##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

þ     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2002

OR

(BOX)     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _______ to _______

Commission File No: 000-31225

Pinnacle Financial Partners, Inc.




(Exact name of registrant as specified in its charter)


|                                                         |  |                                                          |  |                                     
|-------------------------------------------------------- |  | -------------------------------------------------------- |  | ------------------------------------
|Tennessee                                                |  | 6711                                                     |  | 62-1812853                          
|                                                         |  |                                                          |  |                                     
|(State or jurisdiction of
incorporation or organization) |  | (Primary Standard Industrial
Classification Code Number) |  | (I.R.S. Employer Identification No.)

The Commerce Center, 211 Commerce Street, Suite 300, Nashville, Tennessee 37201




(Address of principal executive offices)


(615) 744-3700




(Issuers telephone number)


Not Applicable




(Former name, former address


and former fiscal year,


if changed since last report)


Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

YES   þ       NO   (BOX)

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date:
2,312,053 shares of common stock, $1.00 par value per share, issued and
outstanding as of May 14, 2002.

Transitional Small Business Disclosure Format (check one): YES (BOX)  
NO þ





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TABLE OF CONTENTS



|                           |                                                                                                |                                            |  |  |  |  |  | 
|-------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I:                   
|                           | Item 1. Consolidated Financial Statements.                                                    
|                           |                                                                                                | Consolidated Balance Sheets               
|                           |                                                                                                | Consolidated Statements of Operations     
|                           |                                                                                                | Consolidated Statements of Cash Flows     
|                           |                                                                                                | Notes to Consolidated Financial Statements
|                           | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|PART II. OTHER INFORMATION
|                           | Item 1. Legal Proceedings.                                                                    
|                           | Item 2. Change in Securities and Use of Proceeds.                                             
|                           | Item 3. Defaults Upon Senior Securities.                                                      
|                           | Item 4. Submission of Matters to a Vote of Security Holders.                                  
|                           | Item 5. Other Information.                                                                    
|                           | Item 6. Exhibits and Reports on Form 8-K.                                                     
|Signatures                
|Exhibit Index             
|EXHIBIT INDEX             



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##### Table of Contents



Pinnacle Financial Partners, Inc.

Report on Form 10-QSB
March 31, 2002

TABLE OF CONTENTS

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|           |                                                                                    |            | Balance Sheets as of March 31, 2002 and December 31, 2001                   |    |          | 3 | 
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|           | Item 2. Managements Discussion and Analysis of Financial Condition and Results of |            |                                                                             | 13 |         
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|PART II:   |                                                                                    |            |                                                                             |   
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|           | Item 1. Legal Proceedings                                                          |            |                                                                             | 29 |         
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|           | Item 2. Change in Securities and Use of Proceeds                                   |            |                                                                             | 29 |         
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|           | Item 3. Defaults Upon Senior Securities                                            |            |                                                                             | 29 |         
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|           | Item 4. Submission of Matters to a Vote of Security Holders                        |            |                                                                             | 29 |         
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|           | Item 5. Other Information                                                          |            |                                                                             | 29 |         
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|           | Item 6. Exhibits and Reports on Form 8-K                                           |            |                                                                             | 29 |         
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|Signatures |                                                                                    |            | 30                                                                          |   

FORWARD-LOOKING STATEMENTS

The Company may from time to time make written or oral statements, including
statements contained in this report which may constitute forward-looking
statements within the meaning of Section 27A of the Securities Exchange Act of
1934 (the Exchange Act). The words expect, anticipate, intend, plan,
believe, seek, estimate, and similar expressions are intended to identify
such forward-looking statements, but other statements may constitute
forward-looking statements. These statements should be considered subject to
various risks and uncertainties. Such forward-looking statements are made
based upon managements belief as well as assumptions made by, and information
currently available to, management pursuant to safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The Companys actual results
may differ materially from the results anticipated in forward-looking
statements due to a variety of factors, including governmental monetary and
fiscal policies, deposit levels, loan demand, loan collateral values,
securities portfolio values, interest rate risk management, the effects of
competition in the banking business from other commercial banks, thrifts,
mortgage banking firms, consumer finance companies, credit unions, securities
brokerage firms, insurance companies, money market funds and other financial
institutions operating in the Companys market area and elsewhere, including
institutions operating through the Internet, changes in governmental regulation
relating to the banking industry, including regulations relating to branching
and acquisitions, failure of assumptions underlying the establishment of
reserves for loan losses, including the value of collateral underlying
delinquent loans and other factors. The Company cautions that such factors are
not exclusive. The Company does not intend to update or reissue any
forward-looking statements contained in this report as a result of new
information or other circumstances that may become known to the Company.

Page 2



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##### Table of Contents












PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS  UNAUDITED

|                                                                       |                                                                                               |                                            |             |             |             |              |             |             |             | 
|---------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------- | ----------- | ----------- | ------------ | ----------- | ----------- | ----------- | 
|                                                                       |                                                                                               |                                            |             | March 31,   |             | December 31,
|                                                                       |                                                                                               |                                            |             | 2002        |             | 2001        
|                                                                       |                                                                                               |                                            |             |             |             |             
|ASSETS                                                                
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Cash and due from banks                                                |                                                                                               | $                                          | 7,828,588   |             |             | $            | 5,686,226   |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Federal funds sold and securities purchased under
agreements to resell |                                                                                               |                                            | 6,671,258   |             |             |              | 8,895,850   |            
|                                                                       |                                                                                               |                                            |             |             |             |              |             |            
|                                                                       | Cash and cash equivalents                                                                     |                                            |             | 14,499,846  |             |              |             | 14,582,076  |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Securities available-for-sale, at fair value                           |                                                                                               |                                            | 20,302,381  |             |             |              | 19,885,834  |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Loans                                                                  |                                                                                               |                                            | 151,279,913 |             |             |              | 134,439,642 |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Less allowance for loan losses                                         |                                                                                               |                                            | (2,041,000  | )           |             |              | (1,832,000  | )          
|                                                                       |                                                                                               |                                            |             |             |             |              |             |            
|                                                                       | Loans, net                                                                                    |                                            |             | 149,238,913 |             |              |             | 132,607,642 |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Premises and equipment, net                                            |                                                                                               |                                            | 3,339,680   |             |             |              | 3,418,463   |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Other assets                                                           |                                                                                               |                                            | 5,095,611   |             |             |              | 4,945,346   |            
|                                                                       |                                                                                               |                                            |             |             |             |              |             |            
|                                                                       |                                                                                               | Total assets                               |             | $           | 192,476,431 |              |             | $           | 175,439,361 | 
|                                                                       |                                                                                               |                                            |             |             |             |              |             |            
|LIABILITIES AND STOCKHOLDERS EQUITY                                  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Deposits:                                                              |                                                                                               |                                            |             |             |             |              |             |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Noninterest-bearing demand                                                                    |                                            | $           | 15,742,312  |             |              | $           | 16,860,835  |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Interest-bearing demand                                                                       |                                            |             | 10,533,243  |             |              |             | 8,615,076   |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Savings and money market accounts                                                             |                                            |             | 49,704,371  |             |              |             | 54,077,238  |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Time                                                                                          |                                            |             | 73,480,085  |             |              |             | 53,705,902  |            
|                                                                       |                                                                                               |                                            |             |             |             |              |             |            
|                                                                       |                                                                                               | Total deposits                             |             |             | 149,460,011 |              |             |             | 133,259,051 | 
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Securities sold under agreements to repurchase                         |                                                                                               |                                            | 10,223,467  |             |             |              | 14,657,693  |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Federal Home Loan Bank advances                                        |                                                                                               |                                            | 11,500,000  |             |             |              | 8,500,000   |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Federal funds purchased                                                |                                                                                               |                                            | 2,500,000   |             |             |              |            |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Other liabilities                                                      |                                                                                               |                                            | 620,998     |             |             |              | 731,815     |            
|                                                                       |                                                                                               |                                            |             |             |             |              |             |            
|                                                                       |                                                                                               | Total liabilities                          |             |             | 174,304,476 |              |             |             | 157,148,559 | 
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Commitments and contingent liabilities                                 |                                                                                               |                                            |             |             |             |              |             |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Stockholders equity:                                                  |                                                                                               |                                            |             |             |             |              |             |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Preferred stock, no par value; 10,000,000 shares
authorized; no shares issued and outstanding |                                            |             |            |             |              |             |            |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Common stock, par value $1.00; 10,000,000 shares
authorized; 2,312,053 issued and outstanding |                                            |             | 2,312,053   |             |              |             | 2,312,053   |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Additional paid-in capital                                                                    |                                            |             | 19,317,947  |             |              |             | 19,317,947  |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Accumulated deficit                                                                           |                                            |             | (3,347,270  | )           |              |             | (3,391,854  | )          
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Accumulated other comprehensive income (loss), net                                            |                                            |             | (110,775    | )           |              |             | 52,656      |            
|                                                                       |                                                                                               |                                            |             |             |             |              |             |            
|                                                                       |                                                                                               | Total stockholders equity                 |             |             | 18,171,955  |              |             |             | 18,290,802  | 
|                                                                       |                                                                                               |                                            |             |             |             |              |             |            
|                                                                       |                                                                                               | Total liabilities and stockholders equity |             | $           | 192,476,431 |              |             | $           | 175,439,361 | 
|                                                                       |                                                                                               |                                            |             |             |             |              |             |            

See accompanying notes to consolidated financial statements.

Page 3



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##### Table of Contents






PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITED

For the three months ended March 31, 2002 and 2001

|                                                    |                                                                                                                                                                       |                           |           |           |           |      |            |           |           | 
|--------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | --------- | --------- | --------- | ---- | ---------- | --------- | --------- | 
|                                                    |                                                                                                                                                                       |                           |           | 2002      |           | 2001
|                                                    |                                                                                                                                                                       |                           |           |           |           |     
|Interest income:                                    |                                                                                                                                                                       |                           |           |           |           |      |            |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Loans, including fees                                                                                                                                                 |                           | $         | 2,277,196 |           |      | $          | 511,450   |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Taxable securities                                                                                                                                                    |                           |           | 274,222   |           |      |            | 171,872   |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Federal funds sold and securities purchased under
agreements to resell                                                                                                |                           |           | 19,688    |           |      |            | 105,801   |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other                                                                                                                                                                 |                           |           | 14,474    |           |      |            | 7,955     |          
|                                                    |                                                                                                                                                                       |                           |           |           |           |      |            |          
|                                                    |                                                                                                                                                                       | Total interest income     |           |           | 2,585,580 |      |            |           | 797,078   | 
|                                                    |                                                                                                                                                                       |                           |           |           |           |      |            |          
|Interest expense:                                   |                                                                                                                                                                       |                           |           |           |           |      |            |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Deposits                                                                                                                                                              |                           |           | 796,126   |           |      |            | 336,631   |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Securities sold under agreements to repurchase                                                                                                                        |                           |           | 21,611    |           |      |            | 13,397    |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Federal funds purchased and other borrowings                                                                                                                          |                           |           | 73,668    |           |      |            |          |          
|                                                    |                                                                                                                                                                       |                           |           |           |           |      |            |          
|                                                    |                                                                                                                                                                       | Total interest expense    |           |           | 891,405   |      |            |           | 350,028   | 
|                                                    |                                                                                                                                                                       |                           |           |           |           |      |            |          
|                                                    |                                                                                                                                                                       | Net interest income       |           |           | 1,694,175 |      |            |           | 447,050   | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|Provision for loan losses                           |                                                                                                                                                                       |                           | 209,000   |           |           |      | 362,622    |          
|                                                    |                                                                                                                                                                       |                           |           |           |           |      |            |          
|Net interest income after provision for loan losses |                                                                                                                                                                       |                           | 1,485,175 |           |           |      | 84,428     |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|Noninterest income:                                 |                                                                                                                                                                       |                           |           |           |           |      |            |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Service charges on deposit accounts                                                                                                                                   |                           |           | 53,640    |           |      |            | 4,763     |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Investment sales commissions                                                                                                                                          |                           |           | 181,510   |           |      |            | 164,469   |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Gain on sale of participations sold                                                                                                                                   |                           |           | 19,773    |           |      |            |          |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other noninterest income                                                                                                                                              |                           |           | 36,727    |           |      |            | 13,574    |          
|                                                    |                                                                                                                                                                       |                           |           |           |           |      |            |          
|                                                    |                                                                                                                                                                       | Total noninterest income  |           |           | 291,650   |      |            |           | 182,806   | 
|                                                    |                                                                                                                                                                       |                           |           |           |           |      |            |          
|Noninterest expense:                                |                                                                                                                                                                       |                           |           |           |           |      |            |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Salaries and employee benefits                                                                                                                                        |                           |           | 1,108,312 |           |      |            | 1,079,630 |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Equipment and occupancy                                                                                                                                               |                           |           | 340,871   |           |      |            | 262,191   |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Marketing and other business development                                                                                                                              |                           |           | 45,898    |           |      |            | 40,595    |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Administrative                                                                                                                                                        |                           |           | 98,803    |           |      |            | 82,530    |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Postage and supplies                                                                                                                                                  |                           |           | 54,914    |           |      |            | 24,817    |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other operating                                                                                                                                                       |                           |           | 56,116    |           |      |            | 59,083    |          
|                                                    |                                                                                                                                                                       |                           |           |           |           |      |            |          
|                                                    |                                                                                                                                                                       | Total noninterest expense |           |           | 1,704,914 |      |            |           | 1,548,846 | 
|                                                    |                                                                                                                                                                       |                           |           |           |           |      |            |          
|Income (loss) before income taxes                   |                                                                                                                                                                       |                           | 71,911    |           |           |      | (1,281,612 | )        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Income tax expense                                                                                                                                                    |                           |           | 27,327    |           |      |            |          |          
|                                                    |                                                                                                                                                                       |                           |           |           |           |      |            |          
|Net income (loss)                                   |                                                                                                                                                                       | $                         | 44,584    |           |           | $    | (1,281,612 | )        
|                                                    |                                                                                                                                                                       |                           |           |           |           |      |            |          
|Per share information:                              |                                                                                                                                                                       |                           |           |           |           |      |            |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Basic net income (loss) per common share  based on
2,312,053 weighted average shares outstanding in 2002 and
1,910,000 weighted average shares outstanding in 2001   |                           | $         | 0.02      |           |      | $          | (0.67     | )        
|                                                    |                                                                                                                                                                       |                           |           |           |           |      |            |          
|                                                    | Diluted net income (loss) per common share  based on
2,318,887 weighted average shares outstanding in 2002 and
1,910,000 weighted average shares outstanding in 2001 |                           | $         | 0.02      |           |      | $          | (0.67     | )        
|                                                    |                                                                                                                                                                       |                           |           |           |           |      |            |          

See accompanying notes to consolidated financial statements.

