<PAGE>
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
 
                                Washington, DC 20549
 
                                   FORM 10-K
 
(Mark One)
 
/X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
 
For the fiscal year ended December 31, 1997
 
                                       OR
 
/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
 
For the transition period from           to
                                -------      ------- 

                           Commission file number 0-17937
 
                       PINNACLE FINANCIAL SERVICES, INC.
               ------------------------------------------------------
               (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                            <C>
                  Michigan                                      38-2671129
       -------------------------------             -----------------------------------
       (State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
       Incorporation or Organization)

  830 Pleasant Street, St. Joseph, Michigan                        49085
  ----------------------------------------                      ----------
  (Address of Principal Executive Offices)                      (Zip Code)
</TABLE>
 
         Registrant's telephone number, including area code: (616) 983-6311
 
          Securities registered pursuant to Section 12(b) of the Act: None
 
            Securities registered pursuant to Section 12(g) of the Act:
 
                        Common Stock, no par value per share

Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes /X/  No / /
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
 
    The aggregate market value of the voting shares held by non-affiliates of
the registrant as of March 20, 1998 (based on the closing price of those shares
listed on the Nasdaq National Market) was $586,589,350.
 
    The number of common shares, no par value, outstanding as of March 20, 1998,
was 12,653,454.

<PAGE>
                      DOCUMENTS INCORPORATED BY REFERENCE
 
                                        None
 
                                       2
<PAGE>
                       PINNACLE FINANCIAL SERVICES, INC.
 
                                   FORM 10-K
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                                -----
<S>            <C>                                                                                              <C>
PART I
Item 1.        Business....................................................................................       4
Item 2.        Properties..................................................................................      10
Item 3.        Legal Proceedings...........................................................................      11
Item 4.        Submission of Matters to a Vote of Security Holders.........................................      12
PART II
Item 5.        Market for Registrant's Common Equity and Related Stockholder Matters.......................      13
Item 6.        Selected Financial Data.....................................................................      14
Item 7.        Management's Discussion and Analysis of Financial Condition and Results of Operations.......      15
Item 7A.       Quantitative and Qualitative Disclosures About Market Risk..................................      33
Item 8.        Financial Statements and Supplementary Data.................................................      33
Item 9.        Changes In and Disagreements With Accountants on Accounting and Financial Disclosure........      75
PART III
Item 10.       Directors and Executive Officers of the Registrant..........................................      76
Item 11.       Executive Compensation......................................................................      79
Item 12.       Security Ownership of Certain Beneficial Owners and Management..............................      85
Item 13.       Certain Relationships and Related Transactions..............................................      86
PART IV
Item 14.       Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................      87
Signatures.................................................................................................      91
</TABLE>
                                       3 
<PAGE>
                                     PART I
 
Item 1. Business
 
General
 
    Pinnacle Financial Services, Inc. ("Pinnacle") is a registered bank holding
company that was organized under the laws of the State of Michigan in 1986 in
connection with the June 30, 1986 reorganization of Pinnacle Bank, a Michigan
state banking corporation then known as "Peoples State Bank of St. Joseph"
("Pinnacle Bank"), into a wholly-owned subsidiary of Pinnacle. Pinnacle's
principal executive offices are located at 830 Pleasant Street, St. Joseph,
Michigan 49085, and its telephone number is (616) 983-6311.
 
    Pinnacle Bank, which is headquartered in St. Joseph, Michigan, currently
operates through 14 branch offices located throughout southwestern Michigan, 30
branch offices located throughout northwestern Indiana, and 2 loan production
offices located in Merrillville and Indianapolis, Indiana.
 
    Through Pinnacle Bank, Pinnacle offers financial service products which
include domestic banking services such as consumer, commercial and real estate
loans, personal and business checking accounts, savings accounts, time deposits,
safe deposit services, cash management services, and transmission of funds, as
well as trust and other fiduciary services, full-service brokerage services and
insurance products. Commercial customers include retailers, commercial
developers, professionals, and small manufacturers. Retail customers cover a
broad spectrum with focus on providing personalized, high quality and
comprehensive service in order to develop and maintain long-term, multiple
account relationships with customers.
 
    Pinnacle's market, which is adjacent to metropolitan Chicago, Illinois and
is bisected by Interstate 94 (the primary highway between Chicago and Detroit),
currently consists of northern Indiana and southwestern Michigan. The region's
location has facilitated the development of a diverse economy based primarily on
manufacturing, service and agriculture. The region's proximity to Chicago and
the southeastern expansion of metropolitan Chicago into Lake County, Indiana,
have led to significant commercial and residential development and a strong
second-home housing market. The region's popularity as a year-round recreational
area also has led to tourism-driven economic growth.
 
    Pinnacle had $2.1 billion in total assets as of December 31, 1997. 
Pinnacle returned 0.48% on average assets for the year ended December 31, 
1997. This compares to 0.83% and 1.15% for each of the years in the two year 
period ended December 31, 1996. For the year ended December 31, 1997, 
Pinnacle's return on average equity was 5.83%. Annual returns on average 
equity since 1993 have ranged from 5.83% to 13.87%.
 
    Pinnacle believes its success is in part attributable to a growth strategy
that, since the beginning of 1993, has (i) increased assets by more than 86%
(with total assets growing to $2.1 billion by December 31, 1997), and (ii)
increased loans by more than 94% (with total loans growing to approximately $1.5
billion at December 31, 1997). Pinnacle's loan to deposit ratio was
approximately 105.3% at December 31, 1997. Pinnacle's growth has been generated
internally through customer retention and cross-selling programs and externally
through acquisitions. Since 1988, Pinnacle has consummated seven acquisitions,
four of which involved thrifts.
 
Merger Agreement with CNB Bancshares, Inc.
 
    Pinnacle has entered into an Agreement and Plan of Merger dated as of
October 14, 1997 (the "CNB Merger Agreement"), with CNB Bancshares, Inc., an
Indiana corporation ("CNB"), pursuant to and subject to the terms and conditions
of which Pinnacle would be merged with and into CNB. The CNB Merger Agreement is
subject to, among other conditions, approval by the respective shareholders of
Pinnacle and CNB. As an inducement for CNB to enter into the CNB
 
                                       4
<PAGE>
Merger Agreement, Pinnacle entered into a Stock Option Agreement dated as of
October 14, 1997, pursuant to which Pinnacle granted to CNB the right to
purchase from Pinnacle, under the terms and conditions provided therein, at a
purchase price of $37.00 per share, up to 2,000,000 shares of Pinnacle Common
Stock (subject to adjustment in certain circumstances), which constituted
approximately 16.2% of the issued and outstanding shares of Pinnacle Common
Stock as of the date of the CNB Merger Agreement, without giving effect to the
exercise of said purchase option.
 
Strategies to Achieve Growth
 
    Acquisitions.  In recent years, Pinnacle's growth has occurred primarily
through mergers and acquisitions. Since its formation as a bank holding company
in 1986, Pinnacle has successfully integrated seven significant acquisitions. In
February 1988, Pinnacle acquired $37 million in assets and assumed certain
liabilities of First State Bank of White Cloud, which thereafter became a branch
office of Pinnacle Bank. In December 1990, the majority of the assets of
Pinnacle's White Cloud branch office were sold to, and the liabilities
associated with that branch office were assumed by, another unaffiliated bank.
In February 1990, the Resolution Trust Corporation transferred to Pinnacle $84
million in assets and certain liabilities of the insolvent Peoples Savings
Association of St. Joseph, Michigan. In December 1992, Pinnacle acquired all of
the outstanding stock of Harbor Country Banking Company of Three Oaks, Michigan,
an $82 million state bank.
 
    On December 1, 1995, Pinnacle acquired all of the outstanding capital stock
of Maco Bancorp, Inc., a Delaware corporation and a registered savings and loan
holding company ("Maco"), through the merger of Maco with and into Pinnacle (the
"Maco Acquisition"). As a result of the Maco Acquisition, Pinnacle became the
sole stockholder of First Federal Savings Bank of Indiana, a federal savings
bank that was renamed "Pinnacle Bank" in 1996 and was merged with and into
Pinnacle Bank effective December 31, 1996, and Mr. Cyrus A. Ansary, sole
shareholder of Maco, became the largest single Pinnacle stockholder. Mr. Ansary
currently holds approximately 9.4% of the shares of Pinnacle Common Stock
outstanding.
 
    Effective as of August 1, 1997, Indiana Federal Corporation, a Delaware
corporation ("IFC"), and CB Bancorp, Inc., a Delaware corporation ("CB"), were
merged with and into Pinnacle, with Pinnacle being the surviving corporation.
Coincident with those mergers, Indiana Federal Bank for Savings, a subsidiary of
IFC with assets of $835 million, and Community Bank, A Federal Savings Bank, a
subsidiary of CB with assets of $288 million, were merged with and into Pinnacle
Bank, with Pinnacle Bank being the surviving corporation.
 
    As a result of these acquisitions and growth generated by its own
operations, Pinnacle's assets increased from $231 million at the beginning of
1990 to $2.1 billion at December 31, 1997.
 
    On October 14, 1997, Pinnacle entered into the CNB Merger Agreement. The CNB
Merger Agreement contemplates the merger of Pinnacle with and into CNB, with CNB
being the surviving entity. The transaction is expected to qualify as
"pooling-of-interests" for accounting and financial reporting purposes.
Consummation of the transaction is subject to shareholder approval.
 
    Customer Development.  Pinnacle believes that it can increase profitability
by expanding the number and types of accounts and relationships with its
existing customers. To achieve that goal, Pinnacle is continuing to explore
technologies that facilitate cross-selling of financial products to existing
customers and deliver services more efficiently. In 1995 Pinnacle initiated a
telephone marketing program utilizing personnel trained to survey customer
satisfaction and needs and to cross-sell additional products offered by it.
 
    Customer Retention.  Pinnacle focuses on providing personalized, high 
quality and comprehensive service in order to develop and maintain long-term, 
multiple account relationships with customers. Through its subsidiaries, 
Pinnacle offers a wide range of banking services, including consumer, 
commercial and real estate loans, personal and business checking accounts, 
savings accounts, time deposits, safe deposit services, cash management 
services, and transmission of funds, as well as trust and other fiduciary 
services, and full-service brokerage services and insurance products. To 
facilitate the retention of customers, Pinnacle has designed and implemented 
a system of quality controls and initiatives known as its "Quality in the 
Banking Environment" program.
 
