
respect to which he disclaims beneficial ownership.
</FN>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has had, and expects to have in the future, banking
transactions in the ordinary course of business with directors and officers of
36
<PAGE>
Pinnacle and their associates, including corporations in which such officers or
directors are shareholders, directors and/or officers, on the same terms
(including interest rates and collateral) as those prevailing at the time for
comparable transactions with other persons. Such transactions have not involved
more than the normal risk of collectibility or presented other unfavorable
features.
37
<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The registrant submits herewith as exhibits to this report on
Form 10-KSB the exhibits required by Item 601 of Regulation
S-B, subject to Rule 12b-23 under the Securities Exchange Act
of 1934.
Exhibit No. Document
----------- --------
3.1 Articles of Incorporation of Pinnacle, as amended. <F1>
3.2 Bylaws of Pinnacle, as amended. <F1>
4.1 See exhibit 3.1 and 3.2 for provisions of the Articles
of Incorporation and Bylaws which define the rights of
the holders of Common Stock of Pinnacle.
10.1 Flexible Premium Life Insurance Plan. <F1><F2>
10.2 Indexed Executive Salary Continuation Plan. <F1><F2>
10.3 Employment Security Agreement.
21.0 Subsidiaries of Pinnacle Financial Corporation. <F3>
24.0 A Power of Attorney is set forth on the signature pages
to this Form 10-KSB.
27.0 Financial Data Schedule. (for SEC use only)
- ------------------
[FN]
<F1> Incorporated by reference from Pinnacle's Form S-4, filed with the
Securities and Exchange Commission, dated August 16, 1993.
<F2> Management Contract or Compensatory Plan required to be filed as
an exhibit.
<F3> Incorporated by reference from Pinnacle's Form 10-KSB filed with
the Securities and Exchange Commission dated March 30, 1999.
</FN>
(b) Pinnacle did not file any reports on Form 8-K during the fourth
quarter of 1999.
38
<PAGE>
PINNACLE FINANCIAL CORPORATION
AND SUBSIDIARY
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheet dated as of
December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Income for the
years ended December 31, 1999 and 1998 . . . . . . . . . . . . F-3
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1999 and 1998 . . . . . . . . F-4
Consolidated Statements of Cash Flows for the
years ended December 31, 1999 and 1998 . . . . . . . . . . . . F-5
Notes to consolidated financial statements . . . . . . . . . . . F-6 through F-22
</TABLE>
<PAGE>
January 14, 2000
To the Board of Directors and Shareholders
Pinnacle Financial Corporation and Subsidiaries
Elberton, Georgia 30635
Independent Auditor's Report
We have audited the accompanying consolidated balance sheet of Pinnacle
Financial Corporation and Subsidiaries as of December 31, 1999 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years ended December 31, 1999 and 1998. These financial statements
are the responsibility of the corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pinnacle Financial
Corporation and Subsidiaries at December 31, 1999 and the consolidated results
of their operations and their cash flows for the years ended December 31, 1999
and 1998 in conformity with generally accepted accounting principles.
/s/ Whittemore & Smith, LLP
F-1
<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash and due from banks $ 9,418,050
Federal funds sold 430,000
---------------
Total cash and cash equivalents 9,848,050
Securities available for sale 95,100,720
Loans, net of allowance for loan losses of $2,113,735 154,270,583
Premises and equipment 8,145,809
Accrued interest receivable 2,678,597
Other assets 3,033,386
---------------
Total assets $ 273,077,145
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities
Deposits:
Noninterest-bearing $ 41,717,909
Interest-bearing 176,626,532
---------------
Total deposits 218,344,441
Federal Home Loan Bank Advances 10,500,000
Declared dividends payable 1,497,600
Accrued interest and other liabilities 4,274,302
---------------
Total liabilities 234,616,343
---------------
SHAREHOLDERS' EQUITY
- --------------------
Common stock, $10 par value; 5,000,000 shares
authorized, 768,000 shares issued and outstanding 7,680,000
Capital surplus 7,280,000
Retained earnings 25,060,148
Accumulated other comprehensive income (loss) ( 1,559,346)
---------------
Total shareholders' equity 38,460,802
---------------
Total liabilities and shareholders' equity $ 273,077,145
===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest Income
Loans, including fees $ 14,527,573 $ 14,850,838
Securities available for sale 5,799,190 5,440,598
Federal funds sold and other 242,797 385,129
------------- -------------
Total interest income 20,569,560 20,676,565
------------- -------------
Interest expense
Deposits 7,400,198 7,926,755
Borrowings 77,179 -
------------- -------------
Total interest expense 7,477,377 7,926,755
------------- -------------
Net interest income 13,092,183 12,749,810
Provision for loan losses 300,000 225,000
------------- -------------
Net interest income after provision
for loan losses 12,792,183 12,524,810
------------- -------------
Other income
Service charges on deposit accounts 1,319,731 1,298,148
Other service charges and fees 782,650 896,940
Net realized gains on sales of securities
available for sale - 28,254
Other income 194,303 204,445
------------- -------------
Total other income 2,296,684 2,427,787
------------- -------------
Other expenses
Salaries and employee benefits 4,597,725 4,595,496
Occupancy expense 1,204,433 1,109,520
Net realized losses on sales of securities
available for sale 4,089 -
Other expenses 1,918,101 2,177,292
------------- -------------
Total other expenses 7,724,348 7,882,308
------------- -------------
Income before income taxes 7,364,519 7,070,289
Income tax expense 2,289,000 2,141,588
------------- -------------
Net income $ 5,075,519 $ 4,928,701
============= =============
Net income per share of common stock $6.61 $6.42
===== =====
Average shares outstanding 768,000 768,000
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Capital Retained Comprehensive Shareholders'
Stock Surplus Earnings Income (Loss) Equity
----- ------- -------- ------------- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 7,680,000 $ 7,280,000 $ 21,391,928 $ 694,367 $ 37,046,295
-----------
Comprehensive income:
Net income for 1998 4,928,701 4,928,701
Change in unrealized gain (loss) on
securities available for sale,
net of reclassification adjustments
and tax effects 323,913 323,913
-----------
Total comprehensive income 5,252,614
-----------
Cash dividends declared - $2.15 per share (1,651,200) ( 1,651,200)
----------- ----------- ------------ ------------ -----------
Balance, December 31, 1998 7,680,000 7,280,000 24,669,429 1,018,280 40,647,709
-----------
Comprehensive income:
Net income for 1999 5,075,519 5,075,519
Change in unrealized gain (loss) on
securities available for sale,
net of reclassification adjustments
and tax effects ( 2,577,626) ( 2,577,626)
-----------
Total comprehensive income 2,497,893
-----------
Cash dividends declared - $6.10 per share ( 4,684,800) ( 4,684,800)
----------- ----------- ------------ ------------ -----------
Balance, December 31, 1999 $ 7,680,000 $ 7,280,000 $ 25,060,148 $( 1,559,346) $ 38,460,802
=========== =========== ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PINNACLE FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 5,075,519 $ 4,928,701
------------- ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 608,560 550,163
Provision for loan losses 300,000 225,000
(Gain) loss on sale of premises and equipment 18,791 ( 2,302)
Deferred income taxes ( 17,968) ( 63,462)
Net realized (gains) losses on securities
available for sale 4,089 ( 28,254)
Net change in:
Accrued interest receivable and other assets ( 1,209,577) ( 227,729)
Accrued expenses and other liabilities 676,086 1,015,481
------------- ------------
Total adjustments 379,981 1,468,897
------------- ------------
Net cash provided by operating activities 5,455,500 6,397,598
------------- ------------
Cash flows from investing activities
Purchase of securities available for sale ( 36,366,849) ( 38,864,848)