Page 4



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##### Table of Contents






PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED

For the three months ended March 31, 2002 and 2001

|                         |                                                                                                    |                                                     |                                                               |             |             |         |      |             |             |          |  
|------------------------ | -------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------------------------------- | ----------- | ----------- | ------- | ---- | ----------- | ----------- | -------- | -
|                         |                                                                                                    |                                                     |                                                               |             | 2002        |         | 2001
|                         |                                                                                                    |                                                     |                                                               |             |             |         |     
|Operating activities:    |                                                                                                    |                                                     |                                                               |             |             |         |      |            
|                        
|                        
|                        
|                        
|                         | Net income (loss)                                                                                  |                                                     | $                                                             | 44,584      |             |         | $    | (1,281,612  | )          
|                        
|                        
|                        
|                        
|                         | Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities: |                                                     |                                                               |             |             |         |      |             |            
|                        
|                        
|                        
|                        
|                         |                                                                                                    |                                                     | Net amortization (accretion) of available-for-sale
securities |             |             | 23,875  |      |             |             | (28,510  | )
|                        
|                        
|                        
|                        
|                         |                                                                                                    |                                                     | Depreciation and amortization                                 |             |             | 167,438 |      |             |             | 145,622  |  
|                        
|                        
|                        
|                        
|                         |                                                                                                    |                                                     | Provision for loan losses                                     |             |             | 209,000 |      |             |             | 362,622  |  
|                        
|                        
|                        
|                        
|                         |                                                                                                    |                                                     | Gain on participations sold                                   |             |             | (19,773 | )    |             |             |         |  
|                        
|                        
|                        
|                        
|                         |                                                                                                    |                                                     | Deferred tax expense                                          |             |             | 27,327  |      |             |             |         |  
|                        
|                        
|                        
|                        
|                         |                                                                                                    |                                                     | Increase in other assets                                      |             |             | (65,062 | )    |             |             | (174,529 | )
|                        
|                        
|                        
|                        
|                         |                                                                                                    |                                                     | Decrease in other liabilities                                 |             |             | (22,815 | )    |             |             | (10,995  | )
|                         |                                                                                                    |                                                     |                                                               |             |             |         |      |            
|                         |                                                                                                    | Net cash provided by (used in) operating activities |                                                               |             | 364,574     |         |      |             | (987,402    | )       
|                         |                                                                                                    |                                                     |                                                               |             |             |         |      |            
|Investing activities:    |                                                                                                    |                                                     |                                                               |             |             |         |      |            
|                        
|                        
|                        
|                        
|                         | Activities in securities available-for-sale:                                                       |                                                     |                                                               |             |             |         |      |             |            
|                        
|                        
|                        
|                        
|                         |                                                                                                    | Purchases                                           |                                                               |             | (2,015,313  | )       |      |             | (5,357,577  | )       
|                        
|                        
|                        
|                        
|                         |                                                                                                    | Maturities, prepayments and calls                   |                                                               |             | 1,323,458   |         |      |             |            |         
|                        
|                        
|                        
|                        
|                         | Net increase in loans                                                                              |                                                     |                                                               | (16,840,271 | )           |         |      | (29,385,450 | )          
|                        
|                        
|                        
|                        
|                         | Purchases of premises and equipment and software                                                   |                                                     |                                                               | (33,212     | )           |         |      | (197,381    | )          
|                        
|                        
|                        
|                        
|                         | Purchases of other assets                                                                          |                                                     |                                                               | (148,200    | )           |         |      |            |            
|                         |                                                                                                    |                                                     |                                                               |             |             |         |      |            
|                         |                                                                                                    | Net cash used in investing activities               |                                                               |             | (17,713,538 | )       |      |             | (34,940,408 | )       
|                         |                                                                                                    |                                                     |                                                               |             |             |         |      |            
|Financing activities:    |                                                                                                    |                                                     |                                                               |             |             |         |      |            
|                        
|                        
|                        
|                        
|                         | Net increase in deposits                                                                           |                                                     |                                                               | 16,200,960  |             |         |      | 24,746,514  |            
|                        
|                        
|                        
|                        
|                         | Net increase (decrease) in repurchase agreements                                                   |                                                     |                                                               | (4,434,226  | )           |         |      | 3,541,785   |            
|                        
|                        
|                        
|                        
|                         | Advance from Federal Home Loan Bank                                                                |                                                     |                                                               | 3,000,000   |             |         |      |            |            
|                        
|                        
|                        
|                        
|                         | Increase in Federal funds purchased                                                                |                                                     |                                                               | 2,500,000   |             |         |      |            |            
|                         |                                                                                                    |                                                     |                                                               |             |             |         |      |            
|                         |                                                                                                    | Net cash provided by financing activities           |                                                               |             | 17,266,734  |         |      |             | 28,288,299  |         
|                         |                                                                                                    |                                                     |                                                               |             |             |         |      |            
|                         |                                                                                                    | Net decrease in cash and cash equivalents           |                                                               |             | (82,230     | )       |      |             | (7,639,511  | )       
|                        
|                        
|                        
|                        
|                         |                                                                                                    | Cash and cash equivalents, beginning of period      |                                                               |             | 14,582,076  |         |      |             | 15,188,462  |         
|                         |                                                                                                    |                                                     |                                                               |             |             |         |      |            
|                         |                                                                                                    | Cash and cash equivalents, end of period            |                                                               | $           | 14,499,846  |         |      | $           | 7,548,951   |         
|                         |                                                                                                    |                                                     |                                                               |             |             |         |      |            
|Supplemental disclosure: |                                                                                                    |                                                     |                                                               |             |             |         |      |            
|                        
|                        
|                        
|                        
|                         | Cash paid for interest                                                                             |                                                     | $                                                             | 829,929     |             |         | $    | 300,925     |            
|                         |                                                                                                    |                                                     |                                                               |             |             |         |      |            
|                         | Cash paid for income taxes                                                                         |                                                     | $                                                             |            |             |         | $    |            |            
|                         |                                                                                                    |                                                     |                                                               |             |             |         |      |            

See accompanying notes to consolidated financial statements.

Page 5



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##### Table of Contents






PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




NATURE
OF BUSINESS  Pinnacle Financial Partners, Inc. (the Parent) is a bank
holding company whose business is conducted by its wholly-owned
subsidiary, Pinnacle National Bank (the Bank). The Parent and the Bank
are collectively referred to as the Company. The Bank is a commercial
bank located in Nashville, Tennessee. The Bank provides a full range of
banking services in its primary market area of Davidson County and the
surrounding counties.





BASIS OF PRESENTATION  These unaudited consolidated financial statements
include the accounts of the Company. Significant intercompany transactions
and accounts are eliminated in consolidation.




| |  | The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-QSB. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month
period ended March 31, 2002 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2002. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Companys Form 10-KSB for the fiscal year ended
December 31, 2001 as filed with the Securities and Exchange Commission.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




USE OF ESTIMATES  The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities as of the balance sheet date 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 valuation of deferred
income tax assets.





EARNINGS
(LOSS) PER COMMON SHARE  Basic earnings (loss) per share (EPS) is
computed by dividing net income (loss) by the weighted average common shares outstanding for the period. Diluted EPS reflects the dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted.




| |  | The basic EPS information was computed based on weighted average shares
outstanding for the three months ended March 31, 2002 of 2,312,053. The
diluted EPS information for the three months ended March 31, 2002 was
computed based on weighted average shares outstanding of 2,318,887. The
difference in number of shares outstanding between basic and diluted
weighted average shares outstanding of 6,834 shares was attributable to
common stock options whose exercise price at March 31, 2002 was less than
the weighted average market price of the Companys common stock for the
period. Common stock equivalents (options and warrants) representing the
right to acquire 514,350 shares of common stock were excluded from the
diluted EPS calculation in 2002 because they were anti-dilutive.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The basic and diluted EPS information for the three months ended March 31,
2001 was computed based on weighted average shares outstanding of 1,910,000.
On October 26, 2001, the Company issued an additional 402,053 shares in
connection with a private placement of its common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     




COMPREHENSIVE
INCOME (LOSS)  Statement of Financial Accounting Standards
(SFAS) No. 130, Reporting Comprehensive Income describes comprehensive
income as the total of all components of comprehensive income including
net income. Other comprehensive income refers to revenues, expenses, gains
and losses that under generally accepted accounting principles are
included in comprehensive income but excluded from net income. Currently,
the Companys other comprehensive income (loss) consists solely of
unrealized gains and losses, net of deferred income


Page 6



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##### Table of Contents



PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



| |  | taxes, on available-for-sale securities. Other comprehensive loss for the
three months ended March 31, 2002 was $163,000 compared to net comprehensive
income for the three months ended March 31, 2001 was $95,000.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




RECLASSIFICATIONS Certain amounts for the first quarter of 2001 have been
reclassified to conform to the 2002 presentation. Such reclassifications
had no impact on net income or loss during either period.


NOTE 2. SECURITIES AVAILABLE-FOR-SALE




The amortized cost and fair value of securities available-for-sale at
March 31, 2002 and December 31, 2001 are summarized as follows:


|                                                   |                                                 |                                       |            |           |            |            |         |            |        |       |          |   |          |   |            |   |            | 
|-------------------------------------------------- | ----------------------------------------------- | ------------------------------------- | ---------- | --------- | ---------- | ---------- | ------- | ---------- | ------ | ----- | -------- | - | -------- | - | ---------- | - | ---------- | 
|                                                   |                                                 |                                       |            |           |            |            |         | Gross      |        | Gross |          |   |          |  
|                                                   |                                                 |                                       |            | Amortized |            | Unrealized |         | Unrealized |        | Fair 
|                                                   |                                                 |                                       |            | Cost      |            | Gains      |         | Losses     |        | Value
|                                                   |                                                 |                                       |            |           |            |            |         |            |        |      
|                                                   | Securities available-for-sale  March 31, 2002: |                                       |            |           |            |            |         |            |        |       |          |   |          |   |            |   |           
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                 | U.S. government and agency securities |            | $         | 5,007,204  |            |         | $          | 29,605 |       |          | $ | (8,996   | ) |            | $ | 5,027,813  | 
|                                                   |                                                 | Mortgage-backed securities            |            |           | 15,465,600 |            |         |            | 37,380 |       |          |   | (228,412 | ) |            |   | 15,274,568 | 
|                                                   |                                                 | State and municipal securities        |            |           |           |            |         |            |       |       |          |   |         |   |            |   |           | 
|                                                   |                                                 |                                       |            |           |            |            |         |            |        |       |          |   |          |   |            |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                 | $                                     | 20,472,804 |           |            | $          | 66,985  |            |        | $     | (237,408 | ) |          | $ | 20,302,381 |  
|                                                   |                                                 |                                       |            |           |            |            |         |            |        |       |          |   |          |   |            |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                 |                                       |            |           |            |            |         |            |        |       |          |   |          |   |            |  
|                                                  
|                                                  
|                                                  
|                                                  
|Securities available-for-sale  December 31, 2001: |                                                 |                                       |            |           |            |            |         |            |        |       |          |   |          |   |            |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                 | U.S. government and agency securities |            | $         | 2,991,784  |            |         | $          | 72,328 |       |          | $ |         |   |            | $ | 3,064,112  | 
|                                                   |                                                 | Mortgage-backed securities            |            |           | 16,813,040 |            |         |            | 97,011 |       |          |   | (88,329  | ) |            |   | 16,821,722 | 
|                                                   |                                                 | State and municipal securities        |            |           |           |            |         |            |       |       |          |   |         |   |            |   |           | 
|                                                   |                                                 |                                       |            |           |            |            |         |            |        |       |          |   |          |   |            |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                 | $                                     | 19,804,824 |           |            | $          | 169,339 |            |        | $     | (88,329  | ) |          | $ | 19,885,834 |  
|                                                   |                                                 |                                       |            |           |            |            |         |            |        |       |          |   |          |   |            |  




The Company realized no gains or losses from the sale of securities as no
such transactions occurred during the three months ended March 31, 2002 or
during the year ended December 31, 2001. At March 31, 2002, approximately
$18,118,000 of the Companys available for sale portfolio was pledged to
secure public fund deposits and securities sold under agreements to
repurchase.


NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES




The composition of loans at March 31, 2002 and December 31, 2001 is
summarized as follows:


|                                      |  |                |             |                   |  |   |             |  
|------------------------------------- |  | -------------- | ----------- | ----------------- |  | - | ----------- | -
|                                      |  | March 31, 2002 |             | December 31, 2001
|                                      |  |                |             |                  
|Commercial real estate  Mortgage     |  | $              | 42,456,945  |                   |  | $ | 36,179,133  |  
|                                     
|                                     
|                                     
|                                     
|Commercial real estate  Construction |  |                | 6,656,870   |                   |  |   | 5,975,670   |  
|                                     
|                                     
|                                     
|                                     
|Commercial  Other                    |  |                | 60,855,387  |                   |  |   | 59,839,406  |  
|                                      |  |                |             |                   |  |   |             |  
|                                      |  |                | 109,969,202 |                   |  |   | 101,994,209 |  
|                                      |  |                |             |                   |  |   |             |  
|Consumer real estate  Mortgage       |  |                | 33,607,821  |                   |  |   | 26,535,273  |  
|                                     
|                                     
|                                     
|                                     
|Consumer real estate  Construction   |  |                | 454,615     |                   |  |   | 381,212     |  
|                                     
|                                     
|                                     
|                                     
|Consumer  Other                      |  |                | 7,248,275   |                   |  |   | 5,528,948   |  
|                                      |  |                |             |                   |  |   |             |  
|                                      |  |                | 41,310,711  |                   |  |   | 32,445,433  |  
|                                      |  |                |             |                   |  |   |             |  
|                                      |  |                | 151,279,913 |                   |  |   | 134,439,642 |  
|                                     
|                                     
|                                     
|                                     
|Allowance for loan losses             |  |                | (2,041,000  | )                 |  |   | (1,832,000  | )
|                                      |  |                |             |                   |  |   |             |  
|                                      |  | $              | 149,238,913 |                   |  | $ | 132,607,642 |  
|                                      |  |                |             |                   |  |   |             |  




Using standard industry codes, the Company periodically analyzes its
commercial loan portfolio to determine if a concentration of credit risk
exists to any one or more industries. Although not material enough to
warrant additional allowance for loan loss considerations, the Company
does have a meaningful credit exposure (loans outstanding plus unfunded
lines of credit) to borrowers in the trucking industry and to operators of
nonresidential buildings. Credit exposure to the trucking industry
approximated $20.5 million and $21.1 million at March 31, 2002 and
December 31, 2001, respectively, while credit exposure to operators of
nonresidential buildings approximated $9.3 million and $8.2 million at
March 31, 2002 and December 31, 2001, respectively. Levels of exposure to
these industry groups are periodically evaluated in order to determine if
additional reserves are warranted.


Page 7



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##### Table of Contents



PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS




The Companys recorded investments in impaired loans and related
valuation allowance at March 31, 2002 are as follows:


|                                |  |            |         |           |  |   |         | 
|------------------------------- |  | ---------- | ------- | --------- |  | - | ------- | 
|                                |  | Recorded   |         | Valuation
|                                |  | Investment |         | Allowance
|                                |  |            |         |          
|Valuation allowance required    |  | $          | 220,000 |           |  | $ | 150,000 | 
|                               
|                               
|                               
|                               
|No valuation allowance required |  |            |        |           |  |   |        | 
|                                |  |            |         |           |  |   |         | 
|Balance at end of period        |  | $          | 220,000 |           |  | $ | 150,000 | 
|                                |  |            |         |           |  |   |         | 




The valuation allowance is included in the allowance for loan losses at March
31, 2002 and has not changed since December 31, 2001. Additionally, at
March 31, 2002, nonaccrual loans amounted to $220,000.





Changes in the allowance for loan losses for the three months ended March 31, 2002
and for the year ended December 31, 2001 was as follows:


|                               |                                          |   |           |         |      |   |           |           | 
|------------------------------ | ---------------------------------------- | - | --------- | ------- | ---- | - | --------- | --------- | 
|                               |                                          |   | 2002      |         | 2001
|                               |                                          |   |           |         |     
|Balance at beginning of period |                                          | $ | 1,832,000 |         |      | $ | 162,378   |          
|                              
|                              
|                              
|                              
|                               | Charged-off loans                        |   |           |        |      |   |           |          | 
|                              
|                              
|                              
|                              
|                               | Recovery of previously charged-off loans |   |           |        |      |   |           |          | 
|                              
|                              
|                              
|                              
|                               | Provision for loan losses                |   |           | 209,000 |      |   |           | 1,669,622 | 
|                               |                                          |   |           |         |      |   |           |          
|Balance at end of period       |                                          | $ | 2,041,000 |         |      | $ | 1,832,000 |          
|                               |                                          |   |           |         |      |   |           |          




At March 31, 2002, the Company has granted loans and other extensions of
credit amounting to approximately $5,493,000 to certain directors,
executive officers, and their related entities of which $3,184,000 had
been drawn upon. The terms on these loans and extensions are on
substantially the same terms customary for other persons for the type of
loan involved.





During the three months ended March 31, 2002, the Company sold participations
in certain loans to correspondent banks at an interest rate that was less
than that of the borrowers rate of interest. In accordance with
generally accepted accounting principles, the Company has reflected a gain
on the sale of these participated loans of approximately $20,000 which is
attributable to the present value of the future net cash flows of the
difference between the interest payments the borrower is projected to pay
the Company and the amount of interest that will be owed the correspondent
based on their future participation in the loan.


NOTE 4. INCOME TAXES




Income tax expense for the three months ended March 31, 2002 and 2001 consists
of the following:


|         |  |      |        |      |  |   |   | 
|-------- |  | ---- | ------ | ---- |  | - | - | 
|         |  | 2002 |        | 2001
|         |  |      |        |     
|Current  |  | $    |       |      |  | $ |  | 
|        
|        
|        
|        
|Deferred |  |      | 27,327 |      |  |   |   | 
|         |  |      |        |      |  |   |   | 
|         |  | $    | 27,327 |      |  | $ |  | 
|         |  |      |        |      |  |   |   | 




The Companys income tax expense (benefit) differs from the amounts computed by applying the Federal income tax
statutory rates of 34% at March 31, 2002 and 2001 to income before income taxes. A reconciliation of the differences
for the three months ended March 31, 2002 and 2001 is as follows:


|                               |                                                     |   |        |       |      |   |          |         |  
|------------------------------ | --------------------------------------------------- | - | ------ | ----- | ---- | - | -------- | ------- | -
|                               |                                                     |   | 2002   |       | 2001
|                               |                                                     |   |        |       |     
|Income taxes at statutory rate |                                                     | $ | 24,450 |       |      | $ | (435,748 | )      
|                              
|                              
|                              
|                              
|                               | State income tax expense, net of federal tax effect |   |        | 2,877 |      |   |          | (50,752 | )
|                              
|                              
|                              
|                              
|                               | Change in valuation allowance                       |   |        |      |      |   |          | 486,500 |  
|                               |                                                     |   |        |       |      |   |          |        
|Income tax expense             |                                                     | $ | 27,327 |       |      | $ |         |        
|                               |                                                     |   |        |       |      |   |          |        




At March 31, 2002, the Company had a net deferred tax asset of approximately $2.1 million taxes included in other
assets in the accompanying consolidated balance sheet compared to a net deferred tax asset of approximately $2.0
million at December 31, 2001. Most of this asset was attributable to net operating losses and other charges which
can be carried forward to offset taxable income in future periods. The components of deferred income taxes included
in other assets in the accompanying consolidated balance sheet at March 31, 2002 and December 31, 2001 are as
follows:


Page 8



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##### Table of Contents



PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

|                          |                                                   |   |                |           |                   |   |           |           | 
|------------------------- | ------------------------------------------------- | - | -------------- | --------- | ----------------- | - | --------- | --------- | 
|                          |                                                   |   | March 31, 2002 |           | December 31, 2001
|                          |                                                   |   |                |           |                  
|Deferred tax assets:      |                                                   |   |                |           |                   |   |           |          
|                         
|                         
|                         
|                         
|                          | Loans, primarily due to provision for loan losses |   | $              | 775,580   |                   |   | $         | 695,427   | 
|                         
|                         
|                         
|                         
|                          | Securities available-for-sale                     |   |                | 64,760    |                   |   |           |          | 
|                         
|                         
|                         
|                         
|                          | Other accruals                                    |   |                | 215,466   |                   |   |           | 230,066   | 
|                         
|                         
|                         
|                         
|                          | Net operating loss carryforward                   |   |                | 1,211,820 |                   |   |           | 1,288,035 | 
|                          |                                                   |   |                |           |                   |   |           |          
|                          |                                                   |   | 2,267,626      |           |                   |   | 2,213,528 |          
|                         
|                         
|                         
|                         
|Deferred tax liabilities: |                                                   |   |                |           |                   |   |           |          
|                         
|                         
|                         
|                         
|                          | Depreciation and amortization                     |   |                | 162,848   |                   |   |           | 148,358   | 
|                         
|                         
|                         
|                         
|                          | Securities available-for-sale                     |   |                |          |                   |   |           | 28,354    | 
|                          |                                                   |   |                |           |                   |   |           |          
|                          |                                                   |   | 162,848        |           |                   |   | 176,712   |          
|                          |                                                   |   |                |           |                   |   |           |          
|                          |                                                   |   | 2,104,778      |           |                   |   | 2,036,816 |          
|                         
|                         
|                         
|                         
|Less: valuation allowance |                                                   |   |               |           |                   |   |          |          
|                          |                                                   |   |                |           |                   |   |           |          
|Net deferred benefit      |                                                   | $ | 2,104,778      |           |                   | $ | 2,036,816 |          
|                          |                                                   |   |                |           |                   |   |           |          




Based upon recent and projected future operating results, the Company
determined in the fourth quarter of 2001 that it was more likely than not
that its deferred tax assets were realizable. As a result, the Company
eliminated the valuation allowance established against those assets and
recorded a deferred income tax benefit of $2.1 million in the fourth
quarter of 2001. At March 31, 2002, the Company has available net
operating loss carryforwards of approximately $3,189,000 for Federal
income tax purposes. If unused, the carryforwards will expire beginning in
2020.


NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES




In the normal course of business, the Company has entered into
off-balance-sheet financial instruments that are not reflected in the
consolidated financial statements. These financial instruments include
commitments to extend credit and standby letters of credit. Such financial
instruments are included in the consolidated financial statements when
funds are disbursed or the instruments become payable. These instruments
involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the consolidated balance sheets.





The Companys exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. A summary of the Companys commitments at March 31,
2002 is as follows:


|                             |  |   |            | 
|---------------------------- |  | - | ---------- | 
|Commitments to extend credit |  | $ | 38,100,000 | 
|                            
|                            
|                            
|                            
|Standby letters of credit    |  |   | 5,419,000  | 




Commitments to extend credit 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 cash requirements.
The credit risk involved in issuing these financial instruments is
essentially the same as that involved in extending loans to customers. The
Company evaluates each customers creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the
Company upon extension of credit, is based on managements credit
evaluation of the customer. Collateral held varies but may include real
estate and improvements, marketable securities, accounts receivable,
inventory, equipment, and personal property.





In the normal course of business, the Company may become involved in various
legal proceedings. As of March 31, 2002, the management of the Company is
not aware of any such proceedings against the Company.


Page 9



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##### Table of Contents



PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6. COMMON STOCK




In August of 2000, the Company, through its underwriters, sold 1,875,000
common shares to the general public through an initial public offering at
a price of $10 per share. The underwriters had the right to exercise an
over-allotment option to purchase up to an additional 316,500 shares of
common stock at $10 per share. Pursuant to the terms of the over-allotment
option, the underwriters exercised their over-allotment option and
purchased an additional 35,000 shares at $10 per share, less the
applicable underwriting discount. Net proceeds from the offering were
approximately $18 million.





Three executives of the Company (the Chairman of the Board, the President and
Chief Executive Officer and the Chief Administrative Officer) along with
nine members of the Companys Board of Directors and two other organizers
of the Company (collectively, the Companys Founders) purchased an
aggregate of 406,000 shares of common stock during the offering, which
represented approximately 21% of the initial public offering. The
Founders were awarded common stock warrants which allow each individual
the ability to purchase the common stock of the Company at $10 per share.
Each person was given a warrant equal to one common share for every
two shares purchased in connection with the initial public offering of the
stock. As a group, 203,000 warrants were awarded. The warrants vest in
one-third increments over a three-year period that began on August 18,
2000 and are exercisable until August 18, 2010. As of March 31, 2002, one
third of the warrants for approximately 67,600 shares were exercisable.





During September 2001, the Company concluded a private placement of its common
stock to certain accredited investors. Pursuant to the private placement,
the Company received approximately $3,597,000, net of offering expenses,
from the subscription of 402,053 shares at $9 per share for its common
stock. These shares were issued on October 26, 2001. The stock issued in
connection with the private placement has not been registered under the
Securities Act of 1933, as amended, and may not be offered or sold in the
U.S. absent registration or an applicable exemption from the registration
requirements.





The Company has a stock option plan under which it has granted options to its
employees to purchase common stock at or above the fair market value on
the date of grant. All of the options are intended to be incentive stock
options qualifying under Section 422 of the Internal Revenue Code for
favorable tax treatment. Options under the plan vest in varying
increments over five years beginning one year after the date of the grant
and are exercisable over a period of ten years.





A summary of the plan at March 31, 2002 and December 31, 2001 and 2000 and
changes during the three months ended March 31, 2002 and during the year
ended December 31, 2001 is as follows:


|                                 |           |  |         |         |       |   |           |      | 
|-------------------------------- | --------- |  | ------- | ------- | ----- | - | --------- | ---- | 
|                                 |           |  |         |         |       |   | Weighted-
|                                 |           |  |         |         |       |   | Average  
|                                 |           |  |         |         |       |   | Exercise 
|                                 |           |  | Number  |         | Price
|                                 |           |  |         |         |      
|Outstanding at December 31, 2000 |           |  | 186,450 |         |       | $ | 10.00     |     
|                                
|                                
|                                
|                                
|                                 | Granted   |  |         | 53,400  |       |   |           | 7.65 | 
|                                 | Exercised |  |         |        |       |   |           |     | 
|                                 | Forfeited |  |         | (550    | )     |   |           | 9.14 | 
|                                 |           |  |         |         |       |   |           |     
|                                
|                                
|                                
|                                
|Outstanding at December 31, 2001 |           |  | 239,300 |         |       |   | 9.48      |     
|                                
|                                
|                                
|                                
|                                 | Granted   |  |         | 125,600 |       |   |           | 9.92 | 
|                                 | Exercised |  |         |        |       |   |           |     | 
|                                 | Forfeited |  |         | (650    | )     |   |           | 9.14 | 
|                                 |           |  |         |         |       |   |           |     
|                                
|                                
|                                
|                                
|Outstanding at March 31, 2002    |           |  | 364,250 |         |       | $ | 9.63      |     
|                                 |           |  |         |         |       |   |           |     

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##### Table of Contents



PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS




The following table summarizes information about the Companys stock option
plan at March 31, 2002.


|               |  |             |         |                  |  |          |       |             |  |           |       |  |  |  |        | 
|-------------- |  | ----------- | ------- | ---------------- |  | -------- | ----- | ----------- |  | --------- | ----- |  |  |  | ------ | 
|               |  | Number of   |         | Remaining        |  |          |       |             |  | Number of
|               |  | Shares      |         | Contractual Life |  | Exercise |       | Shares     
|Grant date     |  | Outstanding |         | in Years         |  | Price    |       | Exercisable
|               |  |             |         |                  |  |          |       |            
|December, 2000 |  |             | 185,750 |                  |  |          | 8.75  |             |  | $         | 10.00 |  |  |  | 37,150 | 
|              
|              
|              
|              
|March, 2001    |  |             | 50,100  |                  |  |          | 9.00  |             |  |           | 7.64  |  |  |  | 10,020 | 
|              
|              
|              
|              
|November, 2001 |  |             | 2,800   |                  |  |          | 9.75  |             |  |           | 7.75  |  |  |  |       | 
|              
|              
|              
|              
|February, 2002 |  |             | 125,600 |                  |  |          | 10.00 |             |  |           | 9.92  |  |  |  |       | 
|               |  |             |         |                  |  |          |       |             |  |           |       |  |  |  |        | 
|               |  |             | 364,250 |                  |  |          | 8.84  |             |  | $         | 9.63  |  |  |  | 47,170 | 
|               |  |             |         |                  |  |          |       |             |  |           |       |  |  |  |        | 

NOTE 7. REGULATORY MATTERS




The Bank is subject to certain restrictions on the amount of dividends that
may be declared without prior regulatory approval. At March 31, 2002, no
dividends could be declared by the Bank without regulatory approval.





The Parent and the Bank are subject to various regulatory capital
requirements administered by 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 consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Parent and Bank must meet specific capital
guidelines that involve quantitative measures of the assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Parents and Banks capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.





Quantitative measures established by regulation to ensure capital adequacy
require the Parent and Bank to maintain minimum amounts and ratios of
Total and Tier I capital to risk-weighted assets and of Tier I capital to
average assets. Management believes, as of March 31, 2002, the Parent and
the Bank meet all capital adequacy requirements to which they are subject.


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##### Table of Contents



PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS




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 following table. The Parent and Banks
actual capital amounts and ratios at March 31, 2002 and
December 31, 2001 are presented in the following table (dollars in thousands):


|                     |                                         |        |  |        |        |             |  |                   |      |       |  |         |        |              |  |  |     |   |  |                        |   |        |  |  |  |     
|-------------------- | --------------------------------------- | ------ |  | ------ | ------ | ----------- |  | ----------------- | ---- | ----- |  | ------- | ------ | ------------ |  |  | --- | - |  | ---------------------- | - | ------ |  |  |  | ----
|                     |                                         |        |  |        |        |             |  |                   |      |       |  |         |        |              |  |  |     |   |  | To Be Well Capitalized
|                     |                                         |        |  |        |        |             |  |                   |      |       |  | Minimum |        | Under Prompt
|                     |                                         |        |  |        |        |             |  |                   |      |       |  | Capital |        | Corrective  
|                     |                                         |        |  | Actual |        | Requirement |  | Action Provisions
|                     |                                         |        |  |        |        |             |  |                  
|                     |                                         |        |  | Amount |        | Ratio       |  | Amount            |      | Ratio |  | Amount  |        | Ratio       
|                     |                                         |        |  |        |        |             |  |                   |      |       |  |         |        |             
|At March 31, 2002    |                                         |        |  |        |        |             |  |                   |      |       |  |         |        |              |  |  |     |   |  |                        |   |        |  | 
|                    
|                    
|                    
|                    
|                     | Total capital to risk weighted assets:  |        |  |        |        |             |  |                   |      |       |  |         |        |              |  |  |     |   |  |                        |   |        |  |  | 
|                    
|                    
|                    
|                    
|                     |                                         | Parent |  | $      | 18,884 |             |  |                   | 10.5 | %     |  | $       | 14,337 |              |  |  | 8.0 | % |  | not applicable        
|                     |                                         | Bank   |  | $      | 18,084 |             |  |                   | 10.1 | %     |  | $       | 14,332 |              |  |  | 8.0 | % |  |                        | $ | 17,915 |  |  |  | 10.0
|                    
|                    
|                    
|                    
|                     | Tier I capital to risk weighted assets: |        |  |        |        |             |  |                   |      |       |  |         |        |              |  |  |     |   |  |                        |   |        |  |  | 
|                    
|                    
|                    
|                    
|                     |                                         | Parent |  | $      | 16,843 |             |  |                   | 9.4  | %     |  | $       | 7,169  |              |  |  | 4.0 | % |  | not applicable        
|                     |                                         | Bank   |  | $      | 16,043 |             |  |                   | 9.0  | %     |  | $       | 7,166  |              |  |  | 4.0 | % |  |                        | $ | 10,749 |  |  |  | 6.0 
|                    
|                    
|                    
|                    
|                     | Tier I capital to average assets (*):   |        |  |        |        |             |  |                   |      |       |  |         |        |              |  |  |     |   |  |                        |   |        |  |  | 
|                    
|                    
|                    
|                    
|                     |                                         | Parent |  | $      | 16,843 |             |  |                   | 9.5  | %     |  | $       | 7,062  |              |  |  | 4.0 | % |  | not applicable        
|                     |                                         | Bank   |  | $      | 16,043 |             |  |                   | 9.1  | %     |  | $       | 7,062  |              |  |  | 4.0 | % |  |                        | $ | 8,827  |  |  |  | 5.0 
|                    
|                    
|                    
|                    
|                     |                                         |        |  |        |        |             |  |                   |      |       |  |         |        |              |  |  |     |   |  |                        |   |        |  | 
|                    
|                    
|                    
|                    
|At December 31, 2001 |                                         |        |  |        |        |             |  |                   |      |       |  |         |        |              |  |  |     |   |  |                        |   |        |  | 
|                    
|                    
|                    
|                    
|                     | Total capital to risk weighted assets:  |        |  |        |        |             |  |                   |      |       |  |         |        |              |  |  |     |   |  |                        |   |        |  |  | 
|                    
|                    
|                    
|                    
|                     |                                         | Parent |  | $      | 18,188 |             |  |                   | 11.2 | %     |  | $       | 12,971 |              |  |  | 8.0 | % |  | not applicable        
|                     |                                         | Bank   |  | $      | 17,402 |             |  |                   | 10.7 | %     |  | $       | 12,971 |              |  |  | 8.0 | % |  |                        | $ | 16,214 |  |  |  | 10.0
|                    
|                    
|                    
|                    
|                     | Tier I capital to risk weighted assets: |        |  |        |        |             |  |                   |      |       |  |         |        |              |  |  |     |   |  |                        |   |        |  |  | 
|                    
|                    
|                    
|                    
|                     |                                         | Parent |  | $      | 16,356 |             |  |                   | 10.1 | %     |  | $       | 6,486  |              |  |  | 4.0 | % |  | not applicable        
|                     |                                         | Bank   |  | $      | 15,570 |             |  |                   | 9.6  | %     |  | $       | 6,486  |              |  |  | 4.0 | % |  |                        | $ | 9,729  |  |  |  | 6.0 
|                    
|                    
|                    
|                    
|                     | Tier I capital to average assets (*):   |        |  |        |        |             |  |                   |      |       |  |         |        |              |  |  |     |   |  |                        |   |        |  |  | 
|                    
|                    
|                    
|                    
|                     |                                         | Parent |  | $      | 16,356 |             |  |                   | 11.6 | %     |  | $       | 5,649  |              |  |  | 4.0 | % |  | not applicable        
|                     |                                         | Bank   |  | $      | 15,570 |             |  |                   | 11.0 | %     |  | $       | 5,649  |              |  |  | 4.0 | % |  |                        | $ | 7,062  |  |  |  | 5.0 



---

|(*) |  | Average assets for the above computation were computed using
average balances for the quarter ended March 31, 2002 and December 31,
2001.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents






Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.

Unless this Managements Discussion and Analysis of Financial Condition and
Results of Operations indicates otherwise or the context otherwise requires,
the terms we, our, us, Pinnacle Financial Partners or Pinnacle
Financial as used herein refer to Pinnacle Financial Partners, Inc. and its
subsidiary Pinnacle National Bank, which we sometimes refer to as Pinnacle
National, our bank subsidiary or our bank.

The following is a discussion of our financial condition at March 31, 2002 and
December 31, 2001 and our results of operations for the three months ended
March 31, 2002 and 2001. The purpose of this discussion is to focus on
information about our financial condition and results of operations which is
not otherwise apparent from the annual audited consolidated financial
statements or the unaudited interim consolidated financial statements. You
should read the following discussion and analysis along with our consolidated
financial statements and the related notes included elsewhere in this
prospectus.

Critical Accounting Policies

The accounting principles we follow and our methods of applying these
principles conform with accounting principles generally accepted in the United
States and with general practices within the banking industry. In connection
with the application of those principles, we have made judgments and estimates
which, in the case of the determination of our allowance for loan losses (ALL)
and the recognition of our deferred income tax assets, have been critical to
the determination of our financial position, results of operations and cash
flows.

Allowance for Loan Losses.Our management assesses the adequacy of the ALL
prior to the end of each calendar quarter. This assessment includes procedures
to estimate the allowance and test the adequacy and appropriateness of the
resulting balance. The ALL consists of two portions (1) an allocated amount
representative of specifically identified credit exposure and exposures readily
predictable by historical or comparative experience; and (2) an unallocated
amount representative of inherent loss which is not readily identifiable. Even
though the allowance for loan losses is composed of two components, the entire
allowance is available to absorb any credit losses.

We establish the allocated amount separately for two different risk groups (1)
unique loans (commercial loans, including those loans considered impaired); and
(2) homogenous loans (generally consumer loans). We base the allocation for
unique loans primarily on risk rating grades assigned to each of these loans as
a result of our loan management and review processes. We then assign each
risk-rating grade a loss ratio, which is determined based on the experience of
management, discussions with banking regulators and our independent loan review
process. We estimate losses on impaired loans based on estimated cash flows
discounted at the loans original effective interest rate or based on the
underlying collateral value. We also assign loss ratios to our consumer
portfolio. However, we base the loss ratios for these homogenous loans on the
category of consumer credit (e.g., automobile, residential mortgage, home
equity).

The unallocated amount is particularly subjective and does not lend itself to
exact mathematical calculation. We use the unallocated amount to absorb
inherent losses which may exist as of the balance sheet date for such matters
as changes in the local or national economy, the depth or experience in the
lending staff, any concentrations of credit in any particular industry group,
and new banking laws or regulations. After we assess applicable factors, we
evaluate the aggregate unallocated amount based on our managements experience.