                                       5
<PAGE>
    Pinnacle utilizes alternative delivery systems that include electronic funds
transfer systems (such as direct deposit of payroll services and ATMs) and
telephone banking systems. Pinnacle is also expanding its delivery of financial
services in non-traditional settings. Pinnacle Bank has also established
full-service branch offices in supermarkets located in Stevensville, Michigan,
and Portage and Valparaiso, Indiana.
 
    Pinnacle has attempted to increase customer convenience, and thereby
increase customer loyalty, through, among other things, enhanced financial
services, extended banking hours, and the development of products targeted to
the needs of particular segments of its customer base. For example, some of
Pinnacle's branch offices now offer Saturday lobby hours. Pinnacle has also
developed a low-cost basic checking service, private banking services,
commercial cash management services, and special products targeted to the senior
citizen market. Finally, Pinnacle now offers its customers full-service
brokerage services that include a wide range of investment opportunities and a
combination of research and financial planning that are suited to individual
customer needs.
 
Lending Practices
 
    Loan Portfolio.  In accordance with its loan policies, Pinnacle strives to
maintain a diversified loan portfolio. The following table presents loans
outstanding according to loan category at December 31 of each year.
 
<TABLE>
<CAPTION>
                                                     1997          1996          1995         1994        1993
                                                 ------------  ------------  ------------  ----------  ----------
                                                               (dollars in thousands)
<S>                                              <C>           <C>           <C>           <C>         <C>
Commercial.....................................  $    491,932  $    421,948  $    314,562  $  287,709  $  243,552
Real Estate....................................       588,046       650,624       632,664     457,743     398,664
Consumer.......................................       238,427       238,321       178,720     143,375     113,917
Tax-exempt loans...............................        10,240         9,686         4,295       6,392       6,307
Morgage loans purchased under
 agreements to resell..........................       179,720        95,276        80,031      25,179      34,193
                                                 ------------  ------------  ------------  ----------  ----------
Loans, net of unearned income..................     1,508,365     1,415,855     1,210,272     920,398     796,633
Allowance for loan losses......................       (20,528)      (14,909)      (13,853)    (11,787)    (11,165)
                                                 ------------  ------------  ------------  ----------  ----------
Net loans......................................  $  1,487,837  $  1,400,946  $  1,196,419  $  908,611  $  785,468
                                                 ------------  ------------  ------------  ----------  ----------
                                                 ------------  ------------  ------------  ----------  ----------
</TABLE>
 
    The following table presents loans outstanding at December 31, 1997, which,
based on remaining scheduled repayments of principal, are due in the period
indicated.
 
<TABLE>
<CAPTION>
                                                                                    Mortgage
                                                                                 Loans Purchased
                                                                                 Under Agreements  Total Loans
                               Commercial   Real Estate   Consumer   Tax-Exempt      to Resell     Receivable
                               -----------  -----------  ----------  ----------  ----------------  ------------
                                                          (dollars in thousands)
<S>                            <C>          <C>          <C>         <C>         <C>               <C>
Due in 1 year or less........   $ 139,884    $  23,280   $   34,578  $   2,785      $ 179,720      $    380,247
Due in 1 through 5 years.....     157,920       91,471      106,100      4,001              0           359,492
Due after 5 years............     194,128      473,295       97,749      3,454              0           768,626
                               -----------  -----------  ----------  ----------  ----------------  ------------
  Total......................   $ 491,932    $ 588,046   $  238,427  $  10,240      $ 179,720      $  1,508,365
                               -----------  -----------  ----------  ----------  ----------------  ------------
                               -----------  -----------  ----------  ----------  ----------------  ------------
</TABLE>
 
    The following table sets forth at December 31, 1997, the dollar amount of
gross loans receivable contractually due after December 31, 1998, and whether
such loans have fixed interest rates or adjustable interest rates.
 
<TABLE>
<CAPTION>
                                                                                 Due After December 31, 1998
                                                                             ------------------------------------
                                                                               Fixed      Variable      Total
                                                                             ----------  ----------  ------------
                                                                                         (dollars in thousands)
<S>                                                                          <C>         <C>         <C>
Commercial.................................................................  $   95,137  $  256,911  $    352,048
Real Estate................................................................     166,588     398,178       564,766
Consumer...................................................................     148,839      55,010       203,849
Tax-exempt.................................................................       7,064         391         7,455
                                                                             ----------  ----------  ------------
  Total....................................................................  $  417,628  $  710,490  $  1,128,118
                                                                             ----------  ----------  ------------
                                                                             ----------  ----------  ------------
</TABLE>
 
                                       6
<PAGE>
    The following table presents information concerning certain nonperforming
loans at December 31 of each year.
 
<TABLE>
<CAPTION>
                                                                 1997       1996       1995       1994       1993
                                                               ---------  ---------  ---------  ---------  ---------
                                                                              (dollars in thousands)
<S>                                                            <C>        <C>        <C>        <C>        <C>
Loans accounted for on a nonaccrual basis(1).................  $  10,767  $  11,129  $  10,469  $   5,832  $   3,712
Accruing loans contractually past due 90 days or more as to
  principal or interest payments.............................      7,038      6,201      2,555      1,378      1,583
Restructured loans...........................................        174        684        820        945      3,933
                                                               ---------  ---------  ---------  ---------  ---------
  Total nonperforming loans..................................  $  17,979  $  18,014  $  13,844  $   8,155  $   9,228
                                                               ---------  ---------  ---------  ---------  ---------
</TABLE>
 
------------------------
(1) Loans are generally placed on a nonaccrual basis when, in the opinion of
    management, collection of principal or interest payments is unlikely. Income
    on such loans is then recognized only to the extent that cash is received
    and where future collection is likely. If nonaccrual loans had been
    maintained current in accordance with their original terms, additional
    interest income of $840,000, $1,100,000, $449,000, $207,000, and $149,000
    would have been recorded during the years ended December 31, 1997, 1996,
    1995, 1994, and 1993, respectively.
 
    Pinnacle closely monitors other loans of concern, which are loans now 
current (i.e., not included in non-accrual and past-due loan disclosures 
above) but where doubts exist as to the ability of the borrower to comply 
with present loan repayment terms. These loans totaled approximately $21.5 
million at December 31, 1997 and approximately $11.1 million at December 31, 
1996. The classification of these loans, however, does not mean that 
Pinnacle's management expects losses on these loans. Such classification 
relates to specific concerns relating to each individual borrower and does 
not relate to any concentrated risk elements common to all the loans. The 
increase in such loans during 1995 is attributable to the Maco Acquisiton. 
Pinnacle has no loans for which the terms have been renegotiated to less than 
market rates due to weakening of a borrower's financial condition.
 
    Pinnacle's loans outstanding to borrowers in foreign countries as of
December 31, 1997, 1996 and 1995 did not exceed 1% of its total assets. As of
December 31, 1997, 1996 and 1995 Pinnacle had no concentrations of loans to
individual borrowers that exceeded 10% of total loans.
 
COMMERCIAL LOANS. Through 15 experienced lending officers, Pinnacle provides
cash management services and secured and unsecured loans for business purposes
to individuals, companies and governmental units primarily within southwestern
Michigan and northern Indiana.
 
    Pinnacle originates commercial loans for general business purposes,
including working capital requirements, inventory and accounts receivable
financing, and fixed asset financing for various equipment and plant expansions.
Pinnacle's commercial customers include, among others, professionals,
durable-goods manufacturers, service-related companies and retail
establishments.
 
    Pinnacle also originates mortgage loans for the acquisition and refinancing
of commercial real estate properties. The majority of Pinnacle's commercial real
estate loans are secured by first liens on office buildings, small retail
establishments and small manufacturing facilities located in its primary market
area.
 
    Although conditions vary from loan to loan, commercial loans for working
capital purposes are typically written for less than one year and renewals are
reviewed on an annual basis. Loans provided for non-real estate fixed assets
generally have terms between four and six years and are fully amortizing over
the period. Commercial real estate loans are generally written with a three to
five year term with payments typically amortizing over 15 years. In addition to
a first lien on the
 
                                       7
<PAGE>
collateral asset, Pinnacle seeks to secure its loans by obtaining a security
interest in all of the other assets of the borrower's business, an assignment of
rents, if applicable, and personal guaranties. Commercial real estate loans
generally have interest rates which are set at a regional national bank's prime
rate plus a margin and which adjust each time the designated prime rate adjusts.
Pinnacle also encourages commercial real estate borrowers to open or maintain a
deposit account at Pinnacle to facilitate the automatic withdrawal of the loan
payment based on the terms of the loan.
 
    Pinnacle evaluates all aspects of commercial loan transactions in order to
mitigate risk to the extent possible. In underwriting these loans, consideration
is given to the stability of the borrower's cash flow and operating history,
future operating projections, comparable financial ratios for like businesses,
and collateral asset evaluations. The underwriting analysis also includes credit
checks and a review of the financial condition of the borrower and guarantor, if
applicable. A narrative appraisal report is prepared by an appraiser who is
either a member of the Appraisal Institute or state-certified and commissioned
by Pinnacle to substantiate property values for substantially all commercial
real estate loan transactions.
 
    Commercial real estate lending entails more risks than single-family
residential lending because such loans typically involve large loan balances to
single borrowers and because the payment experience on such loans is typically
dependent on the successful operation of the project or the borrower's business.
These risks can also be significantly affected by supply and demand conditions
in the local market for retail establishments, offices or other commercial
space. Pinnacle attempts to minimize its risk exposure by limiting such lending
to proven business owners, and considering properties with an existing operating
performance which can be analyzed, and continually monitoring the financial
condition of the borrower and the operation and physical condition of the
collateral.
 
SINGLE-FAMILY RESIDENTIAL REAL ESTATE LOANS. Pinnacle originates loans secured
by first lien mortgages on completed one- to four-family residences in its
market area for retention in its portfolio, if the loan has an adjustable rate
of interest, and for sale in the secondary market, if the loan has a fixed rate
of interest. Pinnacle originates fixed-rate and adjustable-rate residential
mortgage loans with terms of up to 30 years; although a large number of the
loans held in its portfolio have maturities that are less than the contractual
terms due to prepayments, due-on-sale clauses and bi-weekly payments.
 
    The adjustable-rate mortgages currently offered by Pinnacle have interest
rates which adjust commencing on the first, third or fifth anniversary of the
loan, and are based upon an index tied to the weekly average yield on U.S.
Treasury securities (adjusted to a constant comparable maturity), as made
available by the Federal Reserve Board, plus a margin.
 