Proceeds from sales of securities available
for sale 8,653,513 1,497,344
Proceeds from maturities, prepayments and calls
of securities available for sale 22,838,187 27,608,521
Net change in loans ( 12,545,526) 38,148
Proceeds from sale of premises and equipment 24,161 33,185
Purchases of premises and equipment ( 160,533) ( 1,565,580)
------------- ------------
Net cash used by investing activities ( 17,557,047) ( 11,253,230)
------------- ------------
Cash flows from financing activities
Net change in deposits ( 2,597,117) 8,653,901
Net change in federal funds purchased - ( 360,000)
Proceeds from borrowings 10,500,000 -
Cash dividends paid ( 3,187,200) ( 1,651,200)
------------- ------------
Net cash provided by financing activities 4,715,683 6,642,701
--------------- ------------
Net change in cash and cash equivalents ( 7,385,864) 1,787,069
Cash and cash equivalents at January 1 17,233,914 15,446,845
------------- ------------
Cash and cash equivalents at December 31 $ 9,848,050 $ 17,233,914
============= ============
Interest paid on deposits and borrowings $ 7,057,025 $ 7,316,086
============= ============
Income taxes paid $ 2,278,269 $ 2,311,965
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting practices of the company conform with
generally accepted accounting principles and general practice within the banking
industry. The following is a summary of the more significant policies:
Nature of operations. Pinnacle Financial Corporation (the Company) is a
--------------------
bank holding company whose principal activity is the ownership and management of
its wholly-owned subsidiary, Pinnacle Bank, N.A. (the Bank). The bank provides a
variety of financial services to individuals and corporate customers through its
eight locations in Northeast Georgia. The bank's primary deposit products
include non-interest and interest-bearing checking accounts, savings accounts,
and certificates of deposit. The bank also offers various lending products with
a substantial portion of the portfolio collateralized by real estate. The bank
operates under a national bank charter and is subject to regulation by the
Office of the Comptroller of the Currency (OCC) and the Federal Deposit
Insurance Corporation.
Basis of Consolidation. 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 and transactions have been eliminated in consolidation.
Use of Estimates. The preparation of financial statements in conformity
----------------
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses and
the valuation of deferred tax assets.
The determination of the adequacy of the allowance for loan losses is
based on estimates that are particularly susceptible to significant changes in
the economic environment and market conditions. In connection with the
determination of the estimated losses on loans, management obtains independent
appraisals for significant collateral.
The bank's loans are generally secured by specific items of collateral
including real property, consumer assets, and business assets. Although the bank
has a diversified loan portfolio, a substantial portion of its debtors' ability
to honor their contracts is dependent on local economic conditions in the
granite and agricultural industries.
While management uses available information to recognize losses on
loans, further reductions in the carrying amounts of loans may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the
estimated losses on loans. Such agencies may require the bank to recognize
additional losses based on their judgments about information available to them
at the time of their examination.
F-6
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Significant Group Concentrations of Credit Risk. Most of the company's
------------------------------------------------
activities are with customers located in the Northeast Georgia area. The company
has significant concentrations, as defined by their regulators, in the granite
and agricultural industries.
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 with
this presentation.
Securities available for sale. Securities available for sale consist of
-----------------------------
all debt securities and certain equity securities not classified as trading
securities nor as held to maturity securities. The company has classified all
debt securities as available for sale. Securities available for sale are carried
at fair value with unrealized gains and losses, net of reclassification
adjustments and tax effects, reported in accumulated other comprehensive income
(loss).
Purchase premiums and discounts are recognized in interest income using
the interest method over the terms of the securities. Declines in the fair value
of available for sale securities below their cost that are deemed to be other
than temporary are reflected in earnings as realized losses. Realized gains
(losses) on the sale of securities available for sale are recorded on the trade
date and are determined using the specific-identification method.
The company's investment policy states that derivative security
instruments will not be purchased. Therefore, the company does not own any
derivative security instruments nor does it participate in any hedging
activities.
Loans. The bank grants agribusiness, commercial, residential and
-----
consumer loans to individuals and a variety of firms and corporations located
primarily in counties of Northeast Georgia. Although the subsidiary bank has a
diversified loan portfolio, a substantial portion of the loan portfolio is
collateralized by improved and unimproved real estate and is dependent upon the
real estate market. Loans are stated at the amount of the unpaid principal
balances reduced by the allowance for loan losses.
Interest on loans is accrued and credited to income based on the
principal amount outstanding. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions and
collection efforts, there is a doubt concerning full collectibility of both
principal and interest. Interest income is subsequently recognized only to the
extent cash payments are received. Loans are returned to accrual status when all
the principal and interest amounts contractually due are brought current and
future payments are reasonably assured.
The effect of the capitalization of loan fees and loan origination
costs has been computed by management and does not have a material impact upon
these financial statements.
F-7
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Allowance for loan losses. The allowance for loan losses is established
-------------------------
as losses are estimated to have occurred through a provision for loan losses
charged to earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of the collectibility
of the loans in light of historical experience, the nature and size of the loan
portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
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. Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified
as impaired. Management determines the significance of payment delays and
payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
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. Substantially all of the company's loans which have
been identified as impaired have been measured by the fair value of existing
collateral (generally real estate).
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the company does not separately identify
individual consumer loans for impairment disclosures.
Off-balance-sheet financial instruments. In the ordinary course of
-----------------------------------------
business, the company has entered into off-balance-sheet financial instruments
consisting of commitments to extend credit, commitments under personal lines of
credit, commercial lines of credit, credit card arrangements, and standby
letters of credit. Such financial instruments are recorded when they are funded.
Premises and equipment. Land is carried at cost. Other premises and
-----------------------
equipment are recorded at cost less accumulated depreciation computed by the
straight line method over the estimated useful lives of the assets. Maintenance
and repairs are expensed as incurred while major additions and improvements are
capitalized.