We then test the resulting ALL balance by comparing the balance in the
allowance account to historical trends and peer information. Our management
then evaluates the result of the procedures performed, including the result of
our testing, and concludes on the appropriateness of the balance of the
allowance for loan losses in its entirety. The audit committee of our board of
directors reviews the assessment prior to the filing of quarterly financial
information.

Page 13



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##### Table of Contents



In assessing the adequacy of the allowance for loan losses, we also rely on an
ongoing independent loan review process. We undertake this process both to
ascertain whether there are loans in the portfolio whose credit quality has
weakened over time and to assist in our overall evaluation of the risk
characteristics of the entire loan portfolio. Our loan review process includes
the judgment of management, the input from our independent loan reviewer, who
is not an employee of Pinnacle National, and reviews that may have been
conducted by bank regulatory agencies as part of their usual examination
process.

Deferred Income Tax Assets.During the period from inception through December
31, 2001, we incurred net operating losses and, as a result, recorded deferred
tax assets associated with these loss carryforwards. However, prior to the
fourth quarter of 2001, we also recorded a full valuation allowance against our
net deferred tax assets, and we did not recognize any income tax benefit in our
statement of operations. Our judgment was based on our inability to conclude
that it was more likely than not that we could be sufficiently profitable in
the future to recognize these tax benefits. In the fourth quarter of 2001,
this judgment changed, and we determined that based upon our evaluation of our
recent operating results and future projections, it was more likely than not
that we would realize such assets. We therefore, in that quarter, eliminated
the full amount of the valuation allowance and recorded a deferred tax benefit
in our statement of operations equal to the deferred tax asset. Unless our
judgment changes as to the likelihood of realizing these deferred tax assets,
we will continue to recognize such assets in our consolidated financial
statements.

Results of Operations  Three Months Ended March 31, 2002 and 2001

Our results for the three months ended March 31, 2002, when compared to the
three months ended March 31, 2001, were highlighted by the continued growth of
our earning assets which resulted in increased net interest income and growth
in noninterest income. Total revenues, which is comprised of net interest
income and noninterest income, for the three months ended March 31, 2002, were
$1,986,000, compared to total revenues for the three months ended March 31,
2001 of $630,000. The provision for loan losses was $209,000 for 2002 compared
to $363,000 in 2001, the decrease was attributable to reduced loan growth in
the current period when compared to the three months ended March 31, 2001.
Noninterest expenses were $1,705,000 for the three months ended March 31, 2002,
compared to $1,549,000 for the three months ended March 31, 2001. Net income
for the three months ended March 31, 2002 was $45,000 compared to a net loss of
$1,282,000 for the three months ended March 31, 2001.

The following is a more detailed discussion of results of our operations
comparing, for each major item in the results, the first quarter of 2002 to the
first quarter of 2001.

Net Interest Income.Net interest income represents the amount by which
interest earned on various earning assets exceeds interest paid on deposits and
other interest bearing liabilities and is the most significant component of our
earnings. The following table sets forth the amount of our average balances,
interest income or interest expense for each category of interest-earning
assets and interest-bearing liabilities, the average interest rate for total
interest-earning assets and total interest-bearing liabilities, and net
interest spread and net yield on average interest-earning assets for the three
months ended March 31, 2002 compared to the three months ended March 31, 2001:

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##### Table of Contents



|                              |                                                                        |                                                |                                    |         |                        |         |                    |       |       |     |          |      |          |      |        |        |        |        |        |     |     |     |  |      |      |      | 
|----------------------------- | ---------------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------- | ------- | ---------------------- | ------- | ------------------ | ----- | ----- | --- | -------- | ---- | -------- | ---- | ------ | ------ | ------ | ------ | ------ | --- | --- | --- |  | ---- | ---- | ---- | 
|                              |                                                                        |                                                |                                    |         | Three Months Ended     |         | Three Months Ended
|                              |                                                                        |                                                |                                    |         | March 31, 2002         |         | March 31, 2001    
|                              |                                                                        |                                                |                                    |         |                        |         |                   
|                              |                                                                        |                                                |                                    |         | Average                |         |                    |       |       |     | Yield/   |      | Average  |      |        |        |        |        | Yield/
|                              |                                                                        |                                                |                                    |         | Balances               |         | Interest           |       | Rate  |     | Balances |      | Interest |      | Rate  
|                              |                                                                        |                                                |                                    |         |                        |         |                    |       |       |     |          |      |          |      |       
|                              |                                                                        |                                                |                                    |         | (dollars in thousands)
|Interest-earning assets:      |                                                                        |                                                |                                    |         |                        |         |                    |       |       |     |          |      |          |      |        |        |        |        |        |     |     |     |  |     
|                             
|                             
|                             
|                             
|                              | Loans                                                                  |                                                | $                                  | 143,402 |                        |         | $                  | 2,277 |       |     |          | 6.35 | %        |      | $      | 24,324 |        |        | $      | 511 |     |     |  | 8.40 | %   
|                             
|                             
|                             
|                             
|                              | Taxable securities, available for sale                                 |                                                |                                    | 19,438  |                        |         |                    | 274   |       |     |          | 5.64 |          |      |        | 9,811  |        |        |        | 172 |     |     |  | 7.01 |     
|                             
|                             
|                             
|                             
|                              | Federal funds sold and securities
purchased under agreements to resell |                                                |                                    | 3,930   |                        |         |                    | 20    |       |     |          | 2.04 |          |      |        | 7,921  |        |        |        | 106 |     |     |  | 5.35 |     
|                             
|                             
|                             
|                             
|                              | Other                                                                  |                                                |                                    | 950     |                        |         |                    | 15    |       |     |          | 6.32 |          |      |        | 530    |        |        |        | 8   |     |     |  | 6.04 |     
|                              |                                                                        |                                                |                                    |         |                        |         |                    |       |       |     |          |      |          |      |        |        |        |        |        |     |     |     |  |     
|                              |                                                                        | Total interest-earning assets                  |                                    |         | 167,720                |         |                    |       | 2,586 |     |          |      | 6.17     |      |        |        | 42,586 |        |        |     | 797 |     |  |      | 7.49 |     
|                              |                                                                        |                                                |                                    |         |                        |         |                    |       |       |     |          |      |          |      |        |        |        |        |        |     |     |     |  |     
|Nonearning assets             |                                                                        |                                                | 10,274                             |         |                        |         |                    |       |       |     |          |      |          |      | 5,344  |        |        |        |        |     |     |     |  |     
|                              |                                                                        |                                                |                                    |         |                        |         |                    |       |       |     |          |      |          |      |        |        |        |        |        |     |     |     |  |     
|                              | Total assets                                                           |                                                | $                                  | 177,994 |                        |         |                    |       |       |     |          |      |          |      | $      | 47,930 |        |        |        |     |     |     |  |      |     
|                              |                                                                        |                                                |                                    |         |                        |         |                    |       |       |     |          |      |          |      |        |        |        |        |        |     |     |     |  |     
|Interest-bearing liabilities: |                                                                        |                                                |                                    |         |                        |         |                    |       |       |     |          |      |          |      |        |        |        |        |        |     |     |     |  |     
|                             
|                             
|                             
|                             
|                              | Interest-bearing deposits:                                             |                                                |                                    |         |                        |         |                    |       |       |     |          |      |          |      |        |        |        |        |        |     |     |     |  |      |     
|                             
|                             
|                             
|                             
|                              |                                                                        | Interest checking                              |                                    | $       | 8,474                  |         |                    |       | 23    |     |          |      | 1.09     | %    |        | $      | 2,414  |        |        |     | 17  |     |  |      | 2.82 | %   
|                             
|                             
|                             
|                             
|                              |                                                                        | Savings and money market                       |                                    |         | 52,662                 |         |                    |       | 233   |     |          |      | 1.77     |      |        |        | 18,832 |        |        |     | 227 |     |  |      | 4.82 |     
|                             
|                             
|                             
|                             
|                              |                                                                        | Certificates of deposit                        |                                    |         | 62,709                 |         |                    |       | 540   |     |          |      | 3.44     |      |        |        | 6,354  |        |        |     | 93  |     |  |      | 5.85 |     
|                              |                                                                        |                                                |                                    |         |                        |         |                    |       |       |     |          |      |          |      |        |        |        |        |        |     |     |     |  |     
|                              |                                                                        |                                                | Total interest-bearing deposits    |         |                        | 123,845 |                    |       |       | 796 |          |      |          | 2.57 |        |        |        | 27,600 |        |     |     | 337 |  |      |      | 4.88 | 
|                             
|                             
|                             
|                             
|                              |                                                                        | Securities sold under agreements to
repurchase |                                    |         | 10,644                 |         |                    |       | 22    |     |          |      | 0.83     |      |        |        | 1,226  |        |        |     | 13  |     |  |      | 4.24 |     
|                             
|                             
|                             
|                             
|                              |                                                                        | Federal funds purchased                        |                                    |         | 1,749                  |         |                    |       | 8     |     |          |      | 1.83     |      |        |        |       |        |        |     |    |     |  |      |     |     
|                             
|                             
|                             
|                             
|                              |                                                                        | Federal Home Loan Bank advances                |                                    |         | 8,600                  |         |                    |       | 66    |     |          |      | 3.07     |      |        |        |       |        |        |     |    |     |  |      |     |     
|                              |                                                                        |                                                |                                    |         |                        |         |                    |       |       |     |          |      |          |      |        |        |        |        |        |     |     |     |  |     
|                              |                                                                        |                                                | Total interest-bearing liabilities |         |                        | 144,838 |                    |       |       | 892 |          |      |          | 2.46 |        |        |        | 28,826 |        |     |     | 350 |  |      |      | 4.86 | 
|                              |                                                                        |                                                |                                    |         |                        |         |                    |       |       |     |          |      |          |      |        |        |        |        |        |     |     |     |  |     
|Demand deposits               |                                                                        |                                                | 14,088                             |         |                        |         |                    |       |       |     |          |      |          |      | 3,709  |        |        |        |        |     |     |     |  |     
|                             
|                             
|                             
|                             
|Other liabilities             |                                                                        |                                                | 776                                |         |                        |         |                    |       |       |     |          |      |          |      | 287    |        |        |        |        |     |     |     |  |     
|                             
|                             
|                             
|                             
|Stockholders equity          |                                                                        |                                                | 18,292                             |         |                        |         |                    |       |       |     |          |      |          |      | 15,108 |        |        |        |        |     |     |     |  |     
|                              |                                                                        |                                                |                                    |         |                        |         |                    |       |       |     |          |      |          |      |        |        |        |        |        |     |     |     |  |     
|                              | Total liabilities and stockholders equity                             |                                                | $                                  | 177,994 |                        |         |                    |       |       |     |          |      |          |      | $      | 47,930 |        |        |        |     |     |     |  |      |     
|                              |                                                                        |                                                |                                    |         |                        |         |                    |       |       |     |          |      |          |      |        |        |        |        |        |     |     |     |  |     
|Net interest income (1)       |                                                                        |                                                |                                    |         |                        | $       | 1,694              |       |       |     |          |      |          |      |        |        |        | $      | 447    |     |     |     |  |     
|                              |                                                                        |                                                |                                    |         |                        |         |                    |       |       |     |          |      |          |      |        |        |        |        |        |     |     |     |  |     
|                              | Net interest spread                                                    |                                                |                                    |         |                        |         |                    |       |       |     |          | 3.71 | %        |      |        |        |        |        |        |     |     |     |  | 2.63 | %   
|                             
|                             
|                             
|                             
|                              | Net interest margin                                                    |                                                |                                    |         |                        |         |                    |       |       |     |          | 4.04 | %        |      |        |        |        |        |        |     |     |     |  | 4.20 | %   



---

| | (1) |  | We have had no tax-free investments or loans since inception.
Additionally, the impact of deferred loan fees or costs was not
material to the above results. Yields on all investment securities
were computed based on the carrying value of those securities. The
net interest spread above excludes the impact of demand deposits,
including demand deposits in the average balances, which would have
produced a net interest spread for the three months ended March 31,
2002 and 2001 of 3.92% and 3.19%, respectively.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As shown in the above table, our net interest spread (the difference between
the interest yield earned on assets less the rate paid on liabilities) actually
increased from 2.63% to 3.71%. Our 4.20% net interest margin (net interest
income as a percentage of average interest earning assets) was higher in 2001
than in 2002 because a significantly higher percentage of our total earning
assets in the 2002 quarter was funded by interest bearing liabilities instead
of capital.

Rate and Volume Analysis.Since we commenced our banking operations in the
last quarter of 2000, substantially all of the change in the various line items
in net interest income between the first three months of 2002 when compared to
the first three months of 2001, is due to volume. Therefore, we have not
presented a rate and volume analysis table because we believe it would not
provide meaningful information and could potentially be misleading if taken out
of context.

Provision for Loan Losses.The provision for loan losses represents a charge
to earnings necessary to establish an allowance for loan losses that, in our
managements evaluation, should be adequate to provide coverage for the
inherent losses on outstanding loans. The provision for loan losses was
$209,000 and $363,000 for the three months ended March 31, 2002 and 2000.

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##### Table of Contents



Based upon our managements evaluation of the loan portfolio, our management
believes the allowance for loan losses to be adequate to absorb losses on
existing loans that may become uncollectible. The decrease in the provision for
loan losses when comparing the first quarter of 2002 to the first quarter of
2001 was due to the relative decrease in the growth of the loan portfolio
between December 31, 2001 and March 31, 2002 compared to December 31, 2000 and
March 31, 2001. Based upon our managements assessment of the loan portfolio,
we will adjust our allowance for loan losses to an amount deemed appropriate to
adequately cover inherent risks in the loan portfolio. Consistent with the
growth in our loan portfolio, this assessment has resulted in a charge to our
results of operations through the provision for loan losses. While our
policies and procedures used to estimate the allowance for loan losses, as well
as the resultant provision for loan losses charged to operations, are
considered adequate by our management and are reviewed from time to time by
Pinnacle Nationals regulators, they are necessarily approximate and imprecise.
There exist factors beyond our control, such as general economic conditions
both locally and nationally, which may negatively impact, materially, the
adequacy of our provision for loan losses.

Noninterest Income.Noninterest income consists predominately of fees from the
sale of investment products. It also includes service charges on deposit
accounts and other miscellaneous revenues and fees. Because fees from the sale
of investment products, as well as various other components of noninterest
income, often reflect market conditions, our noninterest income may tend to
have more fluctuations on a quarter to quarter basis than does net interest
income, since net interest income is the result of interest income from the
growth of earning assets offset by interest expense from interest-bearing
liabilities.

For the three months ended March 31, 2002, our noninterest income was $292,000,
which was an increase of $109,000, or 60%, when compared to the three months
ended March 31, 2001. Noninterest income comprised 15% of our total revenues
(net interest income plus noninterest income) for the first three months of
2002. It is our goal to increase the percentage of noninterest income to total
revenues over time such that we develop more diversified fee-generating revenue
streams. The following is the makeup of our quarterly noninterest income from
the first quarter of 2001 through the first quarter of 2002:

|                                      |                          |   |                        |     |         |   |         |     |         |   |         |     |  |   |     |     |  |   |     |     | 
|------------------------------------- | ------------------------ | - | ---------------------- | --- | ------- | - | ------- | --- | ------- | - | ------- | --- |  | - | --- | --- |  | - | --- | --- | 
|                                      |                          |   | First                  |     | Fourth  |   | Third   |     | Second  |   | First  
|                                      |                          |   | Quarter                |     | Quarter |   | Quarter |     | Quarter |   | Quarter
|                                      |                          |   | 2002                   |     | 2001    |   | 2001    |     | 2001    |   | 2001   
|                                      |                          |   |                        |     |         |   |         |     |         |   |        
|                                      |                          |   | (dollars in thousands)
|Service charges on deposit accounts   |                          | $ | 54                     |     |         | $ | 43      |     |         | $ | 27      |     |  | $ | 15  |     |  | $ | 5   |    
|                                     
|                                     
|                                     
|                                     
|Investment sales commissions and fees |                          |   | 182                    |     |         |   | 277     |     |         |   | 155     |     |  |   | 243 |     |  |   | 164 |    
|                                     
|                                     
|                                     
|                                     
|Gain on sale of participations        |                          |   | 14                     |     |         |   | 132     |     |         |   | 59      |     |  |   |    |     |  |   |    |    
|                                     
|                                     
|                                     
|                                     
|Gain on sale of securities            |                          |   |                       |     |         |   |        |     |         |   |        |     |  |   |    |     |  |   |    |    
|                                     
|                                     
|                                     
|                                     
|Other noninterest income              |                          |   | 42                     |     |         |   | 45      |     |         |   | 52      |     |  |   | 110 |     |  |   | 14  |    
|                                      |                          |   |                        |     |         |   |         |     |         |   |         |     |  |   |     |     |  |   |     |    
|                                      | Total noninterest income |   | $                      | 292 |         |   | $       | 497 |         |   | $       | 293 |  |   | $   | 368 |  |   | $   | 183 | 
|                                      |                          |   |                        |     |         |   |         |     |         |   |         |     |  |   |     |     |  |   |     |    

As shown, the largest component of noninterest income is commissions and fees
from our financial advisory unit, Pinnacle Asset Management, a division of
Pinnacle National. For the first three months of 2002, we realized
approximately $182,000 in commissions and fees from Pinnacle Asset Management.
Market dynamics play a particularly important role in the success of this
business line. At March 31, 2002, Pinnacle Asset Management was receiving
commissions and fees in connection with approximately $169 million in brokerage
assets held with Legg Mason Financial Partners compared to $136 million at
December 31, 2001.