    When Pinnacle sells the residential loans it has originated, it may either
retain or sell the rights to service those loans and to receive the related
fees. Pinnacle currently receives servicing fees ranging generally from 0.25% to
0.375% per annum on its mortgage loan servicing portfolio. While the aggregation
of a servicing portfolio can create a substantial continuing source of income,
there is an active market for mortgage loan servicing rights (which are
generally valued in relation to the present value of the cash flow generated by
the servicing rights). Subject to market conditions, Pinnacle currently plans to
increase the size of its mortgage loan servicing portfolio by retaining some
servicing rights associated with wholesale residential loan purchases, making
bulk purchases of servicing rights and increasing retained servicing rights on
residential loans it originates.
 
MORTGAGE REPURCHASE PROGRAM. Pinnacle has entered into agreements with mortgage
companies in which Pinnacle purchases, at its discretion, mortgage loans from
mortgage companies at par, net of certain fees, and later sells them back to the
mortgage companies at the same amount and without recourse provisions. Pinnacle
records interest income on the loans during the funding period and records fee
income (recorded as noninterst income) received from the mortgage company for
each loan when resold. The interest income recorded is based on a rate of
interest tied to the prime rate (as established from time to time) during the
funding period, and not the rates based on individual loans. Such loans are
reveiwed, prior to purchase, for evidence that the loans are of secondary market
quality or meet internal underwriting guidelines. An assignment of the mortgage
to Pinnacle is required. In additon, Pinnacle either takes possession of the
original note and forwards such note to the end investor or Pinnacle receives a
certified copy of the note and subsequently receives acknowledgment from the end
investor of receiving the original note.
 
                                       8
<PAGE>

    CONSUMER LOANS.  Pinnacle originates consumer loans, which are primarily for
personal, family or household purposes, in order to provide a wide range of
financial services to its customers. Consumer loans made by Pinnacle include
home equity lines of credit, home improvement loans, and loans to finance the
purchase of new and used automobiles and boats. Pinnacle makes unsecured
consumer loans on a case-by-case basis based upon a detailed review of the
applicant's credit history. Pinnacle has begun purchasing home equity loans from
correspondents located outside of its southwestern Michigan and northern Indiana
market areas. Pinnacle also purchases retail installment loans from certain
automobile dealerships in its market areas.
 
    Consumer loans generally have shorter terms and higher interest rates than
residential mortgage loans and, except for the home equity lines of credit,
usually involve more credit risk than mortgage loans because of the type and
nature of the collateral. These loans are generally repaid on a monthly
repayment schedule with the source of repayment tied to the borrower's periodic
income. In addition, consumer lending collections are dependent on the
borrower's continuing financial stability, and are thus likely to be adversely
affected by job loss, illness and personal bankruptcy. In many cases,
repossessed collateral for a defaulted consumer loan will not provide an
adequate source of repayment of the outstanding loan balance because of
depreciation of the underlying collateral. Pinnacle believes that the generally
higher yields earned on consumer loans compensate for the increased credit risk
associated with such loans and that consumer loans are important to its efforts
to serve the credit needs of the communities and customers that it serves.
Pinnacle's consumer loan lending territory approximates the markets served by
its retail branches. Consumer loan customers are typically individuals who have
a pre-existing banking relationship with Pinnacle.
 
    ALLOWANCE FOR LOAN LOSSES.  An allowance for loan losses is maintained at a
level that management of Pinnacle considers adequate to provide for potential
losses based upon an evaluation of known and inherent risks in the loan
portfolio. Allowances for loan losses are based on estimated net realizable
value, unless it is probable that loans will be foreclosed, in which case
allowances for loan losses are based on fair value. The allowance is reviewed by
management on a monthly basis and its evaluation is based upon examination of
the portfolio, past loss experience, the level and trends of classified assets,
the current level of the allowance as it relates to non-performing loans, the
current level of provisions for loan losses and how such levels relate to total
loans receivable, net, non-performing loans and recent and projected
charge-offs, current economic conditions, the results of the most recent
regulatory examinations and other relevant factors. While management of Pinnacle
uses its best efforts to make such evaluations, future adjustments to the
allowance may be necessary if economic conditions differ substantially from the
assumptions used in making the evaluations.

    LOAN LOSS EXPERIENCE.  The following table summarizes the loan loss
experience and provides a breakdown of the allowance for loan losses at December
31, of each year.
 
<TABLE>
<CAPTION>
                                                     1997          1996          1995         1994        1993
                                                 ------------  ------------  ------------  ----------  ----------
                                                                       (dollars in thousands)
<S>                                              <C>           <C>           <C>           <C>         <C>
Loans outstanding at end of period, net of
  unearned income..............................  $  1,508,365  $  1,415,855  $  1,210,272  $  920,398  $  796,633
                                                 ------------  ------------  ------------  ----------  ----------
Average loans for the period, net..............     1,478,238     1,316,487     1,052,995     806,823     799,841
                                                 ------------  ------------  ------------  ----------  ----------
Allowance for loan losses, beginning of
  period.......................................  $     14,909  $     13,853  $     11,787  $   11,165  $   10,768
Conform CB fiscal year to December 31, 1996 
  calendar year................................           501       --            --           --          --
Charge-offs for period:
  Commercial loans.............................         4,634           281            85         284       1,037
  Real Estate loans............................            93            69            50          34          91
  Consumer loans...............................         1,991         1,509         1,190         460         590
  Mortgage loans purchased under agreements to
    resell.....................................         1,999           501           221      --          --
                                                 ------------  ------------  ------------  ----------  ----------
Total charge-offs..............................         8,717         2,360         1,546         778       1,718
                                                 ------------  ------------  ------------  ----------  ----------
</TABLE>



<PAGE>

<TABLE>
<CAPTION>
                                                     1997          1996          1995         1994        1993
                                                 ------------  ------------  ------------  ----------  ----------
                                                                       (dollars in thousands)
<S>                                              <C>           <C>           <C>           <C>         <C>
Recoveries for period:
  Commercial loans.............................             8           249           160         130         174
  Real Estate loans............................            47           286            23          42         136
  Consumer loans...............................           204           200           152         191         245
  Mortgage Loans purchased under agreements to
   resell......................................           256       --            --           --          --
                                                 ------------  ------------  ------------  ----------  ----------
Total recoveries...............................           515           735           335         363         555
                                                 ------------  ------------  ------------  ----------  ----------
Net charge-offs for the period.................         8,202         1,625         1,211         415       1,163
                                                 ------------  ------------  ------------  ----------  ----------
Allowance recorded for acquired loans..........       --            --              1,855         655      --
Provision for loan losses......................        13,320         2,681         1,422         382       1,560
                                                 ------------  ------------  ------------  ----------  ----------
Allowance for loan losses, end of
  period.......................................  $     20,528  $     14,909  $     13,853  $   11,787  $   11,165
                                                 ------------  ------------  ------------  ----------  ----------
Ratio of net charge-offs during the period to
  average loans outstanding....................           .55%          .12%          .12%        .05%        .15%
                                                 ------------  ------------  ------------  ----------  ----------
Allocation of allowance for loan losses:
 Commercial loans.............................  $       9,145  $      8,740  $      8,511  $    7,270  $    6,650
 Real Estate..................................          4,394         2,234         2,409       1,928       1,919
 Consumer loans...............................          4,475         2,731         2,533       2,387       2,448
 Mortgage loans purchased under agreements to
  resell.....................................           2,514         1,204           400         202         148
                                                 ------------  ------------  ------------  ----------  ----------
Total allowance for loan losses................  $     20,528  $     14,909  $     13,853  $   11,787  $   11,165
                                                 ------------  ------------  ------------  ----------  ----------
Percentage of loans to total gross loans:
 Commercial loans..............................            32%           30%           26%         31%         31%
 Real Estate loans.............................            39            46            52          49          50
 Consumer loans................................            16            17            15          16          14
 Tax-exempt loans..............................             1             1       --                1           1
 Mortgage loans purchased under agreements to
  resell.......................................            12             6             7           3           4
                                                 ------------  ------------  ------------  ----------  ----------
Total..........................................           100%          100%          100%        100%        100%
                                                 ------------  ------------  ------------  ----------  ----------
</TABLE>
 
    The allowance for loan losses has been allocated according to the amount
deemed to be reasonably necessary to provide for the possibility of losses being
incurred within the above categories of loans at the dates indicated. The
allowance is based on management's periodic evaluation of the loan portfolio and
reflects an amount that, in management's opinion, is adequate to absorb losses
in the existing portfolio. In evaluating the portfolio, management takes into
consideration numerous factors, including current economic conditions, prior
loan loss experience, the composition of the loan portfolio and management's
evaluation of the probability of collection of specific loans.
 
INVESTMENT ACTIVITIES
 
    GENERAL. Financial institutions such as Pinnacle have authority to invest
in various types of liquid assets, including U.S. Treasury obligations,
securities of various Federal agencies and of state and municipal governments,
certificates of deposit at federally-insured banks and savings and loan
associations, certain bankers' acceptances and Federal funds. Subject to various
restrictions, Pinnacle may also invest a portion of its assets in commercial
paper, corporate debt securities and mutual funds (so long as the assets of such
mutual funds conform to the investments that financial institutions such as
Pinnacle are otherwise authorized to make directly).
 
    Pinnacle's investment securities are comprised of securities
held-to-maturity and securities available-for-sale. Securities which management
believes could be sold prior to maturity in order to manage interest rate risk,
prepayments,


<PAGE>

liquidity risk, or other corporate purposes are classified as
securities available-for-sale and are carried at fair value with unrealized
gains and losses, net of applicable income taxes, reported as a component of
stockholders' equity. Securities, other than the foregoing, which management has
the ability and positive intent to hold until maturity, are classified as
securities held-to-maturity and are accounted for using historical amortized
cost. Pinnacle has no trading account securities.
 
    INVESTMENT PORTFOLIO.  At December 31, 1997 and 1995, Pinnacle did not 
have any securities held-to-maturity. The following table presents the 
amortized cost basis of securities held-to-maturity as of December 31, 1996.

<TABLE>
<CAPTION>
                                                                                               At December 31,1996
                                                                                               -------------------
                                                                                              (dollars in thousands)
<S>                                                                                           <C>
  U.S. Treasury and agency securities........................................................       $   3,000
  Corporate securities.......................................................................           2,789
  Mortgage-backed securities.................................................................           8,510
                                                                                                      -------
     Total...................................................................................       $  14,299
                                                                                                      -------
</TABLE>
 
    On December 1, 1995, securities held-to-maturity including those securities
acquired from First Federal were reclassified to available-for-sale pursuant to
the FASB issuance of "A Guide to Implementation of Statement 115" that allowed
entities to reassess the appropriateness of the reclassification of all
securities.
 