F-8
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Foreclosed real estate. Real estate properties acquired through
------------------------
foreclosure are initially recorded at the lower of the bank's carrying amount or
fair value less cost to sell, establishing a new cost basis. Any write-downs
based on the asset's fair value at the date of acquisition are charged to the
allowance for loan losses. Costs of significant property improvements are
capitalized. Subsequent to foreclosure, valuations are periodically performed by
management and the assets are adjusted as needed to the lower of carrying amount
or fair value less cost to sell. Income and expenses for foreclosed real estate,
including adjustments to the carrying amount subsequent to foreclosure, are
included in current earnings.
Income taxes. Provisions for income taxes are based on taxes payable or
------------
refundable for the current year (after exclusion of nontaxable income such as
interest on state and municipal securities) and deferred taxes on temporary
differences between the amount of taxable income and pretax financial income.
Deferred income tax 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.
Consolidated federal and state income tax returns are filed for the
holding company and subsidiary and the actual tax liability or benefit is
allocated to each member of the group for the taxable year as would be
determined on a separate return basis in accordance with the executed tax
allocation agreement between the company and its subsidiary. Any carryovers and
carrybacks of tax attributes from separate return years are given full effect in
determining separate company tax liability or benefit if such items are availed
of in reducing the consolidated tax liability of the affiliated group.
Net income per share of common stock. Net income per share of common
--------------------------------------
stock is computed by dividing net income by the weighted average number of
shares of common stock outstanding during the year.
Comprehensive income. The company adopted FAS No. 130, "Reporting
---------------------
Comprehensive Income," as of January 1, 1998. Accounting principles generally
require that recognized revenue, expenses, gains and losses be included in net
income. Although certain changes in assets and liabilities, such as unrealized
gains and losses on available-for-sale securities, are reported as a separate
component of the equity section of the balance sheet, such items, along with net
income, are components of comprehensive income. The adoption of FAS No. 130 had
no effect on the company's net income or shareholders' equity.
The change in unrealized gain (loss) on securities available for sale
and related tax effects are as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1999 1998
---- ----
<S> <C> <C>
Net unrealized gain (loss) on securities
available for sale ($2,497,466) $ 1,670,956
Reclassification adjustment for gains
(losses) realized in income ( 17,608) ( 28,568)
----------- -----------
Net unrealized gains (losses) ( 2,515,074) 1,642,388
Tax effects 955,728 ( 624,108)
----------- -----------
Net-of-tax amount ($1,559,346) $ 1,018,280
=========== ===========
</TABLE>
F-9
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 2 - RESTRICTION ON CASH AND DUE FROM BANKS
The Federal Reserve Bank requires the company to maintain certain
levels of cash on hand or on deposit with the Federal Reserve Bank. The required
cash level at December 31, 1999 and 1998 was $3,803,000 and $2,740,000,
respectively. The company is also required to maintain a minimum deposit with
the Federal Reserve for clearings. The required deposit was $25,000 at December
31, 1999 and 1998.
NOTE 3 - SECURITIES AVAILABLE FOR SALE
The amortized cost and fair value of investment securities, with gross
unrealized gains and losses, are summarized below:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
December 31, 1999:
U.S. Treasury $ 5,761,533 $ 24,748 ($ 17,422) $ 5,768,859
U.S. Government agencies 52,206,081 -- ( 1,728,631) 50,477,450
State and Municipals 19,571,315 170,693 ( 445,196) 19,296,812
Mortgage-backed securities 17,824,729 2,089 ( 481,019) 17,345,799
Other securities 2,252,136 -- ( 40,336) 2,211,800
---------- --------- ----------- -----------
$97,615,794 $ 197,530 ($2,712,604) $95,100,720
========== ========= =========== ===========
December 31, 1998:
U.S. Treasury $13,733,050 $ 387,125 $ -- $14,120,175
U.S. Government agencies 56,509,268 600,719 ( 67,869) 57,042,118
State and Municipals 15,736,579 662,004 ( 7,213) 16,391,370
Mortgage-backed securities 4,203,932 44,641 -- 4,248,573
Other securities 982,069 22,981 -- 1,005,050
---------- --------- ----------- -----------
$91,164,898 $1,717,470 ($ 75,082) $92,807,286
========== ========= =========== ===========
</TABLE>
Other securities include stock in the Federal Home Loan Bank and the
Federal Reserve Bank. The total investments in these stocks at December 31, 1999
and 1998 was $1,223,300 and $448,800, respectively. The stocks are carried at
cost, since they do not have a readily determinable fair value because their
ownership is restricted and lacks a market. These stocks are classified as due
after ten years for contractual maturities.
The amortized cost and fair value of securities by contractual maturity
at December 31, 1999 were as follows:
Amortized Fair
Cost Value
---- -----
Due in one year or less $ 5,148,297 $ 5,163,869
Due after one year through five years 62,921,356 61,256,334
Due after five years through ten years 6,757,438 6,560,160
Due after ten years 4,963,974 4,774,558
---------- ----------
79,791,065 77,754,921
Mortgage-backed securities 17,824,729 17,345,799
---------- ----------
$97,615,794 $95,100,720
========== ==========
F-10
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 3 - SECURITIES AVAILABLE FOR SALE - (CONTINUED)
Actual maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations.
Nontaxable and taxable interest income on securities available for sale
were as follows:
1999 1998
---- ----
Nontaxable $ 894,129 $ 838,274
Taxable 4,905,061 4,602,324
--------- ---------
$5,799,190 $5,440,598
========= =========
For the years ended December 31, 1999 and 1998, proceeds from sales of
securities amounted to $8,653,513 and $1,497,344, respectively. Gross realized
gains amounted to $22,733 and $30,678, respectively. Gross realized losses
amounted to $26,822 and $2,424, respectively.
Securities available for sale, with a carrying value of approximately
$27,770,981 and $28,098,934 at December 31, 1999 and 1998, respectively, were
pledged to secure public deposits and for other purposes required or permitted
by law.
NOTE 4 - LOANS
Components of loans at December 31, 1999 and 1998 were as follows:
1999 1998
---- ----
Commercial $ 19,369,499 $ 22,383,379
Real estate construction 6,602,735 5,017,757
Commercial real estate 61,718,106 48,711,718
Residential real estate 41,693,171 39,521,064
Consumer 27,000,807 28,461,144
----------- -----------
Total loans 156,384,318 144,095,062
Allowance for loan losses ( 2,113,735) ( 2,070,005)
----------- -----------
Net loans $154,270,583 $142,025,057
=========== ===========
The accrual of interest has been discontinued on loans amounting to
$48,641 at December 31, 1999 and $139,087 at December 31, 1998. Unrecorded
interest income on non-accrual loans was $9,267 and $11,851 for 1999 and 1998,
respectively.