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##### Table of Contents



Another noninterest income item for the first three months of 2002 and for the
year ended December 31, 2001 was related to our sale of certain loan
participations to our correspondent banks which were primarily related to new
lending transactions in excess of internal loan limits. At March 31, 2002 and
pursuant to participation agreements with these correspondents, we had
participated approximately $24.4 million of originated loans to these other
banks compared to approximately $22.0 million at December 31, 2001. These
participation agreements have various provisions regarding collateral position,
pricing and other matters. Many of these agreements provide that we pay the
correspondent less than the loans contracted interest rate. Pursuant to
Statement of Financial Accounting Standards No. 140, we recorded $20,000 which
represents the net present value of these future net revenues as a gain on sale
of participations in our results of operations for the three months ended March
31, 2002. We intend to maintain relationships with our correspondents in order
to participate future loans to these correspondents in a similar manner.
However, the timing of participations may cause the level of gains, if any, to
vary significantly from quarter to quarter.

Noninterest Expense.Noninterest expense consists of salaries and employee
benefits, equipment and occupancy expenses, and other operating expenses. For
the three months ended March 31, 2002, we incurred approximately $1,705,000 in
noninterest expenses compared to $1,549,000 for the three months ended March
31, 2001. The following table shows the trend in noninterest expense from the
first quarter of 2001 through the first quarter of 2002:

|                        |                           |   |                        |       |         |   |         |       |         |   |         |       |  |   |       |       |  |   |       |       | 
|----------------------- | ------------------------- | - | ---------------------- | ----- | ------- | - | ------- | ----- | ------- | - | ------- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                        |                           |   | First                  |       | Fourth  |   | Third   |       | Second  |   | First  
|                        |                           |   | Quarter                |       | Quarter |   | Quarter |       | Quarter |   | Quarter
|                        |                           |   | 2002                   |       | 2001    |   | 2001    |       | 2001    |   | 2001   
|                        |                           |   |                        |       |         |   |         |       |         |   |        
|                        |                           |   | (dollars in thousands)
|Personnel expense       |                           | $ | 1,108                  |       |         | $ | 923     |       |         | $ | 1,053   |       |  | $ | 1,082 |       |  | $ | 1,080 |      
|                       
|                       
|                       
|                       
|Occupancy and equipment |                           |   | 341                    |       |         |   | 317     |       |         |   | 282     |       |  |   | 274   |       |  |   | 262   |      
|                       
|                       
|                       
|                       
|Other operating expense |                           |   | 256                    |       |         |   | 364     |       |         |   | 273     |       |  |   | 246   |       |  |   | 207   |      
|                        |                           |   |                        |       |         |   |         |       |         |   |         |       |  |   |       |       |  |   |       |      
|                        | Total noninterest expense |   | $                      | 1,705 |         |   | $       | 1,604 |         |   | $       | 1,608 |  |   | $     | 1,602 |  |   | $     | 1,549 | 
|                        |                           |   |                        |       |         |   |         |       |         |   |         |       |  |   |       |       |  |   |       |      

As shown, our expense burden was relatively stable from quarter to quarter
throughout 2001 and into the first quarter of 2002. We anticipate increases in
our expenses during 2002 for such items as additional personnel, salary
increases and incentives, the Green Hills office being opened for a full
calendar year and other items related to our growth.

Income Taxes.For all quarters prior to the fourth quarter of 2001, we did not
recognize an income tax benefit because we recorded a full valuation allowance
against our net deferred tax assets.

As discussed under Critical Accounting Policies above, in the fourth quarter
of 2001 we determined that it was more likely than not that we would realize
the tax benefits of our accumulated net operating losses and other charges. As
a result, during the quarter, we eliminated all of the valuation allowance and
recorded a deferred income tax benefit of $2,065,000 in our results of
operations for the year ended December 31, 2001.

For the three months ended March 31, 2002, we recorded deferred income tax
expense of $27,000, which represents an effective tax rate of 38%.

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##### Table of Contents



Quarterly Information.The following is a summary of quarterly balance sheet
and results of operations information from the first quarter of 2001 through
the first quarter of 2002.

|                        |                              |  |                        |         |         |  |         |         |         |  |         |         |   |  |   |         |   |  |   |        |  
|----------------------- | ---------------------------- |  | ---------------------- | ------- | ------- |  | ------- | ------- | ------- |  | ------- | ------- | - |  | - | ------- | - |  | - | ------ | -
|                        |                              |  | First                  |         | Fourth  |  | Third   |         | Second  |  | First  
|                        |                              |  | Quarter                |         | Quarter |  | Quarter |         | Quarter |  | Quarter
|                        |                              |  | 2002                   |         | 2001    |  | 2001    |         | 2001    |  | 2001   
|                        |                              |  |                        |         |         |  |         |         |         |  |        
|                        |                              |  | (dollars in thousands)
|End of period balances: |                              |  |                        |         |         |  |         |         |         |  |         |         |   |  |   |         |   |  |   |       
|                       
|                       
|                       
|                       
|                        | Total loans                  |  | $                      | 151,280 |         |  | $       | 134,440 |         |  | $       | 94,883  |   |  | $ | 69,319  |   |  | $ | 41,793 |  
|                       
|                       
|                       
|                       
|                        | Total assets                 |  |                        | 192,476 |         |  |         | 175,439 |         |  |         | 130,158 |   |  |   | 101,187 |   |  |   | 66,141 |  
|                       
|                       
|                       
|                       
|                        | Total deposits               |  |                        | 149,460 |         |  |         | 133,259 |         |  |         | 100,104 |   |  |   | 74,890  |   |  |   | 47,285 |  
|                       
|                       
|                       
|                       
|                        | Total stockholders equity   |  |                        | 18,172  |         |  |         | 18,291  |         |  |         | 16,682  |   |  |   | 13,634  |   |  |   | 14,584 |  
|                       
|                       
|                       
|                       
|Results of Operations:  |                              |  |                        |         |         |  |         |         |         |  |         |         |   |  |   |         |   |  |   |       
|                       
|                       
|                       
|                       
|                        | Interest Income              |  | $                      | 2,586   |         |  | $       | 2,212   |         |  | $       | 1,762   |   |  | $ | 1,298   |   |  | $ | 797    |  
|                       
|                       
|                       
|                       
|                        | Interest Expense             |  |                        | 892     |         |  |         | 792     |         |  |         | 800     |   |  |   | 637     |   |  |   | 350    |  
|                        |                              |  |                        |         |         |  |         |         |         |  |         |         |   |  |   |         |   |  |   |       
|                        | Net interest income          |  |                        | 1,694   |         |  |         | 1,420   |         |  |         | 962     |   |  |   | 661     |   |  |   | 447    |  
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                        | Provision for loan losses    |  |                        | 209     |         |  |         | 647     |         |  |         | 298     |   |  |   | 362     |   |  |   | 363    |  
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                        | Noninterest income           |  |                        | 292     |         |  |         | 497     |         |  |         | 293     |   |  |   | 368     |   |  |   | 183    |  
|                       
|                       
|                       
|                       
|                        | Noninterest expense          |  |                        | 1,705   |         |  |         | 1,604   |         |  |         | 1,608   |   |  |   | 1,602   |   |  |   | 1,549  |  
|                        |                              |  |                        |         |         |  |         |         |         |  |         |         |   |  |   |         |   |  |   |       
|                        | Net loss before taxes        |  |                        | 72      |         |  |         | (334    | )       |  |         | (651    | ) |  |   | (935    | ) |  |   | (1,282 | )
|                       
|                       
|                       
|                       
|                        | Income tax benefit (expense) |  |                        | 27      |         |  |         | 2,065   |         |  |         |        |   |  |   |        |   |  |   |       |  
|                        |                              |  |                        |         |         |  |         |         |         |  |         |         |   |  |   |         |   |  |   |       
|                       
|                       
|                       
|                       
|                        | Net income (loss)            |  | $                      | 45      |         |  | $       | 1,731   |         |  | $       | (651    | ) |  | $ | (935    | ) |  | $ | (1,282 | )
|                        |                              |  |                        |         |         |  |         |         |         |  |         |         |   |  |   |         |   |  |   |       

Our management believes earning assets should continue to increase with
associated increases in net interest income. The amounts of increased net
interest income along with increased non-interest income should exceed the
amount of increases in the provision for loan losses and non-interest expense
and be sufficient to produce improved results throughout 2002.

Financial Condition

We continued to experience significant growth between December 31, 2001 and
March 31, 2002. At March 31, 2002, we had total assets of $192.5 million
compared to $175.4 million at December 31, 2001. Our significant increase in
assets was generally reflected in loans and was funded primarily by increases
in deposits and other borrowings. Since we are still in our initial stages of
operations, we anticipate that assets will continue to increase throughout the
remainder of fiscal year 2002.

Loans.The composition of loans at March 31, 2002 and December 31, 2001 and
the percentage of each classification to total loans are summarized as follows:

|                                      |                  |   |                        |         |                   |  |        |       |            |   |        |         |  |  |      |       |  
|------------------------------------- | ---------------- | - | ---------------------- | ------- | ----------------- |  | ------ | ----- | ---------- | - | ------ | ------- |  |  | ---- | ----- | -
|                                      |                  |   | March 31, 2002         |         | December 31, 2001
|                                      |                  |   |                        |         |                  
|                                      |                  |   | Amount                 |         | Percentage        |  | Amount |       | Percentage
|                                      |                  |   |                        |         |                   |  |        |       |           
|                                      |                  |   | (dollars in thousands)
|Commercial real estate  mortgage     |                  | $ | 42,457                 |         |                   |  | 28.1   | %     |            | $ | 36,179 |         |  |  | 26.9 | %    
|                                     
|                                     
|                                     
|                                     
|Commercial real estate  construction |                  |   | 6,657                  |         |                   |  | 4.4    |       |            |   | 5,977  |         |  |  | 4.4  |      
|                                     
|                                     
|                                     
|                                     
|Commercial  other                    |                  |   | 60,855                 |         |                   |  | 40.2   |       |            |   | 59,839 |         |  |  | 44.5 |      
|                                      |                  |   |                        |         |                   |  |        |       |            |   |        |         |  |  |      |      
|                                      | Total commercial |   |                        | 109,969 |                   |  |        | 72.7  |            |   |        | 101,995 |  |  |      | 75.8  |  
|                                      |                  |   |                        |         |                   |  |        |       |            |   |        |         |  |  |      |      
|Consumer real estate  mortgage       |                  |   | 33,608                 |         |                   |  | 22.2   |       |            |   | 26,535 |         |  |  | 19.7 |      
|                                     
|                                     
|                                     
|                                     
|Consumer real estate  construction   |                  |   | 455                    |         |                   |  | 0.3    |       |            |   | 381    |         |  |  | 0.3  |      
|                                     
|                                     
|                                     
|                                     
|Consumer  other                      |                  |   | 7,248                  |         |                   |  | 4.8    |       |            |   | 5,529  |         |  |  | 4.2  |      
|                                      |                  |   |                        |         |                   |  |        |       |            |   |        |         |  |  |      |      
|                                      | Total consumer   |   |                        | 41,311  |                   |  |        | 27.3  |            |   |        | 32,445  |  |  |      | 24.2  |  
|                                      |                  |   |                        |         |                   |  |        |       |            |   |        |         |  |  |      |      
|                                      | Total loans      |   | $                      | 151,280 |                   |  |        | 100.0 | %          |   | $      | 134,440 |  |  |      | 100.0 | %
|                                      |                  |   |                        |         |                   |  |        |       |            |   |        |         |  |  |      |      

Page 18



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##### Table of Contents



The following table classifies our fixed and variable rate loans at March 31,
2002 and December 31, 2001 according to contractual maturities of (1) one year
or less, (2) after one year through five years, and (3) after five years.

|                   |                                    |   |                        |        |                |   |        |        |  |   |         |        | 
|------------------ | ---------------------------------- | - | ---------------------- | ------ | -------------- | - | ------ | ------ |  | - | ------- | ------ | 
|                   |                                    |   | Loans with             |        | Loans with     |   | Total 
|                   |                                    |   | fixed rates            |        | variable rates |   | loans 
|                   |                                    |   |                        |        |                |   |       
|                   |                                    |   | (dollars in thousands)
|March 31, 2002:    |                                    |   |                        |        |                |   |        |        |  |   |         |       
|                  
|                  
|                  
|                  
|                   | Due within one year                |   | $                      | 3,313  |                |   | $      | 74,748 |  |   | $       | 78,061 | 
|                   | Due in one year through five years |   |                        | 40,202 |                |   |        | 17,904 |  |   |         | 58,106 | 
|                   | Due after five years               |   |                        | 10,651 |                |   |        | 4,462  |  |   |         | 15,113 | 
|                   |                                    |   |                        |        |                |   |        |        |  |   |         |       
|                  
|                  
|                  
|                  
|                   |                                    | $ | 54,166                 |        |                | $ | 97,114 |        |  | $ | 151,280 |       
|                   |                                    |   |                        |        |                |   |        |        |  |   |         |       
|                  
|                  
|                  
|                  
|                   |                                    |   |                        |        |                |   |        |        |  |   |         |       
|                  
|                  
|                  
|                  
|December 31, 2001: |                                    |   |                        |        |                |   |        |        |  |   |         |       
|                  
|                  
|                  
|                  
|                   | Due within one year                |   | $                      | 3,120  |                |   | $      | 62,323 |  |   | $       | 65,443 | 
|                   | Due in one year through five years |   |                        | 36,185 |                |   |        | 15,902 |  |   |         | 52,087 | 
|                   | Due after five years               |   |                        | 11,785 |                |   |        | 5,125  |  |   |         | 16,910 | 
|                   |                                    |   |                        |        |                |   |        |        |  |   |         |       
|                  
|                  
|                  
|                  
|                   |                                    | $ | 51,090                 |        |                | $ | 83,350 |        |  | $ | 134,440 |       
|                   |                                    |   |                        |        |                |   |        |        |  |   |         |       

Non-Performing Assets.The specific economic and credit risks associated with
our loan portfolio, include, but are not limited to, a general downturn in the
economy which could affect employment rates in our market area, general real
estate market deterioration, interest rate fluctuations, deteriorated or
non-existing collateral, title defects, inaccurate appraisals, financial
deterioration of borrowers, fraud, and any violation of banking laws and
regulations.

We attempt to reduce these economic and credit risks not only by adherence to
loan to value guidelines, but also by investigating the creditworthiness of the
borrower and monitoring the borrowers financial position. Also, we establish
and periodically review our lending policies and procedures. Banking
regulations limit our exposure by prohibiting loan relationships that exceed
15% of Pinnacle Nationals statutory capital in the case of loans that are not
fully secured by readily marketable or other permissible types of collateral.

It is Pinnacle Nationals policy to discontinue the accrual of interest income
when (1) there is a significant deterioration in the financial condition of the
borrower and full repayment of principal and interest is not expected or (2)
the principal or interest is more than 90 days past due, unless the loan is
both well-secured and in the process of collection. At March 31, 2002, and at
December 31, 2001 we had one loan for $220,000 ($250,000 at December 31, 2001)
for which we, after an evaluation of the financial condition of the borrower,
had discontinued the accrual of interest and allocated a $150,000 valuation
allowance. No loans at December 31, 2001 were past due by 90 days or more or
were deemed to be a restructured loan. Additionally, we had no repossessed real
estate properties classified as Other Real Estate Owned at March 31, 2002 or
December 31, 2001. The following table is a summary of our nonperforming
assets at the indicated dates:

|                                                                                                            |                                                                        |   |                        |     |              |   |         |     | 
|----------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | - | ---------------------- | --- | ------------ | - | ------- | --- | 
|                                                                                                            |                                                                        |   | March 31               |     | December 31,
|                                                                                                            |                                                                        |   | 2002                   |     | 2001        
|                                                                                                            |                                                                        |   |                        |     |             
|                                                                                                            |                                                                        |   | (dollars in thousands)
|Nonaccrual loans (1)                                                                                        |                                                                        | $ | 220                    |     |              | $ | 250     |    
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Renegotiated loans                                                                                          |                                                                        |   |                       |     |              |   |        |    
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Other real estate owned                                                                                     |                                                                        |   |                       |     |              |   |        |    
|                                                                                                            |                                                                        |   |                        |     |              |   |         |    
|                                                                                                            | Total nonperforming assets                                             |   |                        | 220 |              |   |         | 250 | 
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Accruing loans past due 90 days or more                                                                     |                                                                        |   | 20                     |     |              |   |        |    
|                                                                                                            |                                                                        |   |                        |     |              |   |         |    
|                                                                                                            | Total nonperforming assets and accruing
loans past due 90 days or more |   | $                      | 240 |              |   | $       | 250 | 
|                                                                                                            |                                                                        |   |                        |     |              |   |         |    
|Total loans outstanding                                                                                     |                                                                        | $ | 151,280                |     |              | $ | 134,440 |    
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Ratio of total nonperforming assets to total
loans outstanding and other real estate
owned at end of period |                                                                        |   | 0.15                   | %   |              |   | 0.19    | %  



---

|(1) |  | Interest income that would have been recorded for the three months
in 2002 and for the year in 2001 related to nonaccrual loans was $4,000
and $5,000, respectively, none of which is included in interest income
or net income for the three months in 2002 and for the year.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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---



##### Table of Contents



Allowance for Loan Losses.We maintain the allowance for loan losses (ALL) at
a level that our management deems appropriate to adequately cover the inherent
risks in the loan portfolio. As of March 31, 2002 and December 31, 2001, our
allowance for loan losses was $2,041,000 and $1,832,000, respectively. Our
management deemed these amounts to be adequate. The judgments and estimates
associated with our ALL determination are described under Critical Accounting
Policies above.