    On August 1, 1997, securities held-to-maturity were reclassified to 
available-for-sale upon consummation of the CB merger to conform to 
Pinnacle's classification of investment securities. At the date of transfer, 
the securities has amortized cost and net unrealized gain of $14.0 million and
$200,000, respectively.

    The following table presents the carrying value of securities
available-for-sale at the dates indicated.
 
<TABLE>
<CAPTION>
                                                                                        At December 31,
                                                                                  1997        1996        1995
                                                                               ----------  ----------  ----------
                                                                                      (dollars in thousands)
<S>                                                                            <C>         <C>         <C>

 U.S. Treasury and agency securities........................................  $  157,483  $  205,183  $  125,868
 Obligations of states and political subdivisions...........................      33,103      22,447      21,602
 Corporate securities.......................................................       1,992      12,321      22,623
 Equity securities..........................................................      31,108      23,725      17,393
 Mortgage-backed securities.................................................     195,598     249,810     210,537
                                                                               ----------  ----------  ----------
    Total...................................................................  $  419,284  $  513,486  $  398,023
                                                                               ----------  ----------  ----------
</TABLE>
 
    The following table summarizes the maturities of securities
available-for-sale at the date indicated and the weighted yield of such
securities:

<PAGE>

<TABLE>
<CAPTION>

                                                                                                  At December 31, 1997
                                                                                                   Amount       Yield
                                                                                                 ----------     -----
                                                                                                 (dollars in thousands)
<S>                                                                                              <C>         <C>

U.S. Treasury securities:
 Within 1 year.................................................................................  $    9,046        5.75%
 After 1 but within 5 years....................................................................       5,017        5.69
 After 5 but within 10 years...................................................................      11,393        5.79
                                                                                                 ----------         ---
 Subtotal......................................................................................      25,456        5.76
                                                                                                 ----------         ---
Obligations of other U.S. government agencies and corporations:
 Within 1 year.................................................................................       1,522        5.67
 After 1 but within 5 years....................................................................       3,759        6.38
 After 5 but within 10 years...................................................................      51,884        7.35
 After 10 years................................................................................      74,862        7.51
                                                                                                 ----------         ---
 Subtotal......................................................................................     132,027        7.39
                                                                                                 ----------         ---
Obligations of states and political subdivisions
 Within 1 year.................................................................................       1,148        3.80
 After 1 but within 5 years....................................................................       5,996        4.19
 After 5 but within 10 years...................................................................       5,920        4.72
 After 10 years................................................................................      20,039        5.12
                                                                                                 ----------         ---
 Subtotal......................................................................................      33,103        4.83
                                                                                                 ----------         ---
Corporate Securities:
 After 1 but within 5 years....................................................................       1,992        6.13
Equity securities:
 Within 1 year.................................................................................      31,108        7.83
                                                                                                 ----------         ---
Mortgage-backed securities:
 After 1 but within 5 years....................................................................       9,302        6.70
 After 5 but within 10 years...................................................................       5,029        6.76
 After 10 years................................................................................     181,267        7.17
                                                                                                 ----------         ---
 Subtotal......................................................................................     195,598        7.14
                                                                                                 ----------         ---
Total securities available-for-sale............................................................  $  419,284        7.00%
                                                                                                 ----------         ---
</TABLE>
 
SOURCES OF FUNDS
 
    GENERAL. Pinnacle's principal source of funds for use in lending and for
other general business purposes has traditionally come from deposits obtained
through the branch offices of its subsidiary. Pinnacle also derives funds from
the proceeds from operations, the sale of residential mortgage loans in the
secondary market, and the amortization and prepayments of outstanding loans and
mortgage-related securities. Pinnacle also borrows from the Federal Home Loan
Bank of Indianapolis.
 
    DEPOSITS.  Pinnacle's current deposit products include savings accounts,
checking accounts, money market deposit accounts and certificates of deposit
ranging in terms from 14 days to ten years. Pinnacle's deposits are obtained
primarily from residents in southwestern Michigan and northern Indiana. Pinnacle
attracts deposit accounts by offering a variety of accounts, competitive
interest rates, and convenient branch office locations and service hours.
Pinnacle primarily utilizes direct mail, newspaper and radio advertising to
attract new customers and deposits, but Pinnacle does not solicit brokered
deposits.

<PAGE>

    The following table presents a breakdown by category of the average amount
of deposits (all in domestic offices) and the average rate paid for the periods
indicated.

<TABLE>
<CAPTION>

                                                                           For the Year Ended December 31,
                                                    --------------------------------------------------------------------------------
                                                              1997                         1996                      1995
                                                    ------------------------    -------------------------    -----------------------
                                                      Average       Average       Average        Average       Average     Average
                                                      Balance      Rate Paid      Balance       Rate Paid      Balance    Rate Paid
                                                    -----------   -----------   ------------   -----------   ---------   -----------
                                                                                (dollars in thousands)
<S>                                               <C>           <C>           <C>           <C>           <C>           <C>
                                                                             

Noninterest-bearing demand deposits.............   $    93,922       0.00%     $    92,987        0.00%     $    81,094     0.00%
Interest-bearing demand deposits................       149,124       2.01          142,843        2.11          113,864     2.05
Savings deposits................................       437,494       3.61          426,575        3.45          307,521     3.59
Time deposits...................................       776,474       5.66          757,158        5.66          566,595     5.33
                                                   ------------                ------------                 ------------
                                                   $ 1,457,014                 $ 1,419,563                  $ 1,069,074
                                                   ------------                ------------                 ------------
</TABLE>
 
    Maturities of time certificates of deposit of $100,000 or more outstanding
at December 31, 1997 are summarized as follows:
 
<TABLE>
<CAPTION>
                                                                                               At December 31,1997
                                                                                               -------------------
                                                                                              (dollars in thousands)
<S>                                                                                            <C>
 Three months or less.......................................................................      $   106,636
 Three through six months...................................................................            9,862
 Six through twelve months..................................................................            4,494
 Over twelve months.........................................................................            1,623
                                                                                                      --------
    Total...................................................................................      $   122,615
                                                                                                      --------
</TABLE>
 
    BORROWINGS.  Pinnacle borrows from time to time for short-term funding
purposes. At December 31, 1997, total borrowings by Pinnacle were $483.9
million. Pinnacle has entered into an agreement which enables it to borrow funds
from the Federal Home Loan Bank of Indianapolis that are collateralized by a
blanket agreement on all unpledged assets equal to the amount of current assets.
Such advances are made pursuant to several credit programs, each of which has
its own interest rate and range of maturities, and are generally available to
fund loans held for sale and to meet seasonal and other withdrawals of deposit
accounts. At December 31, 1997, Pinnacle had $414.4 million of advances from the
Federal Home Loan Bank of Indianapolis and $69.5 million of securities sold
under repurchase agreements, and other borrowings.

TRUST SERVICES

    Pinnacle's trust operations had 522 trust accounts under management as of 
December 31, 1997. Pinnacle's trust operations provide a full complement of 
asset management services for individuals and corporations, and are currently 
emphasizing investment management for individuals and employee benefit plan 
management. Since its formation in 1987, Pinnacle's trust operations have 
experienced strong growth as assets under management grew to approximately 
$182.8 million as of December 31, 1997. The growth of Pinnacle's trust 
operations is attributable to concerted marketing efforts by Pinnacle, and 
the addition of 176 trust accounts from Indiana Federal Bank for Savings, 
representing approximately $32.3 million in assets. Its trust operations 
competes for business primarily with other banks and brokerage companies in 
its market area.

COMPETITION

    The banking business is highly competitive. Pinnacle competes as a financial
intermediary with other commercial banks, savings and loan associations, credit
unions, mortgage banking companies, securities brokerage companies, insurance

<PAGE>

companies, and money market mutual funds operating in Michigan, Indiana and
elsewhere. Many of these competitors have substantially greater resources and
lending limits than Pinnacle and offer certain services that Pinnacle does not
currently provide. In addition, non-depository institutions are generally not
subject to the extensive regulation applicable to Pinnacle.
 
EMPLOYEES
 
    Pinnacle does not have any employees that are not also full-time employees
of Pinnacle Bank or subsidiaries of Pinnacle Bank because virtually all of
Pinnacle's activities are conducted through Pinnacle Bank and its subsidiaries.
Pinnacle Bank had 643 full-time employees and 87 part-time employees at December
31, 1997. None of Pinnacle's employees are represented by a collective
bargaining agent. Pinnacle believes that it enjoys good relations with its
personnel.
 
REGULATION
 
    GENERAL. Financial institutions such as bank holding companies, banks, 
savings and loan holding companies, and thrifts are extensively regulated 
under both federal and state law. Such regulations apply to, among other 
things, acquisitions, permissible types and amounts of loans, investments and 
other activities, capital adequacy, branching, interest rates on loans and on 
deposits and the safety and soundness of banking practices. The policies and 
regulations of financial institution regulatory authorities have had 
significant effect on the operating results of financial institutions in the 
past and are expected to have significant effects in the future. Such 
policies and regulations, which generally are intended to protect depositors 
and not stockholders, may be influenced by many factors, including inflation, 
unemployment, short-term and long-term changes in the international trade 
balance and fiscal policies of the United States government. Regulation of 
the financial institutions industry is undergoing continuous change and the 
ultimate effect of such changes cannot be predicted. Periodically, 
legislation is considered and adopted which has resulted in, or that could 
result in, further regulation or deregulation of financial institutions. In 
addition to the relaxation or elimination of geographic restrictions on banks 
and bank holding companies, a number of regulatory and legislative 
initiatives have the potential for eliminating many of the product line 
barriers presently separating the services offered by commercial banks from 
those offered by nonbanking institutions, including mutual funds, securities 
brokerage firms and investment banking firms. No assurance can be given as to 
whether any additional legislation will be adopted or as to the effect such 
legislation would have on the business of Pinnacle and its subsidiaries.
 
    As a bank holding company, Pinnacle is subject to regulation under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), and its examination and
reporting requirements and is subject to the supervision of the Board of 
Governors of the Federal Reserve System (the "Federal Reserve Board"). 
Banking laws and regulations restrict transactions by insured banks owned by 
a bank holding company, including loans to and certain purchases from the 
parent holding company, non-bank and bank subsidiaries of the parent holding 
company, principal stockholders, officers, directors and their affiliates, 
and investments by the subsidiary banks in the shares or securities of the 
parent holding company (or of any other non-bank or bank affiliates), and 
acceptance of such shares or securities as collateral security for loans to 
any borrower. The regulators also review other payments, such as management 
fees, made by subsidiary banks or affiliated companies.
 