F-11
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses follows:
Years Ended December 31
---------------------------
1999 1998
---- ----
Balance at January 1 $2,070,005 $2,038,015
--------- ---------
Loans charged off ( 425,334) ( 332,502)
Recoveries 169,064 139,492
--------- ---------
Net loans charged off ( 256,270) ( 193,010)
Provision for loan losses 300,000 225,000
--------- ---------
Balance at December 31 $2,113,735 $2,070,005
========= =========
Loans having carrying values of $650,741 and $1,718,154 in 1999 and
1998, respectively, have been recognized as impaired. The total allowance for
loan losses related to those loans was $476,752 and $725,820 in 1999 and 1998,
respectively. The average recorded investment in impaired loans during 1999 and
1998 was $1,107,352 and $1,076,924, respectively. Interest income on impaired
loans of $98,230 and $70,062 was recognized for cash payments received in 1999
and 1998, respectively.
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1999 and 1998 were as follows:
1999 1998
---- ----
Land $ 1,302,199 $ 1,270,252
Land improvements 356,073 345,872
Buildings and improvements 5,891,761 5,900,142
Furniture & fixtures 4,438,857 4,727,564
---------- ----------
Total cost 11,988,890 12,243,830
Accumulated depreciation ( 3,843,081) ( 3,607,042)
---------- ----------
Net premises and equipment $ 8,145,809 $ 8,636,788
========== ==========
Depreciation expense included in occupancy expense for 1999 and 1998 was
$608,560 and $550,163, respectively.
F-12
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 7 - OTHER ASSETS AND OTHER LIABILITIES
The components of other assets and other liabilities were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Other assets:
Deferred income taxes $1,412,254 $ --
Cash surrender value of life insurance 1,197,731 1,067,419
Foreclosed real estate 175,434 495,566
Prepaid income tax 96,162 83,138
Other 151,805 185,204
--------- ---------
$3,033,386 $1,831,327
========= =========
Accrued interest and other liabilities:
Deferred income taxes $ -- $ 185,550
Accrued interest payable 2,812,410 2,392,058
Compensation and retirement deferral 525,798 415,152
Other 936,094 605,456
--------- ---------
$4,274,302 $3,598,216
========= =========
</TABLE>
NOTE 8 - DEPOSITS
Deposits by maturity at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Over
0-3 Months 4-12 Months 1-5 Years 5 Years Total
---------- ----------- --------- ------- -----
<S> <C> <C> <C> <C> <C>
Demand deposits, savings
and NOW deposits $111,163,683 $ -- $ -- $ -- $111,163,683
Time deposits under $100,000 19,719,936 46,504,698 15,077,347 2,284 81,304,265
Time deposits over $100,000 6,514,417 17,004,760 2,357,316 -- 25,876,493
----------- ---------- ---------- ---- -----------
$137,398,036 $63,509,458 $17,434,663 $2,284 $218,344,441
=========== ========== ========== ===== ===========
</TABLE>
The amount of demand deposits reclassified as loans was $111,090 and
$245,114 at December 31, 1999 and 1998, respectively.
NOTE 9 - FEDERAL FUNDS PURCHASED
Federal funds purchased generally mature within one to four days from
the transaction date. The company had federal funds purchased for a minimum
number of days during 1999 and 1998. Interest expense in the amount of $5,596
was incurred on these amounts in 1999 and is included with interest expense on
borrowed funds. For 1998, the interest expense on these funds in the amount of
$657 was netted with interest income on federal funds sold.
F-13
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 10 - FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank (FHLB) advances at December 31, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Federal Home Loan Bank Short-Term Advances $ 7,500,000 $ --
Federal Home Loan Bank Callable Advance 3,000,000 --
---------- -----
$10,500,000 $ --
========== =====
</TABLE>
The FHLB advances are secured by the company's investment in FHLB
stock, which totaled $774,500 at December 31, 1999 and also by a blanket
floating lien on portions of the company's loan portfolio.
The short-term advances require monthly interest payments and mature in
2000. Short-term advances of $5,500,000 accrue interest at a floating rate which
reprices daily based on the Federal Funds rate and $2,000,000 accrue interest at
a rate of 5.91%. The callable advance requires quarterly interest payments,
matures in 2004, and accrues interest at a rate of 5.71%. The FHLB may demand
payment on the callable advance beginning in September 2001.
NOTE 11 - OTHER EXPENSES
The major components of other expenses were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Professional fees $ 271,550 $ 442,560
Stationary, supplies and printing expense 196,250 255,521
Advertising and public relations expense 225,126 240,815
Other expenses 1,225,175 1,238,396
--------- ---------
$1,918,101 $2,177,292
========= =========
</TABLE>
NOTE 12 - EMPLOYEE BENEFIT PLANS
401(K) Plan. The company maintains a defined contribution 401(k) profit
sharing plan covering substantially all full-time employees. Employee
contributions to the plan are based on salary levels and are discretionary, but
the maximum employer matching contribution may not exceed 6% of gross salaries
in any year. The plan was amended during 1998 to provide an additional profit
sharing contribution allocated to employees based on four employee classes.
During 1999, the plan was amended to allow participants to borrow from the plan
and to change the entry dates from semi-annually to quarterly. Employer
contribution expense included in salaries and employee benefits for the plan was
$200,486 in 1999 and $226,568 in 1998.
F-14
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 12 - EMPLOYEE BENEFIT PLANS - (CONTINUED)
Employee Stock Ownership Plan. An Employee Stock Ownership Plan (ESOP)
was adopted by the bank in 1992. The ESOP is a non-contributory qualified stock
bonus plan established to accumulate shares of Pinnacle Financial Corporation
common stock in the ESOP trust for the benefit of all eligible employees.
Contributions to the plan are made at the discretion of the Board of Directors.
There were no contributions for the ESOP in 1999 or 1998. As of December 31,
1999, the ESOP had purchased no qualified employer securities.
Executive Retirement Benefits. The bank subsidiary has a non-qualified
executive salary continuation plan which will provide benefits to the Chairman
and Vice-Chairman of the Board of Directors and selected executive officers upon
retirement. This retirement benefit amount will be determined each year using a
life insurance contract indexed as if purchased on the effective date of the
plan. The bank is not required to fund the plan nor obligated to purchase such
life insurance policies.