Approximately 73% of our loan portfolio at March 31, 2002, as compared to 76%
at December 31, 2001, consisted of commercial loans. Using standard industry
codes, we periodically analyze our loan position with respect to our borrowers
industries to determine if a concentration of credit risk exists to any one or
more industries. At March 31, 2002 and December 31, 2001, we determined that
we did not have any excessive exposure to any single industry which would
warrant additional allowance allocations. Although not material enough to
warrant additional allowance allocations, we do have a meaningful credit
exposure of loans outstanding, plus unfunded lines of credit to borrowers in
the trucking industry and to operators of nonresidential buildings at March 31,
2002 and December 31, 2001. Credit exposure to the trucking industry
approximated $20.5 million and $21.1 million at March 31, 2002 and December 31,
2001, respectively, while credit exposure to operators of nonresidential
buildings approximated $9.3 million and $8.2 million at March 31, 2002 and
December 31, 2001, respectively. We evaluate our exposure level to these
industry groups periodically in order to determine if additional reserves are
warranted.

The following table sets forth, based on managements best estimate, the
allocation of the ALL to types of loans as well as the unallocated portion as
of March 31, 2002 and December 31, 2001:

|            |  |                        |       |                   |  |            |       |        |  |   |       |            |  |  |       |  
|----------- |  | ---------------------- | ----- | ----------------- |  | ---------- | ----- | ------ |  | - | ----- | ---------- |  |  | ----- | -
|            |  | March 31, 2002         |       | December 31, 2001
|            |  |                        |       |                  
|            |  | (dollars in thousands)
|            |  |                        |       |                   |  | Percentage |       |        |  |   |       | Percentage
|            |  | Amount                 |       | of ALL            |  | Amount     |       | of ALL
|            |  |                        |       |                   |  |            |       |       
|Commercial  |  | $                      | 1,243 |                   |  |            | 60.9  | %      |  | $ | 1,077 |            |  |  | 58.8  | %
|           
|           
|           
|           
|Consumer    |  |                        | 402   |                   |  |            | 19.7  |        |  |   | 298   |            |  |  | 16.3  |  
|           
|           
|           
|           
|Unallocated |  |                        | 396   |                   |  |            | 19.4  |        |  |   | 457   |            |  |  | 24.9  |  
|            |  |                        |       |                   |  |            |       |        |  |   |       |            |  |  |       |  
|            |  | $                      | 2,041 |                   |  |            | 100.0 | %      |  | $ | 1,832 |            |  |  | 100.0 | %
|            |  |                        |       |                   |  |            |       |        |  |   |       |            |  |  |       |  

Summary of Loan Loss Experience.We have not charged off any loans since our
inception on February 28, 2000. As a relatively new institution, we do not
have loss experience comparable to more mature financial institutions; however,
as our loan portfolio matures, we will have charge-offs and we will consider
the amount and history of our charge-offs in determining the adequacy of our
allowance. The following is a summary of changes in the allowance for loan
losses for the three months ended March 31, 2002, for the year ended December
31, 2001 and the ratio of the allowance for loan losses to total loans as of
the end of each period:

|                                                                               |                                          |   |                        |     |              |   |       |       | 
|------------------------------------------------------------------------------ | ---------------------------------------- | - | ---------------------- | --- | ------------ | - | ----- | ----- | 
|                                                                               |                                          |   | Three Months           |     |              |   |      
|                                                                               |                                          |   | Ended                  |     | Year Ended  
|                                                                               |                                          |   | March 31,              |     | December 31,
|                                                                               |                                          |   | 2002                   |     | 2001        
|                                                                               |                                          |   |                        |     |             
|                                                                               |                                          |   | (dollars in thousands)
|Balance at beginning of period                                                 |                                          | $ | 1,832                  |     |              | $ | 162   |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Provision for loan losses                |   |                        | 209 |              |   |       | 1,670 | 
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Charged-off loans                        |   |                        |    |              |   |       |      | 
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Recovery of previously charged-off loans |   |                        |    |              |   |       |      | 
|                                                                               |                                          |   |                        |     |              |   |       |      
|Balance at end of period                                                       |                                          | $ | 2,041                  |     |              | $ | 1,832 |      
|                                                                               |                                          |   |                        |     |              |   |       |      
|Ratio of the allowance for loan losses to
total loans at the end of the period |                                          |   | 1.35                   | %   |              |   | 1.36  | %    
|                                                                               |                                          |   |                        |     |              |   |       |      

Page 20



---



##### Table of Contents



Investments.Our investment portfolio, consisting primarily of Federal agency
bonds and mortgage-backed securities, amounted to $20.3 million and $19.9
million at March 31, 2002 and December 31, 2001, respectively. The following
table summarizes the amortized cost and fair value of our securities at those
dates, all of which we classify as available-for-sale:

|                                                   |                                       |   |                        |        |            |   |            |    |       |   |      |      |   |   |        |        | 
|-------------------------------------------------- | ------------------------------------- | - | ---------------------- | ------ | ---------- | - | ---------- | -- | ----- | - | ---- | ---- | - | - | ------ | ------ | 
|                                                   |                                       |   |                        |        |            |   | Gross      |    | Gross |   |      |      |  
|                                                   |                                       |   | Amortized              |        | Unrealized |   | Unrealized |    | Fair 
|                                                   |                                       |   | Cost                   |        | Gains      |   | Losses     |    | Value
|                                                   |                                       |   |                        |        |            |   |            |    |      
|                                                   |                                       |   | (dollars in thousands)
|Securities available-for-sale  March 31, 2002:    |                                       |   |                        |        |            |   |            |    |       |   |      |      |   |   |        |       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | U.S. government and agency securities |   | $                      | 5,008  |            |   | $          | 29 |       |   | $    | (9   | ) |   | $      | 5,028  | 
|                                                   | Mortgage-backed securities            |   |                        | 15,465 |            |   |            | 37 |       |   |      | (228 | ) |   |        | 15,274 | 
|                                                   | State and municipal securities        |   |                        |       |            |   |            |   |       |   |      |     |   |   |        |       | 
|                                                   |                                       |   |                        |        |            |   |            |    |       |   |      |      |   |   |        |       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                       | $ | 20,473                 |        |            | $ | 66         |    |       | $ | (237 | )    |   | $ | 20,302 |       
|                                                   |                                       |   |                        |        |            |   |            |    |       |   |      |      |   |   |        |       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                       |   |                        |        |            |   |            |    |       |   |      |      |   |   |        |       
|                                                  
|                                                  
|                                                  
|                                                  
|Securities available-for-sale  December 31, 2001: |                                       |   |                        |        |            |   |            |    |       |   |      |      |   |   |        |       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | U.S. government and agency securities |   | $                      | 2,992  |            |   | $          | 72 |       |   | $    |     |   |   | $      | 3,064  | 
|                                                   | Mortgage-backed securities            |   |                        | 16,813 |            |   |            | 97 |       |   |      | (88  | ) |   |        | 16,822 | 
|                                                   | State and municipal securities        |   |                        |       |            |   |            |   |       |   |      |     |   |   |        |       | 
|                                                   |                                       |   |                        |        |            |   |            |    |       |   |      |      |   |   |        |       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                       | $ | 19,805                 |        |            | $ | 169        |    |       | $ | (88  | )    |   | $ | 19,886 |       
|                                                   |                                       |   |                        |        |            |   |            |    |       |   |      |      |   |   |        |       

We did not dispose of any securities available-for-sale during the period
beginning January 1, 2001 and ended March 31, 2002, and therefore, had no
realized gains or losses from the sale of securities during the three months
ended March 31, 2002 or during the year ended December 31, 2001. At March 31,
2002, approximately $18.1 million of our available for sale portfolio was
pledged to secure public fund deposits and securities sold under agreements to
repurchase.

The following table shows the carrying value of investment securities according
to contractual maturity classifications of (1) one year or less, (2) after one
year through five years, (3) after five years through ten years, and (4) after
ten years. Actual maturities may differ from contractual maturities of
mortgage-backed securities because the mortgages underlying the securities may
be called or prepaid with or without penalty. Therefore, these securities are
not included in the maturity categories noted below as of March 31, 2002, and
December 31, 2001.

|                                                   |                                |        |                 |       |            |        |        |       |   |        |        |        |  |  |     |     |   |   |        |        |  |  |     |     |  
|-------------------------------------------------- | ------------------------------ | ------ | --------------- | ----- | ---------- | ------ | ------ | ----- | - | ------ | ------ | ------ |  |  | --- | --- | - | - | ------ | ------ |  |  | --- | --- | -
|                                                   |                                |        | U.S. government |       | Mortgage-  |        |        |       |   |        |        |        | 
|                                                   |                                |        | and agency      |       | backed     |        |        |       |   |        |        |        | 
|                                                   |                                |        | Securities      |       | Securities |        | Totals
|                                                   |                                |        |                 |       |            |        |       
|(dollars in thousands)                             |                                | Amount |                 | Yield |            | Amount |        | Yield |   | Amount |        | Yield 
|                                                   |                                |        |                 |       |            |        |        |       |   |        |        |       
|Securities available-for-sale  March 31, 2002:    |                                |        |                 |       |            |        |        |       |   |        |        |        |  |  |     |     |   |   |        |        |  |  |     |    
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Due in one year or less        |        | $               |      |            |        |        |      |   |        | $      |       |  |  |     |    |   |   | $      |       |  |  |     |    |  
|                                                   | Due in one year to five years  |        |                 |      |            |        |        |      |   |        |        |       |  |  |     |    |   |   |        |       |  |  |     |    |  
|                                                   | Due in five years to ten years |        |                 | 5,028 |            |        |        | 6.0   | % |        |        |       |  |  |     |    |   |   |        | 5,028  |  |  |     | 6.0 | %
|                                                   | Due after ten years            |        |                 |      |            |        |        |      |   |        |        |       |  |  |     |    |   |   |        |       |  |  |     |    |  
|                                                   | Mortgage-backed securities     |        |                 |      |            |        |        |      |   |        |        | 15,274 |  |  |     | 5.8 | % |   |        | 15,274 |  |  |     | 5.8 | %
|                                                   |                                |        |                 |       |            |        |        |       |   |        |        |        |  |  |     |     |   |   |        |        |  |  |     |    
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                | $      | 5,028           |       |            |        | 6.0    | %     |   | $      | 15,274 |        |  |  | 5.8 | %   |   | $ | 20,302 |        |  |  | 5.9 | %  
|                                                   |                                |        |                 |       |            |        |        |       |   |        |        |        |  |  |     |     |   |   |        |        |  |  |     |    
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                |        |                 |       |            |        |        |       |   |        |        |        |  |  |     |     |   |   |        |        |  |  |     |    
|                                                  
|                                                  
|                                                  
|                                                  
|Securities available-for-sale  December 31, 2001: |                                |        |                 |       |            |        |        |       |   |        |        |        |  |  |     |     |   |   |        |        |  |  |     |    
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Due in one year or less        |        | $               |      |            |        |        |      |   |        | $      |       |  |  |     |    |   |   | $      |       |  |  |     |    |  
|                                                   | Due in one year to five years  |        |                 |      |            |        |        |      |   |        |        |       |  |  |     |    |   |   |        |       |  |  |     |    |  
|                                                   | Due in five years to ten years |        |                 | 3,064 |            |        |        | 6.5   | % |        |        |       |  |  |     |    |   |   |        | 3,064  |  |  |     | 6.5 | %
|                                                   | Due after ten years            |        |                 |      |            |        |        |      |   |        |        |       |  |  |     |    |   |   |        |       |  |  |     |    |  
|                                                   | Mortgage-backed securities     |        |                 |      |            |        |        |      |   |        |        | 16,822 |  |  |     | 5.9 | % |   |        | 16,822 |  |  |     | 5.9 | %
|                                                   |                                |        |                 |       |            |        |        |       |   |        |        |        |  |  |     |     |   |   |        |        |  |  |     |    
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                | $      | 3,064           |       |            |        | 6.5    | %     |   | $      | 16,822 |        |  |  | 5.9 | %   |   | $ | 19,886 |        |  |  | 6.0 | %  
|                                                   |                                |        |                 |       |            |        |        |       |   |        |        |        |  |  |     |     |   |   |        |        |  |  |     |    

---

Yields were computed using coupon interest, adding discount accretion or
subtracting premium amortization, as appropriate, on a ratable basis over
the life of each security. The weighted average yield for each maturity
range was computed using the acquisition price of each security in that
range.


Page 21



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##### Table of Contents



Deposits and Other Borrowings.We had approximately $149.5 million of deposits
at March 31, 2002, as compared to $133.3 million at December 31, 2001. Our
deposits consist of noninterest and interest-bearing demand accounts, savings,
money market and time deposits. Additionally, we entered into agreements with
certain customers to sell certain of our securities under agreements to
repurchase the security the following day. These agreements (which provide
customers with short-term returns for their excess funds) amounted to $10.2
million at March 31, 2002 compared with $14.7 million at December 31, 2001.
Additionally, at March 31, 2002 and December 31, 2001, we had borrowed $11.5
million and $8.5 million, respectively, in advances from the Federal Home Loan
Bank of Cincinnati. We had $2.5 million in Federal funds purchased at March
31, 2002.

The following table represents the average balances of our deposits and other
borrowings and the percentage of each type to the total average balances and
other borrowings for the three months ended March 31, 2002 and for the year
ended December 31, 2001:

|                                               |                                     |                   |                |        |                        |         |                   |      |        |      |            |        |        |        |       |      |      |      | 
|---------------------------------------------- | ----------------------------------- | ----------------- | -------------- | ------ | ---------------------- | ------- | ----------------- | ---- | ------ | ---- | ---------- | ------ | ------ | ------ | ----- | ---- | ---- | ---- | 
|                                               |                                     |                   |                |        | Three months ended     |         | Year ended       
|                                               |                                     |                   |                |        | March 31, 2002         |         | December 31, 2001
|                                               |                                     |                   |                |        |                        |         |                  
|                                               |                                     |                   |                |        | Amount                 |         | Percentage        |      | Amount |      | Percentage
|                                               |                                     |                   |                |        |                        |         |                   |      |        |      |           
|                                               |                                     |                   |                |        | (dollars in thousands)
|Average Balances                               |                                     |                   |                |        |                        |         |                   |      |        |      |            |        |        |        |       |     
|                                              
|                                              
|                                              
|                                              
|Deposits:                                      |                                     |                   |                |        |                        |         |                   |      |        |      |            |        |        |        |       |     
|                                              
|                                              
|                                              
|                                              
|                                               | Noninterest-bearing demand          |                   | $              | 14,088 |                        |         |                   | 8.9  | %      |      | $          | 7,912  |        |        |       | 9.9  | %   
|                                              
|                                              
|                                              
|                                              
|                                               | Interest-bearing demand             |                   |                | 8,474  |                        |         |                   | 5.3  |        |      |            | 4,835  |        |        |       | 6.0  |     
|                                              
|                                              
|                                              
|                                              
|                                               | Savings and money market            |                   |                | 52,662 |                        |         |                   | 33.1 |        |      |            | 33,566 |        |        |       | 42.0 |     
|                                              
|                                              
|                                              
|                                              
|                                               | Time deposits less than $100,000    |                   |                | 4,098  |                        |         |                   | 2.6  |        |      |            | 2,061  |        |        |       | 2.6  |     
|                                              
|                                              
|                                              
|                                              
|                                               | Time deposits greater than $100,000 |                   |                |        |                        |         |                   |      |        |      |            |        |        |        |       |      |     
|                                              
|                                              
|                                              
|                                              
|                                               |                                     | Public
funds      |                |        | 8,542                  |         |                   |      | 5.4    |      |            |        | 5,911  |        |       |      | 7.4  |     
|                                               |                                     | Brokered deposits |                |        | 34,517                 |         |                   |      | 21.7   |      |            |        | 10,110 |        |       |      | 12.6 |     
|                                              
|                                              
|                                              
|                                              
|                                               |                                     | Other             |                |        | 15,552                 |         |                   |      | 9.8    |      |            |        | 6,357  |        |       |      | 8.0  |     
|                                               |                                     |                   |                |        |                        |         |                   |      |        |      |            |        |        |        |       |     
|                                               |                                     |                   | Total deposits |        |                        | 137,933 |                   |      |        | 86.8 |            |        |        | 70,752 |       |      |      | 88.5 | 
|                                               |                                     |                   |                |        |                        |         |                   |      |        |      |            |        |        |        |       |     
|Securities sold under agreements to repurchase |                                     |                   | 10,644         |        |                        |         | 6.7               |      |        |      | 6,584      |        |        |        | 8.2   |     
|                                              
|                                              
|                                              
|                                              
|Federal funds purchased                        |                                     |                   | 1,749          |        |                        |         | 1.1               |      |        |      | 886        |        |        |        | 1.1   |     
|                                              
|                                              
|                                              
|                                              
|Federal Home Loan Bank advances                |                                     |                   | 8,600          |        |                        |         | 5.4               |      |        |      | 1,704      |        |        |        | 2.2   |     
|                                               |                                     |                   |                |        |                        |         |                   |      |        |      |            |        |        |        |       |     
|                                               |                                     | $                 | 158,926        |        |                        |         | 100.0             | %    |        | $    | 79,926     |        |        |        | 100.0 | %   
|                                               |                                     |                   |                |        |                        |         |                   |      |        |      |            |        |        |        |       |     

The amounts of time deposits issued in amounts of $100,000 or more as of March 31, 2002 and December 31, 2001 amounted to $68.2 million and $48.6 million,
respectively. The following table shows our time deposits over $100,000 by
category, which is based on time remaining until maturity of (1) three months
or less, (2) over three but less than six months, (3) over six but less than
twelve months and (4) over twelve months:

|                                     |  |                        |        |                   |  |   |        | 
|------------------------------------ |  | ---------------------- | ------ | ----------------- |  | - | ------ | 
|                                     |  | March 31, 2002         |        | December 31, 2001
|                                     |  |                        |        |                  
|                                     |  | (dollars in thousands)
|Three months or less                 |  | $                      | 16,527 |                   |  | $ | 11,403 | 
|                                    
|                                    
|                                    
|                                    
|Over three but less than six months  |  |                        | 9,010  |                   |  |   | 12,435 | 
|                                    
|                                    
|                                    
|                                    
|Over six but less than twelve months |  |                        | 16,425 |                   |  |   | 5,315  | 
|                                    
|                                    
|                                    
|                                    
|Over twelve months                   |  |                        | 26,210 |                   |  |   | 19,403 | 
|                                     |  |                        |        |                   |  |   |        | 
|                                     |  | $                      | 68,172 |                   |  | $ | 48,556 | 
|                                     |  |                        |        |                   |  |   |        | 

Capital Resources.Generally, banking laws and regulations require banks and
bank holding companies to maintain certain minimum capital ratios in order to
engage in certain activities or be eligible for certain types of regulatory
relief. At March 31, 2002 and December 31, 2001, our capital ratios,
including Pinnacle Nationals capital ratios, met regulatory minimum capital
requirements. For the first three months of 2002, our stockholders equity
declined, as our otherwise positive net income amount of $45,000 for this
three-month period was more than offset by a decline in the fair value of our
available-for-sale securities, and the corresponding impact on accumulated
other comprehensive income (loss) in stockholders equity. As a result, our
stockholders equity amounted to $18.2 million at March 31, 2002, compared to
$18.3 million at the end of 2001.