    Under the BHCA, a bank holding company is prohibited, with certain limited
exceptions, from engaging in activities other than those of banking or of
managing or controlling banks and from acquiring or retaining direct or indirect
ownership or control of voting shares or assets of any company which is not a
bank or bank holding company, other than subsidiaries furnishing services to or
performing services for its subsidiaries, and other subsidiaries engaged in
activities which the Federal Reserve Board determines to be so closely related
to banking or managing or controlling banks as to be a proper incident thereto.
 
    Pinnacle Bank is subject to regulation and examination by the Financial
Institutions Bureau of the State of Michigan (the "Michigan Financial
Institutions Bureau"). As an institution whose deposits are insured by the Bank
Insurance Fund (the "BIF") and the Savings Association Insurance Fund (the
"SAIF") of the Federal Deposit Insurance Corporation (the "FDIC"), Pinnacle Bank
is also subject to regulation and examination by the FDIC.

<PAGE>

    PAYMENT OF DIVIDENDS.  Pinnacle is a legal entity separate and distinct from
its subsidiaries. Substantially all of Pinnacle's revenues result from dividends
paid to it by Pinnacle Bank and from earnings on investments. There are
statutory and regulatory requirements applicable to the payment of dividends by
Pinnacle Bank as well as by Pinnacle to its stockholders. Under Michigan law,
Pinnacle Bank may not declare a cash dividend or a dividend in kind except out
of net profits then on hand after deducting all losses and bad debts, and then
only if it will have a surplus amounting to not less than 20% of its capital
after the payment of the dividend. Moreover, Pinnacle Bank may not declare or
pay any cash dividend or dividend in kind until the cumulative dividends on its
preferred stock, if any, have been paid in full. Further, if the surplus of
Pinnacle Bank is at any time less than the amount of its capital, before the
declaration of a cash dividend or dividend in kind, it must transfer to surplus
not less than 10% of its net profits for the preceding half-year (in the case of
quarterly or semi-annual dividends) or the preceding two consecutive half-year
periods (in the case of annual dividends). Under the foregoing dividend
restrictions, Pinnacle Bank, without obtaining governmental approvals, could
declare aggregate dividends in 1997 of approximately $33.2 million from
retained net profits of the preceding two years, plus an amount approximately
equal to the net profits (as measured under current regulations), if any, earned
for the period from January 1, 1997 through the date of declaration less
dividends previously paid in 1997. During 1997, Pinnacle Bank paid $9.5 million
in dividends.
 
    The payment of dividends by Pinnacle and its subsidiary may also be affected
or limited by other factors, such as the requirements to maintain adequate
capital above regulatory guidelines. In addition, if, in the opinion of the
applicable regulatory authority, a bank or thrift under its jurisdiction is
engaged in or is about to engage in an unsafe or unsound practice (which,
depending on the financial condition of the bank or thrift, could include the
payment of dividends), such authority may require, after notice and hearing,
that such bank or thrift cease and desist from such practice or prohibit the
payment of future dividends. The Federal Reserve Board has indicated that paying
dividends that deplete a bank's capital base to an inadequate level would be an
unsafe and unsound banking practice. The Federal Reserve Board and the FDIC have
issued policy statements which provide that bank holding companies and insured
banks should generally only pay dividends out of current operating earnings.
 
    CERTAIN TRANSACTIONS WITH AFFILIATES.  There are legal restrictions on the
extent to which a bank holding company such as Pinnacle and its nonbank
subsidiaries can borrow or otherwise obtain credit from its bank subsidiaries 
(e.g., Pinnacle Bank). The "covered transactions" that an insured bank such 
as Pinnacle Bank and its subsidiaries are permitted to engage in with their 
nonbank affiliates are limited to the following amounts: (i) in the case of 
any one such affiliate, the aggregate amount of "covered transactions" of the 
insured bank and its subsidiaries cannot exceed 10% of the capital stock and 
the surplus of the insured bank; and (ii) in the case of all affiliates, the 
aggregate amount of "covered transactions" of the insured bank and its 
subsidiaries cannot exceed 20% of the capital stock and surplus of the 
insured bank. "Covered transactions" are defined by statute to include a loan 
or extension of credit to the affiliate, a purchase of securities issued by 
an affiliate, a purchase of assets from the affiliate (unless otherwise 
exempted by the Federal Reserve Board), the acceptance of securities issued 
by the affiliate as collateral for a loan and the issuance of a guarantee, 
acceptance, or letter of credit for the benefit of an affiliate. Covered 
transactions must also be collateralized. Further, a bank holding company and 
its subsidiaries are prohibited from engaging in certain tie-in arrangements 
in connection with any extension of credit, lease or sale of property or 
furnishing of services.
 
    CAPITAL.  Bank regulators continue to indicate a desire to raise capital
requirements applicable to financial institutions beyond their current levels.
The Federal Reserve Board, FDIC, and state bank regulators require banks and
holding companies to maintain minimum ratios of primary and total capital to
total assets. Regulatory authorities may increase such minimum requirements for
all banks and bank holding companies or for specified banks or bank holding
companies. Increases in the minimum required ratios could adversely affect
Pinnacle and Pinnacle Bank, including their ability to pay dividends.
 
    The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies. Under these guidelines, the ratio of total capital ("Total
Capital") to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) must meet a minimum of 8.00%. At
least half of Total Capital must be composed of common stockholders' equity,
minority interests in the equity accounts of consolidated subsidiaries and a
limited amount of perpetual preferred stock, less goodwill and certain other
intangible assets ("Tier 1 Capital"). The remainder may consist of

<PAGE>

subordinated debt, other preferred stock and a limited amount of loan loss 
reserves. At December 31, 1997, Pinnacle's ratio of Tier 1 capital to 
risk-weighted assets was 13.24%.
 
    In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies which provide for a minimum leverage
ratio of Tier 1 Capital to total assets, less goodwill and certain other
intangible assets (the "Tier 1 Capital leverage ratio"), of 3% for bank holding
companies that meet certain specified criteria, including having the highest
regulatory rating. All other bank holding companies are required to maintain a
minimum Tier 1 Capital leverage ratio of 3% plus an additional cushion of 100 to
200 basis points. Pinnacle's Tier 1 Capital leverage ratio at December 31, 1997
was 7.31%. The guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the guidelines indicate
that the Federal Reserve Board will continue to consider a "tangible Tier 1
Capital leverage ratio" (deducting all intangibles) in evaluating proposals for
expansion or new activities.

    Pinnacle Bank is subject to similar capital requirements adopted by the 
FDIC. At December 31, 1997, Pinnacle Bank had a Tier 1 Capital ratio and a 
Total Capital ratio in excess of the minimum requirement, and a Tier 1 
Capital to risk-weighted assets ratio of 10.96%. No regulatory agency has 
advised Pinnacle Bank of any specific applicable minimum Tier 1 Capital 
leverage ratio. Failure to meet capital guidelines could subject an insured 
bank to a variety of enforcement remedies, including the termination of 
deposit insurance by the FDIC and a prohibition on the acceptance of brokered 
deposits.

    In December, 1992, the Federal Reserve Board approved a final rule altering
the method of computation of Tier 1 Capital of bank holding companies. Subject
to certain exceptions, in calculating Tier 1 Capital under the revised rule,
bank holding companies would be required to deduct all intangible assets other
than purchased mortgage servicing rights and purchased credit card
relationships, each valued at least quarterly at the lesser of 90% of their 
fair market value or 100% of their book value, in an aggregate amount not 
exceeding 50% of Tier 1 Capital, with a separate sublimit of 25% of Tier 1 
capital for purchased credit card relationships.
 
    The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
requires federal bank regulatory agencies biannually to review risk-based
capital standards to ensure that they adequately address interest rate risk,
concentration of credit risk and risks from non-traditional activities. On
December 31, 1992, capital adequacy regulations adopted by the FDIC, the Federal
Reserve Board and the Office of the Comptroller of the Currency (the
"Comptroller") that incorporated (i) interest rate risk into the calculation of
risk-based capital and (ii) concentration of credit risk and risk from
non-traditional activities into bank capital requirements became effective.
 
    Failure to meet the capital guidelines described above could subject an
insured financial institution to a variety of sanctions, including asset growth
restrictions and termination of deposit insurance by the FDIC.
 
    SUPPORT OF SUBSIDIARY BANKS.  Under Federal Reserve Board policy, Pinnacle
is expected to act as a source of financial strength to each of its subsidiary
banks and to commit resources to support each of such subsidiaries. This support
may be required at times when, absent such Federal Reserve Board policy,
Pinnacle would not otherwise be required to provide it. Any capital loans by a
bank holding company to any subsidiary bank are subordinate in right of payment
to deposits and to certain other indebtedness of such subsidiary bank. In the
event of a bank holding company's bankruptcy, any commitment by the bank holding
company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
 
    Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), a depository institution insured by the FDIC can be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC
after August 9, 1989 in connection with (i) the default of a commonly controlled
FDIC-insured depository institution, or (ii) any assistance provided by the FDIC
to any commonly controlled FDIC-insured depository institution "in danger of
default." "Default" is defined generally as the appointment of a conservator or
receiver and "in danger of default" is defined generally as the existence of
certain conditions indicating that a default is likely to occur in the absence
of regulatory

<PAGE>

assistance. This right of recovery by the FDIC generally is superior to any 
claim of the stockholders of the depository institution that is liable or of 
any affiliate of such institution. Pinnacle's subsidiary bank is subject to 
such provisions of FIRREA and such right of recovery by the FDIC.
 
    Under Michigan law, if the capital of a Michigan-chartered bank is impaired
by losses or otherwise, the Michigan Financial Institutions Bureau is authorized
to require payment of the deficiency by assessment upon the bank's stockholders,
pro rata, and to the extent necessary, if any such assessment is not paid by any
stockholder after three months notice, to cause the sale of the stock of such
stockholder to make good the deficiency.
 