NOTE 13 - INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1999 1998
---- ----
<S> <C> <C>
Current provision - federal $2,180,578 $2,123,747
Current provision - state 130,294 81,303
Deferred portion ( 21,872) ( 63,462)
--------- ---------
$2,289,000 $2,141,588
========= =========
</TABLE>
The provision for federal income taxes is less than that computed by
applying the federal statutory rate of 34% in 1999 and 1998, as indicated in the
following analysis:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Statutory federal rate 34.0% 34.0%
Increase (decrease) resulting from:
State taxes net of federal tax benefit 1.2% .7%
Tax-exempt income ( 5.1%) ( 4.4%)
Interest and other nondeductible expenses 1.6% 1.1%
Other, net ( .6%) ( 1.1%)
----- -----
31.1% 30.3%
===== =====
</TABLE>
F-15
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 13 - INCOME TAXES - (CONTINUED)
The components of the deferred income tax asset (liability) included in
other assets (liabilities) at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
DEFERRED TAX ASSETS:
Net unrealized loss on securities
available for sale $ 955,728 $ --
Allowance for loan losses 629,747 613,130
Deferred directors' fees and interest 153,371 129,534
Other, net 97,260 94,631
--------- --------
1,836,106 837,295
--------- ---------
DEFERRED TAX LIABILITIES:
Net unrealized gain on securities
available for sale -- 624,108
Depreciation 404,885 380,822
Other, net 18,967 17,915
--------- ---------
423,852 1,022,845
--------- ---------
Net deferred tax asset (liability) $1,412,254 $( 185,550)
========= =========
</TABLE>
NOTE 14 - RELATED-PARTY TRANSACTIONS
In the normal course of business, executive officers and directors of
the company and its bank subsidiary, and certain business organizations and
individuals associated with them, maintain a variety of relationships with the
bank. Such related party transactions were made in the ordinary course of
business on substantially the same terms and conditions, including interest
rates and collateral, as those prevailing at the same time for comparable
transactions with other customers, and did not, in the opinion of management,
involve more than normal credit risk or present other unfavorable features.
Activity in related party loans follows:
Years Ended December 31
-----------------------
1999 1998
---- ----
Balance at January 1 $3,834,451 $3,486,622
New loans 6,935,859 2,808,180
Repayments (4,281,651) (2,460,351)
--------- ---------
Balance at December 31 $6,488,659 $3,834,451
========= =========
The company has also approved lines of credit for directors and
executive officers. These commitments to extend credit for related parties
totaled $3,080,386 and $4,890,549 at December 31, 1999 and 1998, respectively.
The company had deposits of approximately $3,376,190 and $3,452,488 for
related parties at December 31, 1999 and 1998, respectively.
F-16
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 15 - CONTINGENT LIABILITIES
The company is party to litigation and claims arising in the normal
course of business. Management, after consultation with legal counsel, believes
that the liabilities, if any, arising from such litigation and claims will not
be material to the consolidated financial statements.
NOTE 16 - OFF-BALANCE-SHEET ACTIVITIES
The company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financial needs of its
customers. These financial instruments consist of commitments to extend credit,
personal lines of credit, commercial lines of credit, and credit card
arrangements and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the consolidated balance sheet.
The company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for all off-balance sheet
commitments is represented by the contractual amount of those instruments. The
company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
A summary of the company's financial instruments whose contract amounts
represent credit risk at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Commitments to extend credit $ 2,546,260 $ 3,561,294
Credit card arrangements 2,862,217 2,354,855
Undisbursed lines of credit 17,836,666 17,137,046
Standby letters of credit 2,323,044 571,700
Commitment to issue letter of credit -- 1,750,000
---------- -----------
$25,568,187 $25,374,895
========== ==========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future credit exposure or cash requirements. The amount of collateral
obtained, if it is deemed necessary by the company, is based on management's
credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by the
company to guarantee the performance of a customer to a third party. Those
letters of credit are issued to support both public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers. The
company may hold collateral supporting these commitments if deemed necessary.
F-17
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the current amount that
would be exchanged between willing parties, other than in a forced liquidation.
Fair value is best determined based upon quoted market prices. However, in many
instances, there are no quoted market prices for the company's various financial
instruments. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. Accordingly, the fair value
estimates may not be realized in an immediate settlement of the instrument.
Certain financial instruments and all nonfinancial instruments are excluded from
fair value disclosure requirements. Accordingly, the aggregate fair value
amounts presented may not necessarily represent the underlying fair value of the
company.
The estimated fair values, and related carrying amounts, of the
company's financial instruments were as follows ($ in thousands):
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 9,848 $ 9,848 $ 17,234 $ 17,234
Securities available for sale 95,101 95,101 92,807 92,807
Loans, net 154,270 154,414 142,025 142,755
Accrued interest receivable &
other assets 13,858 13,858 13,121 13,121
Financial liabilities:
Deposits $218,344 $207,249 $220,941 $212,840
Borrowings 10,500 10,458 -- --
Accrued interest payable &
other liabilities 5,772 5,772 3,598 3,598
Off-balance-sheet instruments:
Commitments, commercial lines
of credit, and standby
letters of credit $ 47 $ 151
</TABLE>
The following methods and assumptions were used by the company in
estimating fair value disclosures for financial instruments:
Cash and cash equivalents - The carrying amounts of cash and short-term
instruments approximate fair values.
Securities available for sale - Fair values for securities, excluding
Federal Home Loan Bank and Federal Reserve Bank Stock, are based on quoted
market prices. The carrying value of Federal Home Loan Bank and Federal Reserve
Bank Stock approximates fair value based on redemption provisions.
F-18
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
Loans - For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values.
Fair values for certain mortgage loans (e.g., one-to-four family residential),
credit card loans, and other consumer loans are based on quoted market prices of
similar loans sold in conjunction with securitization transactions, adjusted for
differences in loan characteristics. Fair values for commercial real estate and
commercial loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. Fair values for impaired loans are estimated using
discounted cash flow analyses or underlying collateral values, where applicable.
Deposit liabilities - The fair values disclosed for demand deposits
(e.g., interest and noninterest checking, passbook savings, and money market
accounts) are equal to the amount payable on demand at the reporting date (that
is, their carrying amounts). The carrying amounts of variable-rate, fixed-term
certificates of deposit approximate their fair values at the reporting date.
Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits.
Borrowings - The carrying amounts of federal funds purchased and other
short-term borrowings maturing within ninety days approximate their fair values.
The fair values of the company's long-term borrowings are estimated using
discounted cash flow analyses based on the company's current incremental
borrowing rates for similar types of borrowing arrangements.
Accrued interest - The carrying amounts of accrued interest approximate
fair values.
Off-balance-sheet instruments - Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing.
NOTE 18 - REGULATORY MATTERS AND DIVIDEND RESTRICTIONS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
F-19
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 18 - REGULATORY MATTERS AND DIVIDEND RESTRICTIONS - (CONTINUED)
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of total and
Tier I capital to risk-weighted assets, and a leverage ratio of Tier I capital
to average assets. Management believes, as of December 31, 1999, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the Office
of the Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table below. There
are no conditions or events since that notification that management believes
have changed the institution's category.
The Bank's actual capital amounts and ratios are presented in the table
below ($ in thousands):
<TABLE>
<CAPTION>
Minimum
To Be Well
Minimum Capitalized Under
Capital Prompt Corrective
Actual Requirement Action Provisions
------ ----------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total Capital to Risk
Weighted Assets $42,134 23.89% $14,107 8.0% $17,634 10.0%
Tier I Capital to Risk
Weighted Assets 40,020 22.70 7,053 4.0 10,580 6.0
Tier I Capital to Average
Assets 40,020 14.59 10,968 4.0 13,711 5.0
AS OF DECEMBER 31, 1998:
Total Capital to Risk
Weighted Assets $41,647 25.81% $12,911 8.0% $16,139 10.0%
Tier I Capital to Risk
Weighted Assets 39,629 24.56 6,455 4.0 9,683 6.0
Tier I Capital to Average
Average Assets 39,629 14.97 10,585 4.0 13,232 5.0
</TABLE>
Dividends paid by the bank subsidiary are the primary source of funds
available to the company. Statutes and regulations impose restrictions on the
amount of dividends that may be declared by the bank subsidiary without prior
regulatory approval. At December 31, 1999, approximately $11,640,187 of retained
earnings were available for dividend declaration without prior regulatory
approval.