Page 22



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##### Table of Contents



In the future, our primary source of funds available will be Pinnacle
Nationals payment of dividends and, if we lend funds to Pinnacle National,
payment of interest. Banking regulations limit the amount of dividends that
may be paid by Pinnacle National without prior approval of the OCC. Currently,
Pinnacle National cannot pay us any dividends without prior approval of the
OCC.

At March 31, 2002, we had no material commitments for capital expenditures.
However, we are in the process of developing our branch network in Davidson and
surrounding counties. As a result, we will enter into contracts to buy
property or construct branch facilities and/or lease agreements to lease
property and/or rent currently constructed facilities. We anticipate opening
a branch facility in the Rivergate area of Davidson County during 2002. We
currently anticipate such a facility to cost less than $1,000,000 to construct.

At March 31, 2002 and December 31, 2001, Pinnacle National was categorized as
well capitalized. To be categorized as well capitalized, Pinnacle National
must maintain minimum Total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the following table. Additionally, we and Pinnacle
National must maintain certain minimum capital ratios for regulatory purposes.
The following table presents actual minimum and well capitalized capital
amounts and ratios at December 31, 2001 and 2000:

|                     |                                         |                    |  |                        |        |             |  |                   |      |       |  |                 |        |                   |  |  |     |   |  |                   |        |  |  |  |      |  
|-------------------- | --------------------------------------- | ------------------ |  | ---------------------- | ------ | ----------- |  | ----------------- | ---- | ----- |  | --------------- | ------ | ----------------- |  |  | --- | - |  | ----------------- | ------ |  |  |  | ---- | -
|                     |                                         |                    |  |                        |        |             |  |                   |      |       |  |                 |        |                   |  |  |     |   |  | To Be Well       
|                     |                                         |                    |  |                        |        |             |  |                   |      |       |  |                 |        |                   |  |  |     |   |  | Capitalized Under
|                     |                                         |                    |  |                        |        |             |  |                   |      |       |  | Minimum Capital |        | Prompt Corrective
|                     |                                         |                    |  | Actual                 |        | Requirement |  | Action Provisions
|                     |                                         |                    |  |                        |        |             |  |                  
|                     |                                         |                    |  | Amount                 |        | Ratio       |  | Amount            |      | Ratio |  | Amount          |        | Ratio            
|                     |                                         |                    |  |                        |        |             |  |                   |      |       |  |                 |        |                  
|                     |                                         |                    |  | (dollars in thousands)
|At March 31, 2002    |                                         |                    |  |                        |        |             |  |                   |      |       |  |                 |        |                   |  |  |     |   |  |                   |        |  |  | 
|                    
|                    
|                    
|                    
|                     | Total capital to risk weighted assets:  |                    |  |                        |        |             |  |                   |      |       |  |                 |        |                   |  |  |     |   |  |                   |        |  |  |  |     
|                    
|                    
|                    
|                    
|                     |                                         | Pinnacle Financial |  | $                      | 18,884 |             |  |                   | 10.5 | %     |  | $               | 14,337 |                   |  |  | 8.0 | % |  | not applicable   
|                     |                                         | Pinnacle National  |  | $                      | 18,084 |             |  |                   | 10.1 | %     |  | $               | 14,332 |                   |  |  | 8.0 | % |  | $                 | 17,915 |  |  |  | 10.0 | %
|                    
|                    
|                    
|                    
|                     | Tier I capital to risk weighted assets: |                    |  |                        |        |             |  |                   |      |       |  |                 |        |                   |  |  |     |   |  |                   |        |  |  |  |     
|                    
|                    
|                    
|                    
|                     |                                         | Pinnacle Financial |  | $                      | 16,843 |             |  |                   | 9.4  | %     |  | $               | 7,169  |                   |  |  | 4.0 | % |  | not applicable   
|                     |                                         | Pinnacle National  |  | $                      | 16,043 |             |  |                   | 9.0  | %     |  | $               | 7,166  |                   |  |  | 4.0 | % |  | $                 | 10,749 |  |  |  | 6.0  | %
|                    
|                    
|                    
|                    
|                     | Tier I capital to average assets(1):    |                    |  |                        |        |             |  |                   |      |       |  |                 |        |                   |  |  |     |   |  |                   |        |  |  |  |     
|                    
|                    
|                    
|                    
|                     |                                         | Pinnacle Financial |  | $                      | 16,843 |             |  |                   | 9.5  | %     |  | $               | 7,062  |                   |  |  | 4.0 | % |  | not applicable   
|                     |                                         | Pinnacle National  |  | $                      | 16,043 |             |  |                   | 9.1  | %     |  | $               | 7,062  |                   |  |  | 4.0 | % |  | $                 | 8,827  |  |  |  | 5.0  | %
|                    
|                    
|                    
|                    
|                     |                                         |                    |  |                        |        |             |  |                   |      |       |  |                 |        |                   |  |  |     |   |  |                   |        |  |  | 
|                    
|                    
|                    
|                    
|At December 31, 2001 |                                         |                    |  |                        |        |             |  |                   |      |       |  |                 |        |                   |  |  |     |   |  |                   |        |  |  | 
|                    
|                    
|                    
|                    
|                     | Total capital to risk weighted assets:  |                    |  |                        |        |             |  |                   |      |       |  |                 |        |                   |  |  |     |   |  |                   |        |  |  |  |     
|                    
|                    
|                    
|                    
|                     |                                         | Pinnacle Financial |  | $                      | 18,188 |             |  |                   | 11.2 | %     |  | $               | 12,971 |                   |  |  | 8.0 | % |  | not applicable   
|                     |                                         | Pinnacle National  |  | $                      | 17,402 |             |  |                   | 10.7 | %     |  | $               | 12,971 |                   |  |  | 8.0 | % |  | $                 | 16,214 |  |  |  | 10.0 | %
|                    
|                    
|                    
|                    
|                     | Tier I capital to risk weighted assets: |                    |  |                        |        |             |  |                   |      |       |  |                 |        |                   |  |  |     |   |  |                   |        |  |  |  |     
|                    
|                    
|                    
|                    
|                     |                                         | Pinnacle Financial |  | $                      | 16,356 |             |  |                   | 10.1 | %     |  | $               | 6,486  |                   |  |  | 4.0 | % |  | not applicable   
|                     |                                         | Pinnacle National  |  | $                      | 15,570 |             |  |                   | 9.6  | %     |  | $               | 6,486  |                   |  |  | 4.0 | % |  | $                 | 9,729  |  |  |  | 6.0  | %
|                    
|                    
|                    
|                    
|                     | Tier I capital to average assets(1):    |                    |  |                        |        |             |  |                   |      |       |  |                 |        |                   |  |  |     |   |  |                   |        |  |  |  |     
|                    
|                    
|                    
|                    
|                     |                                         | Pinnacle Financial |  | $                      | 16,356 |             |  |                   | 11.6 | %     |  | $               | 5,649  |                   |  |  | 4.0 | % |  | not applicable   
|                     |                                         | Pinnacle National  |  | $                      | 15,570 |             |  |                   | 11.0 | %     |  | $               | 5,649  |                   |  |  | 4.0 | % |  | $                 | 7,062  |  |  |  | 5.0  | %



---

|(1) |  | Average assets for the above computation were computed using
average balances for the three months ended March 31, 2002 and the
three months ended December 31, 2001, as applicable.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Also, in connection with approving Pinnacle Nationals deposit insurance
application, the FDIC imposed an additional capital requirement which remains
in effect until October 27, 2003. Pursuant to this requirement, Pinnacle
National must maintain a tier I capital to average assets ratio of at least 8%.
At March 31, 2002 and December 31, 2001, as noted above, Pinnacle Nationals
tier 1 capital to average assets ratio was 9.1% and 11.0%, respectively.

In order for Pinnacle National to achieve anticipated asset growth while
continuing to meet regulatory requirements for minimum capital and for well
capitalized status, we will be required to inject additional capital into
Pinnacle National. In order to inject the required capital into Pinnacle
National, we may raise

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##### Table of Contents



additional equity through a public or private offering or incur
indebtedness. Should we issue additional equity securities, such securities
could dilute the interests of our current shareholders and of purchasers in
this offering.

Dividends.Pinnacle National is subject to restrictions on the payment of
dividends to us under federal banking laws and the regulations of the OCC. We
in turn are also subject to limits on payment of dividends to our shareholders
by the rules, regulations and policies of federal banking authorities. We have
not paid any dividends to date, nor do we anticipate paying dividends to our
shareholders for the foreseeable future. In order to pay such dividends, we
will need to receive dividends from Pinnacle National or have other sources of
funds. As a national bank, Pinnacle National will not be able to pay dividends
to us until it has a positive retained earnings account. At March 31, 2002,
Pinnacle Nationals accumulated deficit was approximately $3.2 million. Future
dividend policy will depend on Pinnacle Nationals earnings, capital position,
financial condition and other factors.

Return on Assets and Stockholders Equity

The following table shows return on assets (net income (loss) divided by
average total assets), return on equity (net income (loss) divided by average
stockholders equity), dividend payout ratio (dividends declared per share
divided by net income per share) and stockholders equity to asset ratio
(average stockholders equity divided by average total assets) for the three
months ended March 31, 2002 (annualized) and for the year ended December 31,
2001.

|                                    |  |                    |      |                   |  |  |       |   
|----------------------------------- |  | ------------------ | ---- | ----------------- |  |  | ----- | --
|                                    |  | Three months ended |      | Year Ended       
|                                    |  | March 31, 2002     |      | December 31, 2001
|                                    |  |                    |      |                  
|Return on assets                    |  |                    | 0.10 | %                 |  |  | (1.20 | )%
|                                   
|                                   
|                                   
|                                   
|Return on equity                    |  |                    | 1.0  | %                 |  |  | (7.8  | )%
|                                   
|                                   
|                                   
|                                   
|Dividend payout ratio               |  |                    |     | %                 |  |  |      | % 
|                                   
|                                   
|                                   
|                                   
|Stockholders equity to asset ratio |  |                    | 10.3 | %                 |  |  | 15.3  | % 

Market Risk Management

Asset / Liability Management.Our objective is to manage assets and
liabilities to provide a satisfactory, consistent level of profitability within
the framework of established liquidity, loan, investment, borrowing, and
capital policies. Our Asset Liability Management Committee, or ALCO, is
charged with the responsibility of monitoring these policies, which are
designed to ensure acceptable composition of asset/liability mix. Two critical
areas of focus for ALCO are interest rate sensitivity and liquidity risk
management.

Interest Rate Sensitivity.In the normal course of business, we are exposed to
market risk arising from fluctuations in interest rates. ALCO measures and
evaluates the interest rate risk so that we can meet customer demands for
various types of loans and deposits. ALCO determines the most appropriate
amounts of on-balance sheet and off-balance sheet items. Measurements which we
use to help us manage interest rate sensitivity include an earnings simulation
model, an economic value of equity model, and gap analysis computations. These
measurements are used in conjunction with competitive pricing analysis.

Earnings simulation model. We believe that interest rate risk is best
measured by our earnings simulation modeling. Forecasted levels of earning
assets, interest-bearing liabilities, and off-balance sheet financial
instruments are combined with ALCO forecasts of interest rates for the next 12
months and are combined with other factors in order to produce various earnings
simulations. To limit interest rate risk, we have guidelines for our earnings
at risk which seek to limit the variance of net income to less than 10 percent
for a 200 basis point change in rates from managements most likely interest
rate forecast over the next twelve months. We have operated within this
guideline since inception.

Economic value of equity. Our economic value of equity model measures the
extent that estimated economic values of our assets, liabilities and
off-balance sheet items will change as a result of interest rate changes.
Economic values are determined by discounting expected cash flows from assets,

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liabilities and off-balance sheet items, which establishes a base case
economic value of equity. To help limit interest rate risk, we have a
guideline stating that for an instantaneous 200 basis point change in interest
rates, the economic value of equity will not change by more than 20 percent
from the base case. We have operated within this guideline since inception.

Gap analysis. An asset or liability is considered to be interest
rate-sensitive if it will reprice or mature within the time period analyzed;
for example, within three months or one year. The interest rate-sensitivity
gap is the difference between the interest-earning assets and interest-bearing
liabilities scheduled to mature or reprice within such time period. A gap is
considered positive when the amount of interest rate-sensitive assets exceeds
the amount of interest rate-sensitive liabilities. A gap is considered
negative when the amount of interest rate-sensitive liabilities exceeds the
interest rate-sensitive assets. During a period of rising interest rates, a
negative gap would tend to adversely affect net interest income, while a
positive gap would tend to result in an increase in net interest income.
Conversely, during a period of falling interest rates, a negative gap would
tend to result in an increase in net interest income, while a positive gap
would tend to adversely affect net interest income. If our assets and
liabilities were equally flexible and moved concurrently, the impact of any
increase or decrease in interest rates on net interest income would be minimal.

A simple interest rate gap analysis by itself may not be an accurate indicator
of how net interest income will be affected by changes in interest rates.
Income associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market rates, while interest rates on other types
may lag behind changes in general market rates. In addition, certain assets,
such as adjustable rate mortgage loans, have features (generally referred to as
interest rate caps and floors) which limit changes in interest rates.
Prepayment and early withdrawal levels also could deviate significantly from
those assumed in calculating the interest rate gap. The ability of many
borrowers to service their debts also may decrease during periods of rising
interest rates.

At March 31, 2002 and December 31, 2001, our cumulative twelve-month interest
rate-sensitivity gap ratios of earning assets to interest bearing liabilities
were 93% and 82%, respectively, which were within our targeted ratio of 75% to
125% in this time horizon. These ratios indicate that our interest-bearing
liabilities will reprice during this period at a rate faster than our
interest-earning assets absent the factors mentioned previously. There is a
general view in credit markets that interest rates will eventually rise over
the next 12 months which, given our gap position, would have a negative impact
on our margin. However, deposit pricing will generally lag both in depth and
timing with any upward interest rate adjustments. Thus, our management
believes we are in an acceptable position at March 31, 2002 to manage our net
interest margins through an upward rate environment.

The following table sets forth the distribution of the repricing of our
interest-earning assets and interest-bearing liabilities as of March 31, 2002,
the interest rate-sensitivity gap, the cumulative interest rate-sensitivity
gap, the interest rate-sensitivity gap ratio and the cumulative interest
rate-sensitivity gap ratio. The table also sets forth the time periods in
which earning assets and liabilities will mature or may reprice in accordance
with their contractual terms. However, the table does not necessarily indicate
the impact of general interest rate movements on the net interest margin since
the repricing of various categories of assets and liabilities is subject to
competitive pressures and the needs of our customers. In addition, various
assets and liabilities indicated as repricing within the same period may, in
fact, reprice at different times within such period and at different rates.