    FDIC INSURANCE ASSESSMENTS.  The deposits of Pinnacle Bank are currently
insured to a maximum of $100,000 per depositor, subject to certain aggregation
rules. The FDIC establishes rates for the payment of premiums by federally
insured banks and thrifts, such as Pinnacle Bank, for deposit insurance.
Separate insurance funds (the BIF and the SAIF) are maintained for commercial
banks and thrifts, with insurance premiums from the industry used to offset
losses from insurance payouts when banks and thrifts fail. Due to the high rate
of failures in recent years, the FDIC has adopted a risk-based deposit insurance
premium system for all insured depository institutions, including Pinnacle Bank,
which requires that a depository institution pay to BIF from $.04 to $.31 per
$100, or to SAIF from $.04 to $.31 per $100, of insured deposits depending on
its capital levels and risk profile, as determined by its primary federal
regulator on a semiannual basis. Under its risk-based assessment system, the
FDIC may place a member in one of nine assessment risk categories based on
certain capital and supervisory measures. The capital measures are "well
capitalized," "adequately capitalized" and "under capitalized." Within each
capital group a member may be assigned to one of three supervisory subgroups: 
"healthy," "supervisory concern" and "substantial supervisory concern."
 
    A financial institution is "well capitalized" if it has a Total Capital to
risk based assets of 10% or greater, a Tier 1 Capital ratio of 6% or greater,
and a leverage ratio of 5% or greater. A financial institution is "adequately
capitalized" if it does not meet the standards for "well capitalized" but has a
Total Capital to risk based assets of 8% or greater, a Tier 1 Capital ratio of
4% or greater, and a leverage ratio of 4% or greater. A financial institution is
"less than adequately capitalized" if it does not meet the standards for
"adequately capitalized."
 
    A "healthy" financial institution is one that is financially sound with only
a few minor weaknesses. A financial institution raising "supervisory concern" is
one with weaknesses which, if not corrected, could result in significant
deterioration of the institution and increased risk to the BIF or SAIF. A
financial institution raising "substantial supervisory concern" is one that
poses a substantial probability of loss to the BIF or SAIF unless effective
corrective action is taken.
 
    The risk-related adjusted assessment schedule adopted by the FDIC with
respect to deposits insured by the BIF is as follows:
 
<TABLE>
<CAPTION>
                                                                                                                 Substantial
                                                                                                Supervisory      Supervisory
                                                                                   Healthy        Concern          Concern
                                                                                 -----------  ---------------  ---------------
<S>                                                                              <C>          <C>              <C>
Well Capitalized...............................................................         .00%           .03%             .17%
Adequately Capitalized.........................................................         .03%           .10%             .24%
Under Capitalized..............................................................         .10%           .24%             .27%
</TABLE>
 
    The risk-related adjusted assessment schedule recently adopted by the FDIC
with respect to deposits insured by the SAIF is as follows:
 
<TABLE>
<CAPTION>
                                                                                                                 Substantial
                                                                                                Supervisory      Supervisory
                                                                                   Healthy        Concern          Concern
                                                                                 -----------  ---------------  ---------------
<S>                                                                              <C>          <C>              <C>

Well Capitalized...............................................................         .00%           .03%             .17%
Adequately Capitalized.........................................................         .03%           .10%             .24%
Under Capitalized..............................................................         .10%           .24%             .27%
</TABLE>

<PAGE>

    The FDIC's adoption of risk-based insurance assessment schedules did not
result in a significant increase in the insurance assessment costs of Pinnacle.
As of December 31, 1997, Pinnacle Bank was classified as "well capitalized" and
"healthy."

    Legislation was enacted during 1996 that resulted in, among other things, 
the assessment of a one-time charge (the "Special Assessment") against 
financial institutions with deposits insured by SAIF. The amount of the 
charge equaled approximately .657% of the deposits of a financial institution 
held on March 31, 1995 and subject to the SAIF premium. The Special 
Assessment was due on September 30, 1996 and payable no later than November 
27, 1996. As a result of the Special Assessment, Pinnacle paid an assessment 
of $5.9 million on approximately $901.5 million of deposits held by it on 
March 31, 1995 and insured by SAIF.

    The FDIC determined not to levy any premium on healthy banks for 1997. As a
"well capitalized" and "healthy" institution, Pinnacle Bank did not pay (or
accrue) any premiums for FDIC coverage during 1997. BIF insured financial
institutions will, however, begin servicing Financing Corp. ("FICO") bonds,
which were funded by SAIF insured financial institutions. The FICO bonds were
issued in the late 1980s in connection with government efforts to bail out the
thrift industry. Beginning in 1997, interest payments for FICO bonds will be
borne by all FDIC insured institutions. FICO bond servicing will require BIF
members to pay 1.3 cents for every $100 in insured deposits, and SAIF members to
pay 6.48 cents for each $100 in insured deposits. The servicing payments were 
collected electronically by the FDIC beginning January 2, 1997. Pinnacle paid 
$681,000 for such servicing payments in 1997. The rates are expected to 
remain in effect through 1999, after which banks and thrifts are expected to 
pay the same rates.
 
    REGULATION OF PROPOSED ACQUISITIONS.  With certain limited exceptions, the
BHCA prohibits bank holding companies, such as Pinnacle, from acquiring direct
or indirect ownership or control of voting shares or assets of any company other
than a bank, unless the company involved is engaged solely in one or more
activities which the Federal Reserve Board has determined to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. Any such acquisition will require, except in certain limited cases, the
prior approval of the Federal Reserve Board.
 
    In evaluating an application for its approval of such an acquisition, the
Federal Reserve Board will consider whether the performance by an affiliate of
Pinnacle of the activity can reasonably be expected to produce benefits to the
public (such as greater convenience, increased competition, or gains in
efficiency) that outweigh possible adverse effects (such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices). The Federal Reserve Board may apply different standards to
activities proposed to be commenced de novo and activities commenced by
acquisition, in whole or in part, of a going concern. The Federal Reserve
Board's consideration will also include an evaluation of the financial and
managerial resources of Pinnacle, including its existing subsidiaries, and of
any entity to be acquired, and the effect of the proposed transaction on those
resources. This required regulatory approval is subject to public notice and
comment procedures, and adverse public comments received, or adverse
considerations raised by regulatory agencies, may delay or prevent consummation
of such an acquisition.
 
    FIRREA amended the BHCA in 1989 to permit the Federal Reserve Board to
approve an application by any bank holding company to acquire and operate a
thrift as a non-bank subsidiary of such bank holding company. A bank holding
company such as Pinnacle may apply to the Federal Reserve Board for permission
to acquire and operate a thrift engaged only in deposit-taking, lending and
other activities that the Federal Reserve Board has determined to be permissible
for bank holding companies, in accordance with the procedures and standards
described in the preceding paragraph.
 
    RECENT LEGISLATION.  In September 1994, the Riegle Community Development and
Regulatory Improvement Act (the "Community Development Act") was enacted. The
Community Development Act consists of (i) Subtitle A, the "Community Development
and Financial Institutions Act," which establishes the "Community Development
Financial Institutions Fund" to promote economic revitalization and community
development through investment in "Community Development Financial
Institutions," and (ii) Subtitle B, "The Home Ownership and Equity Protection
Act of 1994," which seeks to increase the protections afforded to individuals
most at risk from abusive lending practices, particularly high-interest
mortgages secured by the borrowers' homes.

<PAGE>

    The Community Development Act provides a number of initiatives to lessen the
regulatory burden placed upon depository institutions and also affects a number
of the consumer compliance laws by allowing streamlined disclosures for radio
advertising of consumer leases, providing consumers with information necessary
to challenge an "adverse characterization" due to a credit reporting agency
report and by clarifying the disclosure requirements under the Real Estate
Settlement Procedures Act regarding the transfer of serviced mortgaged loans.
 
    The Community Development Act also reforms currency transaction reports to
increase their usefulness to the Federal Government and to various law
enforcement agencies in combating money laundering. The measure also calls for
improvement in the identification of money laundering schemes, better controls
over negotiable instruments drawn on foreign banks by making them subject to
reporting, and uniform licensing and registration of check cashing and money
transmitting businesses, which are often used to facilitate illegal currency
transactions.

    In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was also enacted. The Interstate
Act facilitates the interstate expansion and consolidation of banking
organizations by permitting (i) beginning one year after enactment of the
legislation, bank holding companies that are adequately capitalized and managed
to acquire banks located in states outside their home states regardless of
whether such acquisitions are authorized under the law of the host state, (ii)
the interstate merger of banks after June 1, 1997, subject to the right of
individual states to "opt in" or "opt out" of this authority prior to such date,
(iii) banks to establish new branches on an interstate basis provided that such
action is specifically authorized by the law of the host state, (iv) foreign
banks to establish, with approval of the appropriate regulators in the United
States, branches outside their home states to the same extent that national or
state banks located in such state would be authorized to do so and (v) beginning
September 29, 1995, banks to receive deposits, renew time deposits, close loans,
service loans and receive payments on loans and other obligations as agent for
any bank or thrift affiliate, whether the affiliate is located in the same or
different state.
 
    The Federal Deposit Insurance Corporation Improvement Act of 1991
substantially revised the bank regulatory and funding provisions of the Federal
Deposit Insurance Act and revised several other federal banking statutes. FDICIA
establishes five capital tiers: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." A depository institution is well capitalized if it
significantly exceeds the minimum level required by regulation for each relevant
capital measure, adequately capitalized if it meets each such measure,
undercapitalized if it fails to meet any such measure, significantly
undercapitalized if it is significantly below such measure and critically
undercapitalized if it fails to meet any critical capital level set forth in
regulations. The critical capital level is defined as a ratio of tangible equity
to total assets of two percent or less. An institution may be deemed to be in a
capitalization category that is lower than is indicated by its actual capital
position under certain circumstances.
 
    Among other things, FDICIA requires the federal bank regulatory authorities
to take "prompt corrective action" in respect of any depository institution
which does not meet specified minimum capital requirements. The scope and degree
of regulatory intervention is linked to the extent of the shortfall of the
depository institution's capital from required minimum standards. In the case of
a depository institution which is "critically undercapitalized" (a term defined
to include institutions which still have a positive net worth), the federal bank
regulatory authorities are generally required to appoint a conservator or
receiver. FDICIA also requires the holding company of any undercapitalized
depository institution to guarantee, in part, such depository institution's
capital plan in order for such plan to be acceptable. FDICIA also prohibits a
depository institution that is not well-capitalized from accepting brokered
deposits and paying deposit interest rates which significantly exceed the
prevailing rate in its own market or the national rate (as determined by the
FDIC) for similar deposits. Implementing regulations for these provisions of
FDICIA have not yet been adopted by the federal bank regulatory authorities.
 
    FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized.
 
    MORTGAGE REGULATION.  In the origination of mortgage loans, Pinnacle and its
subsidiaries are subject to various federal statutes, such as the Equal Credit
Opportunity Act, Fair Credit Reporting Act, Truth in Lending Act, Real Estate
Settlement

<PAGE>

Procedures Act, and Home Mortgage Disclosure Act, and the regulations 
promulgated thereunder, which prohibit discrimination and specify disclosures 
to be made to borrowers regarding credit and settlement costs.
 
    As sellers and servicers of mortgage loans, Pinnacle and its subsidiaries
are participants in the secondary mortgage market with some or all of the
following: private institutional investors, Federal National Mortgage
Association ("FNMA"), Government National Mortgage Association, Federal Home
Loan Mortgage Corporation ("FHLMC"), Veterans' Administration and Federal
Housing Authority. In its dealings with these agencies, Pinnacle and its 
subsidiaries are subject to various eligibility requirements prescribed by 
the agencies, including but not limited to net worth, quality control, 
bonding, financial reporting and compliance reporting requirements. The 
mortgage loans which Pinnacle and its subsidiaries originate are subject to 
agency-prescribed procedures, including (without limitation) inspection and 
appraisal of properties, maximum loan-to-value ratios,and obtaining credit 
reports on prospective borrowers. On some types of loans, the agencies 
prescribe maximum loan amounts, interest rates and fees. When selling 
mortgage loans to FNMA and FHLMC, a seller must represent and warrant that 
all such mortgage loans conform to the requirements of FNMA and FHLMC. If the 
mortgage loans sold are found to be nonconforming mortgage loans, FNMA or 
FHLMC may require the seller to repurchase the nonconforming mortgage loans. 
Additionally, FNMA and FHLMC may require a seller/servicer to indemnify them 
against all losses arising from the seller/servicer's failure to perform its 
contractual obligations under the applicable selling or servicing contract.
 
FORWARD-LOOKING STATEMENTS
 
    From time to time, Pinnacle may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects, new
products, and similar matters. Such information is often subject to risks and
uncertainties. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. In order to comply with the terms of
the safe harbor, Pinnacle notes that a variety of factors could cause its actual
results and experience to differ materially from the anticipated results or
other expectations expressed in its forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development and
results of the Company's business include those discussed elsewhere herein (such
as competition and regulation); future economic conditions in the regional and
national markets in which the companies compete; financial market conditions;
inflation; changing competition; the ability to carry out business plans; the
ability to enter new markets successfully and capitalize on growth
opportunities; adverse changes in applicable law, regulations or rules governing
financial institutions and environmental, tax or accounting matters; and the
following:
 
    INTEREST RATE SENSITIVITY.  Prevailing economic conditions, particularly
changes in market interest rates, may significantly affect the operations of
financial institutions such as Pinnacle and Pinnacle Bank because the earnings
of a financial institution depend primarily on its net interest income, which is
the difference between the income earned on its loans and investments and the
interest paid on its deposits and borrowings. Changes in interest rates also can
affect the value of a financial institution's interest-earning assets, which are
comprised of fixed- and adjustable-rate instruments. Generally, the value of
fixed-rate instruments fluctuates inversely with changes in interest rates.
Changes in interest rates also can affect the average life of, and demand for,
loans and mortgage-related securities. A financial institution is subject to
reinvestment risk to the extent that it is not able to reinvest such prepayments
at rates which are comparable to the rates on the maturing loans or securities.
 
    LOCAL ECONOMIC CONDITIONS.  The success of Pinnacle is dependent to a
certain extent upon the general economic conditions in the geographic markets
served by it and its subsidiaries. No assurance can be given that favorable
economic conditions will exist in such markets.

                                       9

<PAGE>

ITEM 2. PROPERTIES
 
    Pinnacle owns or leases all of the properties in which its various offices
are located. Pinnacle owns its main office in St. Joseph, Michigan. Pinnacle has
14 additional branch offices in Michigan and 30 branch offices in Indiana.
Pinnacle also owns 43 automated teller machines, of which 31 are housed within
its banking offices and 12 are independently located. At December 31, 1997 and
1996, the properties and equipment of Pinnacle had an aggregate net book value
of $29.3 million and $26.1 million, respectively.


                                       10
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

    Pinnacle from time to time is subject to pending and threatened legal 
action and proceedings arising in the normal course of business. Any such 
litigation currently pending is incidental to such business and, based on 
information currently available to management, management believes the 
outcome of such actions or proceedings will not have a material adverse effect 
on the operations or financial condition of Pinnacle. See also Note 18 to the 
consolidated financial statement of Pinnacle Financial Services, Inc.

                                       11
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    There were no matters submitted to a vote of Pinnacle's shareholders during
the fourth quarter of 1997.
 
                                       12
<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    Shares of common stock, no par value per share, of Pinnacle ("Pinnacle
Common Stock") are traded in the over-the-counter market and listed for
quotation on the Nasdaq National Market under the symbol "PNFI." Although
transactions in Pinnacle Common Stock, have been, and are expected
to continue to be, facilitated by market-makers, there can be no assurance that
an established or liquid trading market will continue.
 
    The following table sets forth, for the periods indicated, the high and low
sale prices per share of the Pinnacle Common Stock as reported by the Nasdaq
National Market. The information with respect to such Nasdaq National Market
quotations was obtained from the National Association of Securities Dealers,
Inc.
 
<TABLE>
<CAPTION>
                                                   Pinnacle Common Stock
                                                   ----------------------
                                                     High         Low
                                                   ---------    ---------
<S>                                                 <C>          <C>
1996 First Quarter.................................  $20.50      $17.75
     Second Quarter................................   21.75       20.00
     Third Quarter.................................   24.75       19.50
     Fourth Quarter................................   25.00       23.25
1997 First Quarter.................................   28.00       23.25
     Second Quarter................................   29.00       25.13
     Third Quarter.................................   36.00       28.50
     Fourth Quarter................................   49.38       35.00
1988 First Quarter (Through March 20, 1998)........   50.50       41.25
</TABLE>

    As of March 20, 1998, there were 2,063 registered holders of shares of
Pinnacle Common Stock.

    The holders of Pinnacle Common Stock are entitled to receive such 
dividends as may be declared from time to time by the Board of Directors of 
Pinnacle out of funds legally available therefor. Pinnacle (or its 
predecessor) has paid cash dividends at least annually since the 1930's and 
on a regular quarterly basis since April 1979. The table below presents the 
cash dividends declared, as retroactively adjusted for the effect of stock 
dividends, for the periods indicated.

<TABLE>
<CAPTION>
                                       1997       1996
                                     ---------  ---------
                                     (Per Share Amounts)

<S>                                  <C>        <C>
First Quarter......................  $  0.235   $  0.19
Second Quarter.....................     0.235      0.21
Third Quarter......................     0.235      0.21
Fourth Quarter.....................     0.235      0.21

</TABLE>
 
    Any future dividends will depend upon, among other things, the earnings, 
cash position and capital needs of Pinnacle and the future financial results 
and requirements and contractual restrictions applicable to Pinnacle or its 
subsidiaries. Under the terms of the Agreement and Plan of Merger dated as of 
October 14, 1997, between CNB and Pinnacle, in the case of dividends payable 
until June 30, 1998, Pinnacle may declare and pay its regular quarterly 
dividend on the Pinnacle Common Stock in an amount not to exceed $0.235 per 
share, at approximately the same times during each quarter during such period 
which it has historically declared and paid such dividends, and in the case 
of dividends payable on or after July 1, 1998, Pinnacle may declare and pay 
its regular quarterly dividend on the Pinnacle Common Stock in an aggregate 
amount equal to the aggregate amount that Pinnacle shareholders would have 
received on their shares of CNB Common Stock received in the merger with CNB 
had the effective time of the merger with CNB been immediately before the 
record date or dates for the payment of each such dividend, at approximately 
the same times during each quarter during such period which it has 
historically declared and paid such dividends. The ability of Pinnacle to 
fund its operations and to pay dividends on its common stock will be 
dependent upon its receipt of dividends from its subsidiaries. The ability of 
those subsidiaries to pay dividends is subject to regulatory restrictions.

                                       13
<PAGE>

-------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA

    The following table summarizes certain consolidated historical financial 
data of Pinnacle for each of the years in the five year period ended December 
31, 1997. All information is presented in accordance with generally accepted 
accounting principles, except for selected regulatory data, which are 
presented in accordance with regulatory accounting practices. All information 
has been restated to reflect the combination of the historical financial 
results of Pinnacle, IFC and CB and their respective recorded assets and 
liabilities have been restated at their historical cost as if the combining 
companies had been consolidated for all periods presented.

    Selected Financial Data Five Year Summary of Operations
 
<TABLE>
<CAPTION>
                                                          As of And For The Years Ended December 31,
                                             --------------------------------------------------------------------
                                                 1997          1996          1995          1994          1993
                                             ------------  ------------  ------------  ------------  ------------
                                                   (dollars in thousands, except per share data and ratios)
<S>                                          <C>           <C>           <C>           <C>           <C>
Selected Financial Data:
 Total assets...............................   $2,115,495    $2,135,210    $1,841,351    $1,270,447    $1,194,724
 Mortgage loans, held for sale..............       12,750        11,485        26,740         1,391         7,077
 Loans, net of unearned income..............    1,508,365     1,415,855     1,210,272       920,398       796,633
 Allowance for loan losses..................       20,528        14,909        13,853        11,787        11,165
 Securities.................................      419,284       527,785       413,890       256,859       240,113
 Cash and cash equivalents..................       55,609        76,707        61,556        36,546        28,186
 Deposits...................................    1,433,108     1,478,711     1,373,307       974,416       908,719
 Securities sold under repurchase
  agreements and other borrowings...........      483,876       471,444       286,384       170,488       163,358
 Total stockholders' equity.................      181,305       170,259       164,458       116,141       112,067
Selected Operations Data:
 Interest income............................   $  167,072    $  147,903    $  107,916    $   82,067    $   87,562
 Interest expense...........................       91,486        79,599        55,069        38,371        43,414
 Net interest income........................       75,586        68,304        52,847        43,696        44,148
 Provision for loan losses..................       13,320         2,681         1,422           382         1,560
  Net interest income after provision for
   loan losses..............................       62,266        65,623        51,425        43,314        42,588
 Noninterest income.........................       18,520        12,853         9,809         9,071         9,727
 Noninterest expense........................       66,011        54,946        38,660        31,804        30,602
  Income before income taxes, extraordinary
   item and accounting change...............       14,775        23,530        22,574        20,581        21,713
 Income tax expense.........................        4,559         7,443         6,353         6,369         6,737
 Extraordinary items--early debt
   extinguishment...........................           --            --            --            --           429
   Net income...............................   $   10,216    $   16,087    $   16,221    $   14,212    $   14,547
Selected Operating Ratios:
 Return on average assets...................          .48%          .83%         1.15%         1.24%         1.26%
 Return on average stockholders' equity.....         5.83          9.83         12.85         12.39         13.87
 Net interest margin........................         3.75          3.77          4.01          4.05          3.94
 Ratio of noninterest income to total
  average assets............................          .86           .66           .69           .79           .82
 Ratio of noninterest expense to total
  average assets............................         3.08          2.83          2.73          2.77          2.57
 Efficiency ratio (1).......................        56.25         58.40         60.44         59.33         56.73
 Ratio of average earning assets to average
  total assets..............................        93.87         93.52         93.06         93.87         94.34
</TABLE>