F-20
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 19 - PINNACLE FINANCIAL CORPORATION (PARENT COMPANY ONLY) FINANCIAL
INFORMATION
<TABLE>
<CAPTION>
Balance Sheet
December 31, 1999
-----------------
<S> <C> <C>
Assets
- ------
Cash in subsidiary bank $ 28,638
Securities available for sale 590,119
Investment in subsidiary 37,823,995
Premises and equipment --
Other assets 23,513
Due from subsidiary 1,499,890
----------
$39,966,155
===========
Liabilities and Shareholders' Equity
- ------------------------------------
Accrued expenses $ 7,753
Declared dividends payable 1,497,600
Common stock 7,680,000
Capital surplus 7,280,000
Retained earnings 25,060,148
Accumulated other comprehensive income (loss) ( 1,559,346)
-----------
$39,966,155
===========
Statements of Income
Years ended December 31, 1999 and 1998
--------------------------------------
1999 1998
---- ----
Income:
Dividends from subsidiary $5,037,400 $1,697,200
Interest income - securities available for sale 26,569 14,713
---------- ---------
5,063,969 1,711,913
Expenses:
Other expenses 114,078 115,572
---------- ---------
Income before income taxes and equity in
undistributed income of subsidiary 4,949,891 1,596,341
Income tax benefit 43,000 80,762
--------- ---------
Net income before equity in undistributed
income of subsidiary 4,992,891 1,677,103
Equity in undistributed income of subsidiary 82,628 3,251,598
--------- ---------
Net income $5,075,519 $4,928,701
========= =========
</TABLE>
F-21
<PAGE>
PINNACLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 19 - PINNACLE FINANCIAL CORPORATION (PARENT COMPANY ONLY) FINANCIAL
INFORMATION (CONTINUED)
Statements of Cash Flows
Years ended December 31, 1999 and 1998
--------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 5,075,519 $ 4,928,701
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 12,703 1,901
Deferred income taxes ( 3,769) 863
Equity in undistributed income of
subsidiary ( 82,628) ( 3,251,598)
Net change in:
Other assets ( 3,080) ( 783)
Increase in due from subsidiary ( 1,493,890) ( 6,000)
Accrued expenses 7,151 ( 41,177)
---------- ----------
Net cash provided by operating activities 3,512,006 1,631,907
---------- ----------
Cash flows from investing activities
Other changes in securities available for sale ( 66) ( 64)
Purchase of securities available for sale ( 325,000) --
Proceeds from sale of securities available for sale 5,000 --
---------- ----------
Net cash used by investing activities ( 320,066) ( 64)
---------- ----------
Cash flows from financing activities
Cash dividends paid ( 3,187,200) ( 1,651,200)
---------- ----------
Net cash used by financing activities ( 3,187,200) ( 1,651,200)
---------- ----------
Net change in cash and cash equivalents 4,740 ( 19,357)
Cash and cash equivalents at January 1 23,898 43,255
---------- ----------
Cash and cash equivalents at December 31 $ 28,638 $ 23,898
========== ==========
</TABLE>
F-22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, PINNACLE FINANCIAL CORPORATION has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Elberton, State of Georgia, on the 28th day of March, 2000.
PINNACLE FINANCIAL CORPORATION
Date: March 28, 2000 By: /s/ L. Jackson McConnell
-------------- -------------------------------------------
L. Jackson McConnell
Chairman and Chief Executive Officer
(Principal Executive and Financial Officer)
Date: March 28, 2000 By: /s/ James E. Purcell
-------------- -------------------------------------------
James E. Purcell
President and Chief Credit Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints L. Jackson McConnell or Linton W. Eberhardt and
either of them (with full power in each to act alone), as true and lawful
attorneys-in-fact, with full power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any amendments to this
Registration Statement and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact, or their
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report Statement has been signed by the following persons in the capacities
indicated on the 28th day of March, 2000.
Signature Title
--------- -----
/S/ L. Jackson McConnell Chairman and Chief Executive Officer
- ------------------------- and Director
L. Jackson McConnell
/S/ Linton W. Eberhardt Vice-Chairman and Director
- ------------------------
Linton W. Eberhardt
39
<PAGE>
/S/ James E. Purcell President and Chief Credit Officer
- ------------------------------- and Director
James E. Purcell
/S/ L. Jackson McConnell, Jr. Executive-vice President and Director
- ------------------------------
L. Jackson McConnell, Jr.
/S/ Maurice Bond Director
- ------------------------------
Maurice Bond
Director
- ------------------------------
Charles Bradshaw
/S/ H. Thomas Brown Director
- ------------------------------
H. Thomas Brown
/S/ Steven A. Williams Director
- ------------------------------
Steven A. Williams
Director
- ------------------------------
Anderson Dilworth
/S/ Don C. Fortson Director
- ------------------------------
Don C. Fortson
Director
- ------------------------------
Ret. Judge William F. Grant
/S/ Robert H. Hardy Director
- ------------------------------
Robert H. Hardy
Director
- ------------------------------
Calvin Hill
/S/ Robert E. Lee, III Director
- ------------------------------
Robert E. Lee, III
/S/ J. Daniel McAvoy, M.D. Director
- ------------------------------
J. Daniel McAvoy, M.D.
/S/ H. Thomas Warren III Chief Financial Officer/Principal
- ------------------------------ Accounting Officer
H. Thomas Warren III
40
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page
- ----------- ---------------------- ----
10.3 Employment Security Agreement
24.0 A Power of Attorney is set forth on the signature
pages to this Form 10-K. 39
27.0 Financial Date Schedule (for SEC use only)
EMPLOYMENT SECURITY AGREEMENT
This Employment Security Agreement (the "Agreement") is entered into as
of the 9th day of June, 1999, by and between Pinnacle Bank, N.A., a Georgia
corporation ("Employer"), and James E. Purcell ("Executive").
WITNESSETH:
WHEREAS, Executive is currently employed by Employer as its President;
WHEREAS, Employer desires to provide certain security to Executive in
connection with Executive's employment with Employer; and
WHEREAS, Executive and Employer desire to enter into this Agreement in
order to memorialize their understanding with respect to the economic security
that Employer is providing to Executive with respect to his employment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Term. The term of this Agreement shall be the period beginning on
----
the date first above written and terminating on the date Executive becomes
eligible for early retirement benefits under the federal Social Security program
(presently age 62) (the "Term").