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##### Table of Contents



|                                                         |                                                                        |                                    |        |                            |        |         |        |            |        |       |         |         |         |       |        |        |        |  |        |        |   |  |         |         |         | 
|-------------------------------------------------------- | ---------------------------------------------------------------------- | ---------------------------------- | ------ | -------------------------- | ------ | ------- | ------ | ---------- | ------ | ----- | ------- | ------- | ------- | ----- | ------ | ------ | ------ |  | ------ | ------ | - |  | ------- | ------- | ------- | 
|                                                         |                                                                        |                                    |        | Interest Sensitive Periods
|                                                         |                                                                        |                                    |        |                           
|                                                         |                                                                        |                                    |        | Months                     |        |         |        |            |        |       |         |         |         |       |        |        |        |  |        |       
|                                                         |                                                                        |                                    |        |                            |        |         |        |            |        |       |         |         |         |       |        |        |        |  |        |       
|                                                         |                                                                        |                                    |        |                            |        |         |        | Over Three |        | Total |         |         |         |       |        | More   |        |  |        |       
|                                                         |                                                                        |                                    |        | Within                     |        | Through |        | One        |        | 1 - 5 |         | Than 5  |         |       |        |       
|                                                         |                                                                        |                                    |        | Three                      |        | Twelve  |        | Year       |        | Years |         | Years   |         | Total
|                                                         |                                                                        |                                    |        |                            |        |         |        |            |        |       |         |         |         |      
|Earning assets:                                          |                                                                        |                                    |        |                            |        |         |        |            |        |       |         |         |         |       |        |        |        |  |        |        |   |  |         |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Securities, available-for-sale (1)                                     |                                    | $      | 1,200                      |        |         | $      | 2,700      |        |       | $       | 3,900   |         |       | $      | 7,616  |        |  | $      | 8,957  |   |  | $       | 20,473  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Loans (2)                                                              |                                    |        | 78,334                     |        |         |        | 21,995     |        |       |         | 100,329 |         |       |        | 48,634 |        |  |        | 2,097  |   |  |         | 151,060 |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Federal funds sold and securities purchased under agreements to resell |                                    |        | 6,671                      |        |         |        |           |        |       |         | 6,671   |         |       |        |       |        |  |        |       |   |  |         | 6,671   |        
|                                                         |                                                                        |                                    |        |                            |        |         |        |            |        |       |         |         |         |       |        |        |        |  |        |        |   |  |         |         |        
|Total earning assets                                     |                                                                        |                                    | 86,205 |                            |        |         | 24,695 |            |        |       | 110,900 |         |         |       | 56,250 |        |        |  | 11,054 |        |   |  | 178,204 |        
|                                                         |                                                                        |                                    |        |                            |        |         |        |            |        |       |         |         |         |       |        |        |        |  |        |        |   |  |         |         |        
|Interest bearing liabilities:                            |                                                                        |                                    |        |                            |        |         |        |            |        |       |         |         |         |       |        |        |        |  |        |        |   |  |         |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | NOW, money market, savings (3)                                         |                                    | $      | 60,238                     |        |         | $      |           |        |       | $       | 60,238  |         |       | $      |       |        |  | $      |       |   |  | $       | 60,238  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Certificates of deposit                                                |                                    |        | 17,269                     |        |         |        | 29,061     |        |       |         | 46,330  |         |       |        | 27,150 |        |  |        |       |   |  |         | 73,480  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Securities sold under agreements
to repurchase                         |                                    |        | 10,223                     |        |         |        |           |        |       |         | 10,223  |         |       |        |       |        |  |        |       |   |  |         | 10,223  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Federal Home Loan Bank advances                                        |                                    |        |                           |        |         |        |           |        |       |         |        |         |       |        | 11,500 |        |  |        |       |   |  |         | 11,500  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Federal funds purchased                                                |                                    |        | 2,500                      |        |         |        |           |        |       |         | 2,500   |         |       |        |       |        |  |        |       |   |  |         | 2,500   |        
|                                                         |                                                                        |                                    |        |                            |        |         |        |            |        |       |         |         |         |       |        |        |        |  |        |        |   |  |         |         |        
|                                                         |                                                                        | Total interest bearing liabilities |        |                            | 90,230 |         |        |            | 29,061 |       |         |         | 119,291 |       |        |        | 38,650 |  |        |        |  |  |         |         | 157,941 | 
|                                                         |                                                                        |                                    |        |                            |        |         |        |            |        |       |         |         |         |       |        |        |        |  |        |        |   |  |         |         |        
|Interest sensitive gap:                                  |                                                                        |                                    |        |                            |        |         |        |            |        |       |         |         |         |       |        |        |        |  |        |        |   |  |         |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | For indicated period                                                   |                                    | $      | (4,025                     | )      |         | $      | (4,366     | )      |       | $       | (8,391  | )       |       | $      | 17,600 |        |  | $      | 11,054 |   |  | $       | 20,263  |        
|                                                         |                                                                        |                                    |        |                            |        |         |        |            |        |       |         |         |         |       |        |        |        |  |        |        |   |  |         |         |        
|                                                         | Cumulative                                                             |                                    | $      | (4,025                     | )      |         | $      | (8,391     | )      |       | $       | (8,391  | )       |       | $      | 9,209  |        |  | $      | 20,263 |   |  | $       | 20,263  |        
|                                                         |                                                                        |                                    |        |                            |        |         |        |            |        |       |         |         |         |       |        |        |        |  |        |        |   |  |         |         |        
|Ratio of earning assets to interest bearing liabilities: |                                                                        |                                    |        |                            |        |         |        |            |        |       |         |         |         |       |        |        |        |  |        |        |   |  |         |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | For indicated period                                                   |                                    |        | 96                         | %      |         |        | 85         | %      |       |         | 93      | %       |       |        | 146    | %      |  |        |       |   |  |         | 113     | %      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Cumulative                                                             |                                    |        | 96                         | %      |         |        | 93         | %      |       |         | 93      | %       |       |        | 106    | %      |  |        | 113    | % |  |         | 113     | %      

---

| | (1) |  | At amortized cost, includes impact of anticipated mortgage-backed
prepayments and agency calls.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Excludes nonaccrual loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (3) |  | All NOW, money market and savings accounts are reflected as
interest-sensitive within three months. NOW accounts, savings and
certain money market accounts are not totally interest-sensitive in all
interest rate environments. If NOW, money market and savings accounts
were not considered interest-sensitive, the earning assets to interest
bearing liabilities ratio at the one year horizon would have been 182%.                                                                                                                                          
|
| | (4) |  | Each column includes earning assets and interest-bearing
liabilities that are estimated to mature or reprice within the
respective time frame. All floating rate balance sheet items are
included as within three months regardless of maturity. Nonearning
assets (cash and due from banks, premises and equipment and other
assets), noninterest-bearing liabilities (demand deposits and other
liabilities) and shareholders equity are considered to be
noninterest-sensitive for purposes of this presentation and thus are
not included in the above table.

Derivatives. We may use derivative financial instruments to improve the
balance between interest-sensitive assets and interest-sensitive liabilities
and as one tool to manage our interest rate sensitivity while continuing to
meet the credit and deposit needs of our customers. At March 31, 2002 and
December 31, 2001, we had not entered into any derivative contracts to assist
managing our interest rate sensitivity.

Liquidity Risk Management

The purpose of liquidity risk management is to ensure that there are sufficient
cash flows to satisfy loan demand, deposit withdrawals, and our other needs.
Traditional sources of liquidity for a bank include asset maturities and growth
in core deposits. A bank may achieve its desired liquidity objectives from the
management of its assets and liabilities and by internally generated funding
through its operations. Funds invested in marketable instruments that can be
readily sold and the continuous maturing of other earning assets are sources of
liquidity from an asset perspective. The liability base provides sources of
liquidity through attraction of increased deposits and borrowing funds from
various other institutions.

Changes in interest rates also affect our liquidity position. We currently
price deposits in response to market rates and our management intends to
continue this policy. If deposits are not priced in response to market rates,
a loss of deposits could occur which would negatively affect our liquidity
position.

Scheduled loan payments are a relatively stable source of funds, but loan
payoffs and deposit flows fluctuate significantly, being influenced by interest
rates, general economic conditions and competition. Additionally, debt security
investments are subject to prepayment and call provisions that could accelerate

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##### Table of Contents



their payoff prior to stated maturity. We attempt to price our deposit
products to meet our asset/liability objectives consistent with local market
conditions. Our ALCO is responsible for monitoring our ongoing liquidity
needs. Our regulators also monitor our liquidity and capital resources on a
periodic basis.

At March 31, 2002, we had approximately $18.4 million of liquid assets compared
to $18.6 million at December 31, 2001. For purposes of liquidity management,
liquid assets are cash and cash equivalents and the anticipated cash flows from
available-for-sale securities for the next year. This amount represented 10%
of our total earning assets at March 31, 2002 compared to 11% at December 31,
2001.

Our consolidated statement of cash flows shows net cash provided or used by
operating, investing and financing activities. These activities resulted in
net cash used of $82,000 for the three months ended March 31, 2002 compared to
net cash used of $7,639,000 for the three months ended March 31, 2001. For the
three months ended March 31, 2002, we provided $365,000 in net cash from
operating activities compared to using for operating activities $987,000 during
the three months ended March 31, 2001. Net cash used for investing activities
amounted to $17.7 million for the three months ended March 31, 2002 as we
deployed funds received from financing activities in earning assets and
premises and equipment.

At March 31, 2002, we had unfunded loan commitments outstanding of $38.1
million and outstanding standby letters of credit of $5,419,000 Because these
commitments generally have fixed expiration dates and many will expire without
being drawn upon, the total commitment level does not necessarily represent
future cash requirements. If needed to fund these outstanding commitments,
Pinnacle National has the ability to liquidate Federal funds sold or securities
available-for-sale or on a short-term basis to borrow and purchase Federal
funds from other financial institutions. To date, Pinnacle National has been
able to fund its ongoing liquidity needs through attraction of additional
deposits or liquidation of Federal funds sold. At March 31, 2002, Pinnacle
National had accommodations with upstream correspondent banks for unsecured
short-term advances of approximately $16 million. These accommodations have
various covenants related to their term and availability, and in most cases
must be repaid within less than a month. The following table presents
additional information about our unfunded commitments as of March 31, 2002,
which by their terms have contractual maturity dates subsequent to March 31,
2002:

|                       |                   |          |   |             |        |             |   |               |       |        |   |     |     |  |   |       |       |  |   |        |        | 
|---------------------- | ----------------- | -------- | - | ----------- | ------ | ----------- | - | ------------- | ----- | ------ | - | --- | --- |  | - | ----- | ----- |  | - | ------ | ------ | 
|                       |                   |          |   | Within      |        | One year to |   | Four years to |       | Over   |   |     |     | 
|(dollars in thousands) |                   | One year |   | Three years |        | Five years  |   | Five years    |       | Totals
|                      
|Unfunded commitments:  |                   |          |   |             |        |             |   |               |       |        |   |     |     |  |   |       |       |  |   |       
|                      
|                      
|                      
|                      
|                       | Letters of credit |          | $ | 3,578       |        |             | $ | 1,841         |       |        | $ |    |     |  | $ |      |       |  | $ | 5,419  |       
|                      
|                      
|                      
|                      
|                       | Lines of credit   |          |   | 24,255      |        |             |   | 4,482         |       |        |   | 607 |     |  |   | 8,756 |       |  |   | 38,100 |       
|                       |                   |          |   |             |        |             |   |               |       |        |   |     |     |  |   |       |       |  |   |       
|                       |                   | Totals   |   | $           | 27,833 |             |   | $             | 6,323 |        |   | $   | 607 |  |   | $     | 8,756 |  |   | $      | 43,519 | 
|                       |                   |          |   |             |        |             |   |               |       |        |   |     |     |  |   |       |       |  |   |       

In addition, Pinnacle National is a member of the Federal Home Loan Bank of
Cincinnati. As a result, Pinnacle National receives advances from the Federal
Home Loan Bank of Cincinnati, pursuant to the terms of various borrowing
agreements, which assist it in the funding of its home mortgage and commercial
real estate loan portfolios. Pinnacle National has pledged under the
borrowing agreements with the Federal Home Loan Bank of Cincinnati certain
qualifying residential mortgage loans and, pursuant to a blanket lien, all
qualifying commercial mortgage loans as collateral.

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##### Table of Contents



At March 31, 2002, Pinnacle National had received advances from the Federal
Home Loan Bank of Cincinnati totaling $11.5 million at the following rates and
maturities:

|                                            |                  |   |                        |       |               |  |      |      |  
|------------------------------------------- | ---------------- | - | ---------------------- | ----- | ------------- |  | ---- | ---- | -
|                                            |                  |   | Dollar Amount          |       | Interest Rate
|                                            |                  |   |                        |       |              
|                                            |                  |   | (dollars in thousands)
|By Maturity Date:                           |                  |   |                        |       |               |  |      |     
|                                           
|                                           
|                                           
|                                           
|                                            | April 17, 2003   |   | $                      | 2,000 |               |  |      | 3.04 | %
|                                           
|                                           
|                                           
|                                           
|                                            | April 25, 2003   |   |                        | 1,500 |               |  |      | 2.84 |  
|                                           
|                                           
|                                           
|                                           
|                                            | June 18, 2003    |   |                        | 3,000 |               |  |      | 3.13 |  
|                                           
|                                           
|                                           
|                                           
|                                            | October 17, 2003 |   |                        | 2,000 |               |  |      | 3.42 |  
|                                           
|                                           
|                                           
|                                           
|                                            | March 29, 2004   |   |                        | 3,000 |               |  |      | 4.38 |  
|                                            |                  |   |                        |       |               |  |      |     
|                                            |                  | $ | 11,500                 |       |               |  |      |     
|                                            |                  |   |                        |       |               |  |      |     
|Weighted average interest rate for advances |                  |   |                        |       |               |  | 3.45 | %   
|                                            |                  |   |                        |       |               |  |      |     

Based on the collateral pledged to the Federal Home Loan Bank of Cincinnati,
Pinnacle National had additional capacity of approximately $6.3 million which
it could use to secure additional advances, subject to Federal Home Loan Bank
of Cincinnati requirements.

At March 31, 2002, brokered certificates of deposit approximated $39.8 million,
or 26.6% of total deposits. We issue these brokered certificates through
several different brokerage houses based on competitive bid. Typically, these
funds are for varying maturities from six months to two years and are issued at
rates which are competitive to rates we would be required to pay to attract
similar deposits from the local market as well as rates for Federal Home Loan
Bank of Cincinnati advances of similar maturities. We consider these deposits
to be a ready source of liquidity under current market conditions.

At March 31, 2002, we had no significant capital expenditure commitments.

The following table presents additional information about our contractual
obligations as of March 31, 2002, which by their terms have contractual
maturity and termination dates subsequent to March 31, 2002:

|                         |                                                |          |   |             |        |             |   |               |        |        |   |     |     |  |   |       |       |  |   |        |         | 
|------------------------ | ---------------------------------------------- | -------- | - | ----------- | ------ | ----------- | - | ------------- | ------ | ------ | - | --- | --- |  | - | ----- | ----- |  | - | ------ | ------- | 
|                         |                                                |          |   | Within      |        | One year to |   | Four years to |        | Over   |   |     |     | 
|(dollars in thousands)   |                                                | One year |   | Three years |        | Five years  |   | Five years    |        | Totals
|                        
|Contractual obligations: |                                                |          |   |             |        |             |   |               |        |        |   |     |     |  |   |       |       |  |   |       
|                        
|                        
|                        
|                        
|                         | Certificates of deposit                        |          | $ | 46,331      |        |             | $ | 27,067        |        |        | $ | 82  |     |  | $ |      |       |  | $ | 73,480 |        
|                        
|                        
|                        
|                        
|                         | Securities sold under agreements
to repurchase |          |   | 10,223      |        |             |   |              |        |        |   |    |     |  |   |      |       |  |   | 10,223 |        
|                        
|                        
|                        
|                        
|                         | Federal Home Loan Bank advances                |          |   |            |        |             |   | 11,500        |        |        |   |    |     |  |   |      |       |  |   | 11,500 |        
|                        
|                        
|                        
|                        
|                         | Federal funds purchased                        |          |   | 2,500       |        |             |   |              |        |        |   |    |     |  |   |      |       |  |   | 2,500  |        
|                        
|                        
|                        
|                        
|                         | Operating leases                               |          |   | 391         |        |             |   | 812           |        |        |   | 854 |     |  |   | 2,242 |       |  |   | 4,299  |        
|                         |                                                |          |   |             |        |             |   |               |        |        |   |     |     |  |   |       |       |  |   |       
|                         |                                                | Totals   |   | $           | 59,445 |             |   | $             | 39,379 |        |   | $   | 936 |  |   | $     | 2,242 |  |   | $      | 102,002 | 
|                         |                                                |          |   |             |        |             |   |               |        |        |   |     |     |  |   |       |       |  |   |       

Our management believes that we have adequate liquidity to meet all known
contractual obligations and unfunded commitments, including loan commitments
and reasonable borrower, depositor, and creditor requirements over the next
twelve months.

Impact of Inflation

The consolidated financial statements and related consolidated financial
data presented herein have been prepared in accordance with generally accepted
accounting principles and practices within the banking industry which require
the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institutions performance than the effects of general levels of
inflation.

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##### Table of Contents






PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

There are no material pending legal proceedings to which the Company is a
party or of which any of their property is the subject.




ITEM 2. CHANGES IN SECURITIES

(a)  Not applicable

(b)  Not applicable

(c)  Not applicable

(d)  Not applicable




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.




ITEM 5. OTHER INFORMATION

None.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits



| |  |  | None.
| |  |  | -----

(b)  Reports on form 8-K



| |  |  | On April 8, 2002, the Company filed a Form 8-K to report the
change of the Companys certifying accountants from Arthur
Andersen LLP to KPMG LLP. On April 19, 2002 the Company filed an
amended current report on Form 8-K/A to amend its Form 8-K filed on
April 8, 2002.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized.



| | PINNACLE FINANCIAL PARTNERS, INC.
| | ---------------------------------



| | By: /s/ M. Terry Turner
M. Terry Turner
President and CEO
| | ---------------------------------------------------------



| | Date: May 14, 2002
| | ------------------



| | By: /s/ Harold R. Carpenter
Harold R. Carpenter
Chief Financial Officer
| | -----------------------------------------------------------------------



| | Date: May 14, 2002
| | ------------------







EXHIBIT INDEX

|        |  |            
|------- |  | -----------
|Exhibit |  |            
|No.     |  | Description
|        |  |            
|        |  |            
|       
|       
|       
|       
|None    |  |            

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