2. Benefits Upon Termination of Employment. If, at any time during the
---------------------------------------
Term, the employment of Executive with Employer is terminated by Employer for
any reason other than Good Cause, by Executive's Voluntary Action, or due to the
Disability of Executive, the following provisions shall apply:
a. Employer shall, during the Severance Period, pay Executive
compensation equal to $125,000.00 annually computed and paid compensation in
monthly or other installments, similar to those being received by Executive as
of the date of this Agreement Such payments shall commence as soon as
practicable following the date of termination of employment
b. Executive shall receive any and all benefits accrued under any
Retirement Plans to the date of termination of employment, the amount, form and
time of payment of such benefits to be determined by the terms of such
Retirement Plans, and Executive's employment shall be deemed to have terminated
by reason of retirement under each such Plan under circumstances that have the
most favorable result for Executive hereunder.
c. For purposes of all Retirement Plans, Executive shall be given
service credit for all purposes for, and shall be deemed to be an Executive of
Employer during, the Severance Period, notwithstanding the fact that he is not
an Executive of Employer or any Affiliate thereof during the Severance Period;
but only to the extent the terms of any such Retirement Plans and applicable law
permit such credit or deemed Executive treatment. It is understood that the
Executive will not be eligible for participation in the Employer's 40 1 (k) Plan
during the Term in any year he does not meet the 500 hours worked requirement.
<PAGE>
d. During the Severance Period, Executive and his spouse will
continue to be covered until Executive is eligible for Medicare coverage
(presently age 65) by all Welfare Plans maintained by Employer in which he or
his spouse were participating immediately prior to the date of his termination,
as if he continued to be an Executive of Employer (the "Welfare Plans
Continuation Coverage"); provided that, if participation in any one or more of
such Welfare Plans is not possible under the terms thereof, Employer will
provide substantially identical benefits. If, however, Executive obtains
employment with another employer during the Severance Period, and Executive and
his spouse are entitled to coverage under the new employer's health and medical
insurance plans, such Welfare Plans Continuation Coverage shall be provided only
to the extent that it exceeds the coverage of any substantially similar plans
provided by his new employer. Should Executive die after payments begin under
this Agreement but before he reaches age 62, health and medical insurance
coverage shall continue for his spouse until she is eligible for Medicare
coverage.
e. During the Severance Period Executive shall not be entitled to
reimbursement for Fringe benefits such as dues and expenses related to club
memberships, and expenses for professional services.
f. Executive's right to continuation of coverage under the Welfare
Plans providing health and medical insurance coverage, pursuant to Section 4980B
of the Internal Revenue Code of 1986, as amended (or any successor thereto),
shall commence at the end of the Severance Period or, if earlier, the
termination of this Agreement or forfeiture by Executive of his rights
hereunder.
3. Setoff.
-------
a. The payments or benefits payable to or with respect to
Executive or his spouse pursuant to this Agreement shall be reduced by the
amount of any claim of Employer against Executive or his spouse or any debt or
obligation of Executive or his spouse owing to Employer.
b. No payments or benefits payable to or with respect to Executive
pursuant to this Agreement shall be reduced by any amount Executive or his
spouse may earn or receive from employment with another employer or from any
other source, except as expressly provided in Sections 7 or 10 or elsewhere in
this Agreement.
4. Death. If Executive dies during the Severance Period, all amounts
-----
payable hereunder to Executive shall cease except as otherwise provided. Any
amounts otherwise payable hereunder after Executive's death shall be paid to his
surviving spouse (or to his estate if his spouse should predecease him).
5. Termination for Good Cause or Executive's Voluntary Action. If the
------------------------------------------------------------
employment of Executive with Employer is terminated for Good Cause or by
Executive's Voluntary Action, Executive's base salary (at the rate in effect on
the date of termination) shall be paid through the date of termination, and
Employer shall have no further obligation to Executive or his spouse under this
Agreement, except for benefits accrued under any Retirement Plans pursuant to
subsection 2(b) above.
6. Definitions. For purposes of this Agreement:
-----------
a. "Affiliate" shall have the meaning set forth in the Securities
Exchange Act
of 1934.
-2-
<PAGE>
b. "Good Cause" shall mean Executive's gross negligence or gross
neglect or his commission of a felony or gross misdemeanor involving moral
turpitude, fraud, dishonesty or willful violation of any law that results in any
adverse effect on the Employer. In the absence of a demonstration of
arbitrariness, the Employer's determination of what constitutes Good Cause in a
particular circumstance shall be final and binding.
Notwithstanding anything herein to the contrary, in the event Employer
shall terminate the employment of Executive for Good Cause hereunder, Employer
shall give at least thirty (30) days prior written notice to Executive
specifying in detail the reason or reasons for Executive's termination
c. "Retirement Plans" shall mean any qualified or supplemental
defined benefit retirement plan or defined contribution retirement plan,
currently or hereinafter made available by Employer in which Executive is
eligible to participate, including the Pinnacle Financial Corporation Employee
Stock Ownership Plan and the Pinnacle Financial Corporation 401 (k) Plan, or any
private retirement arrangement maintained by Employer solely for Executive.
d. "Severance Period" shall mean the period beginning on the date
of termination of Executive's employment under the circumstances described in
Section 2 and ending on the date the Executive becomes eligible for early
retirement benefits under the federal Social Security program.
e. "Welfare Plan" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan or arrangement
currently or hereafter made available by Employer in which Executive is eligible
to participate.
f."Voluntary Action" shall mean Executive's resignation as an
Executive of the Employer or his abandonment of his duties as an Executive of
the Employer, including without limitation his unauthorized absence from work
for a period of three or more days.
g. "Disability" shall mean circumstances that the Employer finds
to constitute the Executive's inability to perform his normal duties with the
Employer as a result of accidental injury or physical or mental illness.
7. Forfeiture. In the event Executive, during the Term, be associated,
directly or indirectly, as Executive, proprietor, stockholder, partner, agent,
representative, officer, or otherwise, with the operation of any business that
is competitive with any business of Employer or its Affiliates within the State
of Georgia, he shall immediately forfeit the right to receive any and all
compensation payable under this Agreement or to enjoy any rights granted
hereunder. Executive's rights under any other agreement, including without
limitation the Retirement Plans, shall not be terminated upon the event of such
forfeiture of rights under this Agreement. Executive's ownership (or that of his
wife and children) of publicly traded securities of any such business, shall not
be considered a violation of this Section. For purposes of the preceding
sentence, Executive shall be considered as the stockholder with respect to any
equity securities owned by his spouse and all relatives and children residing in
Executive's principal residence. Notwithstanding the foregoing, Executive may
participate in the affairs of any governmental, educational or other charitable
institution, may engage in professional speaking and writing activities and may
serve as a member of the board of directors of publicly held
-3-
<PAGE>
corporations so long as the Board of Directors of Employer, in good faith, does
not determine that such activities unreasonably interfere with the business of
Employer or diminish Executive's duties and obligations to Employer, and
Executive shall be entitled to retain all fees, royalties and other compensation
derived from such activities in addition to the compensation and other benefits
otherwise payable to him.
8. No Solicitation of Representatives and Executives. Executive agrees
-------------------------------------------------
that he shall not, during the Severance Period, directly or indirectly, in his
individual capacity or otherwise, induce, cause, persuade, or attempt to do any
of the foregoing in order to cause, any representative, agent or Executive of
Employer or any of its Affiliates to terminate such person's employment
relationship with Employer or any of its Affiliates, or to violate the terms of
any agreement between said representative, agent or Executive and Employer or
any of its Affiliates.
9. Confidentiality. Executive acknowledges that preservation of a
---------------
continuing business relationship between Employer or its Affiliates and their
respective customers, representatives, and Executives is of critical important
to the continued business success of Employer and that it is the active policy
of Employer and its Affiliates to guard as confidential the identity of its
customers, trade secrets, pricing policies business affairs, representatives and
Executives. In view of the foregoing, Executive agrees that he shall not during
the Severance Period, without the prior written consent of Employer (which
consent shall not be withheld unreasonably), disclose to any person or entity
any information concerning the business of, or any customer, representative,
agent or Executive of, Employer or its Affiliates which was obtained by
Executive in the course of his employment by Employer. This section shall not be
applicable if and to the extent Executive is required to testify in a
legislative, judicial or regulatory proceeding pursuant to an order of Congress,
any state or local legislature, a judge, or an administrative law judge.
10. Relief. The following shall apply in the event of a breach or
------
threatened or intended breach by Executive of the covenants and agreements set
forth in any of Paragraphs 8 or 9 above:
a. Employer shall have no further obligations to Executive or any
other person under this Agreement, and all amounts to which Executive or any
other person would otherwise be entitled under this Agreement shall be forfeited
(except as to benefits under the, Retirement Plans).
b. Employer shall be entitled to injunctions, both preliminary and
permanent, enjoining such breach or threatened or intended breach, and Executive
hereby consents to the issuance thereof forthwith in any court of competent
jurisdiction.
c. The taking of any action by Employer or the forbearance of
Employer to take any action with respect to such breach or intended or
threatened breach, shall not constitute a waiver by Employer of any of its
rights to remedies or relief under this Agreement or under law or equity.
11. Employer Assignment. Employer may not assign this Agreement, except
-------------------
that Employer's obligations hereunder shall be binding legal obligations of any
successor to all or substantially all of Employer's business by purchase,
merger, consolidation, or otherwise.
12. Executive Assignment. No interest of Executive or his spouse or any
-------------------
other beneficiary under this Agreement, or any right to receive any payment or
distribution hereunder, shall be subject in any manner to
-4-
sale, transfer, assignment, pledge, attachment, garnishment, or other alienation
or encumbrance of any kind, nor may such interest or right to receive a payment
or distribution be taken, voluntarily or involuntarily, for the satisfaction of
the obligations or debts of, or other claims against, Executive or his spouse or
other beneficiary, including claims for alimony, support, separate maintenance,
and claims in bankruptcy proceedings.
13. Benefits Unfunded. All rights of Executive and his spouse or other
-----------------
beneficiary under this Agreement shall at all times be entirely unfunded, and no
provision shall at any time be made with respect to segregating any assets of
Employer for payment of any amounts due hereunder. Neither Executive nor his
spouse or other beneficiary shall have any interest in or rights against any
specific assets of Employer, and Executive and his spouse or other beneficiary
shall have only -the rights of a general unsecured creditor of Employer.
14. Waiver. No waiver by any party at any time of any breach by any
-----
other party of, or compliance with, any condition or provision of this Agreement
to be performed by any other party shall be deemed a waiver of any other
provisions or conditions at the same time or at any prior or subsequent time.
15. Applicable Law. This Agreement shall be construed and interpreted
---------------
pursuant to the laws of Georgia.
16. Entire Agreement. This Agreement contains the entire Agreement
-----------------
between Employer and Executive and supersedes any and all previous agreements,
written or oral, among the parties relating to the subject matter hereof. No
amendment or modification of the terms of this Agreement shall be binding upon
the parties hereto unless reduced to writing and signed by Employer and
Executive.
17. No Employment Contract. Nothing contained in this Agreement shall
-----------------------
be construed to be an employment contract between Executive and Employer.
Executive is employed at will, and Employer may terminate his employment at any
time, with or without cause.
18. Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original.
19. Severability. In the event any provision of this Agreement is held
------------
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby.
20. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective heirs, representatives and
successors.
21. Notice. Notices required under this Agreement shall be in writing
------
and sent by registered mail, return receipt requested, to the following
addresses or to such other address as the party being notified may have
previously furnished to the others by written notice.
If to Employer: Attention: Chairman of the Board of Directors
Pinnacle Bank, N.A.
884 Elbert Street
Elberton, Georgia 30635
-5-
<PAGE>
If to Executive: James E. Purcell
_____________________________________
_____________________________________
22. Board Approval. The rights and obligations of Employer under this
---------------
Agreement are contingent upon the approval or ratification by its Board of
Directors of the execution of this Agreement on its behalf.
IN WITNESS WHEREOF, Executive has hereunto set his hand, and
Employer has caused these presents to be executed in its name on its behalf, all
as of the day and year first above written.
EXECUTIVE
/s/ James E. Purcell (SEAL)
------------------------------
James E. Purcell
PINNACLE BANK, N.A.
By: /s/ L. Jackson McConnell
---------------------------------
Title: Chairman
---------------------------
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000910678
<NAME> PINNACLE FINANCIAL CORPORATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,418,050
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 430,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 95,100,720
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<LOANS> 154,270,583
<ALLOWANCE> 2,113,735
<TOTAL-ASSETS> 273,077,145
<DEPOSITS> 218,344,441
<SHORT-TERM> 7,500,000
<LIABILITIES-OTHER> 5,771,902
<LONG-TERM> 3,000,000
0
0
<COMMON> 7,680,000
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<TOTAL-LIABILITIES-AND-EQUITY> 273,077,145
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<INTEREST-OTHER> 242,797
<INTEREST-TOTAL> 20,569,560
<INTEREST-DEPOSIT> 7,400,198
<INTEREST-EXPENSE> 7,477,377
<INTEREST-INCOME-NET> 13,092,183
<LOAN-LOSSES> 300,000
<SECURITIES-GAINS> (4,089)
<EXPENSE-OTHER> 7,724,348
<INCOME-PRETAX> 7,364,519
<INCOME-PRE-EXTRAORDINARY> 7,364,519
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,075,319
<EPS-BASIC> 6.61
<EPS-DILUTED> 6.61
<YIELD-ACTUAL> 8.5
<LOANS-NON> 48,641
<LOANS-PAST> 237,571
<LOANS-TROUBLED> 188,835
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<CHARGE-OFFS> 425,334
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