                                       14
<PAGE>

<TABLE>

<S>                                          <C>           <C>           <C>           <C>           <C>
 Dividend payout ratio......................          109%           62%           48%           45%           37%
Per Share Data: (2)
 Basic net income per share.................   $      .83  $       1.33    $     1.60    $     1.39    $     1.45
 Diluted net income per share...............   $      .83  $       1.32    $     1.58    $     1.39    $     1.45
 Cash dividends per share...................          .94           .82           .76           .62           .53
 Book value per share.......................        14.37         14.01         13.67         11.68         11.25
Asset Quality Ratios:
 Nonperforming loans to total loans.........         1.19%         1.27%         1.14%          .89%         1.16%
 Allowance for loan losses to total loans...         1.35          1.05          1.14          1.28          1.40
 Allowance for loan losses to nonperforming
  loans.....................................       114.18         82.76        100.07        144.54        120.99
 Net charge-off loans to average loans......          .55           .12           .12           .04           .10
Capital Ratios:
 Stockholders' equity to assets.............         8.57%         7.97%         8.93%         9.14%         9.38%
 Tier I capital to risk-weighted assets.....        13.24         12.12         10.86         10.61         11.10
</TABLE>

------------------------
(1) Efficiency ratio is equal to noninterest expense less amortization of
    intangible expenses less one time restructuring charge divided by net
    interest income plus noninterest income less gain or loss on security
    transactions.
 
(2) Per share data has been restated to reflect all stock dividends and stock
    splits. Pinnacle's last stock split was in 1993.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION

    The following discussion provides information regarding Pinnacle's financial
condition and results of operations for each of the years ended December 31,
1997, 1996 and 1995. This discussion should be read in conjunction with the
consolidated financial statements of Pinnacle, and the notes thereto, which
appear elsewhere herein.
 
OVERVIEW AND FINANCIAL CONDITION
 
    For the year ended December 31, 1997, net income was $10.2 million or 
basic earnings per share of $.83 as compared to net income of $16.1 million 
or basic earnings per share of $1.33 for the year ended December 31, 1996 and 
$16.2 million or basic earnings per share of $1.60 per share for the year 
ended December 31, 1995. The decrease from 1996 to 1997 was largely the 
result of the restructuring charges of $8.2 million after tax and the $6.0 
million after tax ($10.0 million pre-tax) increase in the provision for loan 
losses in connection with conforming loan loss reserve methodologies as a 
result of the acquisitions of IFC and CB in the third quarter of 1997, offset 
by the one-time SAIF charge in the third quarter of 1996 of $3.6 million 
after tax. On a diluted basis, earnings per share was $.83 for the year ended 
December 31, 1997 as compared to $1.32 for the year ended December 31, 1996. 
All per share income has been restated in accordance with the Financial 
Accounting Standards Board's Statement No. 128 "Earnings per Share" which 
requires the presentation of basic and diluted income per share in lieu of 
primary income per share amounts previously reported by Pinnacle. Net income 
without the restructuring charges of $8.4 million after tax would have been 
$18.6 million or basic earnings per share of $1.52 for the year ended 
December 31, 1997 as compared to $1.64 for the year ended December 31, 1996 
without the $3.6 million after tax SAIF charge in 1996, a decrease of 6.1%.
 
    During the fourth quarter of 1997 and continuing in the first quarter of 
1998, Pinnacle devoted substantial attention to reconciling amounts and 
resolving related items generated through the data processing conversion of 
Community Bank and Indiana Federal Bank for Savings that were a result of the 
CB and IFC mergers. Net income was reduced in the fourth quarter of 1997 
through a charge to earnings of $1,341,000 to reserve for such items. 
Pinnacle continues to work on clearing the reconciling items identified. 
Pinnacle does not expect the ultimate resolution of the items to have a 
further significant impact on the financial results of Pinnacle.

    Due to the timing of the Maco Bancorp, Inc. acquisition, which was 
consummated on December 1, 1995, and because of the application of purchase 
accounting (which includes the earnings and assets of Maco from the date of 
the Maco Acquisition), results for the year ended December 31, 1996 are not 
necessarily comparable to results for years ended on or before December 31, 
1995.

                                       15
<PAGE>

    Since 1995, average earning assets have equaled or exceeded 93.0% of 
total average assets. The following table summarizes the components of 
Pinnacle's total assets, total loans, total deposits and stockholders' equity 
at the dates indicated.

                      OVERVIEW AND FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>

                                                At December 31,
                                           --------------------------
                                               1997          1996
                                           ------------  ------------
                                             (dollars in thousands)

<S>                                        <C>           <C>
Loans, net.of unearned income............  $  1,508,365  $  1,415,855
Total assets.............................     2,115,495     2,135,210
Deposits.................................     1,433,108     1,478,711
Stockholders' equity.....................       181,305       170,259

</TABLE>
 
    Net loans at December 31, 1997 were approximately $1.5 billion, which was
$92.5 million greater that net loans at December 31, 1996. The increase was
primarily attributable to commercial loan growth of $70.0 million or 16.6%, an
increase in Pinnacle's Mortgage Loan Reverse Repurchase Program of $84.4 million
or 88.6% offset by a decrease of $62.6 million in real estate loans as
management placed greater emphasis on commercial loans to adjust the loan mix in
the portfolio. Net loans at December 31, 1996 were approximately $1.4 billion,
which was $205.6 million greater than net loans at December 31, 1995 of $1.2
billion. The substantial growth in net loans from December 31, 1995 to December
31, 1996, was primarily related to Pinnacle's new presence in the northern
Indiana market and the moderate growth of the their southwestern Michigan
market. The remaining increase is attributable to a $15.2 million increase in
Pinnacle's Mortgage Loan Reverse Repurchase Program and due to Pinnacle Bank's
regular banking activities.
 
    Total assets decreased by $19.8 million at December 31, 1997 to $2.1 
billion as compared to December 31, 1996. The company's focus was mainly on 
changing the asset mix, primarily in the loan portfolio while holding total 
assets constant. However, average assets increased by $208.4 million for the 
year ended December 31, 1997 to $2.1 billion as compared to $1.9 billion for 
the year ended December 31, 1996, an increase of 10.7%. Total assets 
increased by $294 million or 16%, from $1.8 billion, at December 31, 1995 to 
$2.1 billion at December 31, 1996. The growth was primarily the result of 
strong loan demand which was funded by strong deposit growth and increases in 
Federal Home Loan Bank advances and securities sold under repurchase 
agreements and other borrowings. Total deposits at December 31, 1997 were 
$1.4 billion, a decrease of $45.6 million or 3.1% as compared to $1.5 billion 
at December 31, 1996. The decrease was due primarily to a corresponding 
decrease in non-interest bearing demand deposits of $22.0 million from $121.2 
million at December 31, 1996 to $99.3 million at December 31, 1997. Total 
deposits at December 31, 1996 increased by 7.7% or $105.4 million when 
compard to the balance at December 31, 1995 of $1.4 million. The growth in 
deposits was primarily in noninterest bearing demand deposits which increased 
$23.3 million or 23.8% and time deposits which increased $65.8 million or 
9.3%.
 
    Federal Home Loan Bank advances, securities sold under repurchase 
agreements and other borrowings were approximately $483.9 million at December 
31, 1997, an increase of $12.4 million or 2.6% from December 31, 1996 levels. 
Federal Home Loan Bank advances, securities sold under repurchase agreements 
and other borrowings were approximately $471.4 million at December 31, 1996, 
an increase of $185.1 million, or 64.6%, from December 31, 1995 levels. The 
increase was used primarily to fund strong loan growth and to match fund 
specific investment security purchases with similar adjustable rate features 
and maturities.
 
    A majority of Pinnacle's revenue is generated by its average earning 
assets. For 1997, average earning assets totaled $2.0 billion, an increase of 
$202.4 million, or 11.2% , over 1996, which helped increase net interest 
income by $7.3 million. The growth in average loans of $161.8 million 
accounted for most of the average earning asset growth in 1997. The net 
interest margin was stable for the year-ended December 31, 1997 at 3.75% as 
compared to 3.77% for the year-ended December 31, 1996. The Maco Acquisition 
on December 1, 1995 and the Mortgage Loan Reverse Repurchase Program

                                       16
<PAGE>

provided the increase in average earning assets of $496 million for 1996 from 
$1.3 billion in 1995 to $1.8 billion in 1996. The increase in average earning 
assets was offset by a reduction in net interest margin to 3.77% in 1996 as 
compared to 4.01% in 1995. This reduction was primarily the result of the 
Maco Acquisition which experienced a lower net interest margin as compared to 
Pinnacle's margin before the acquisition.
 
    Stockholder's equity was approximately $181.0 million at December 31, 
1997 as compared to $170.3 million at December 31, 1996, resulting in an 
increase of $10.7 million or 6.3%. The increase was attributable to net 
income of $10.2 million for the year ended December 31, 1997 offset by cash 
dividends of $9.5 million in 1997. Common stock issued upon exercise of stock 
options added $9.1 million to stockholders equity in 1997. Stockholders' 
equity increased approximately $5.8 million or 3.5% at December 31, 1996, as 
compared to $164.5 million at December 31, 1995. Retained earnings generated 
primarily through net income added $7.4 million while net unrealized gains 
decreased to $45,000 at December 31, 1996 resulting in a reduction of $1.9 
million. Additional paid in capital increased $706,000. The return on average 
assets for the year ended December 31, 1997 was .48% as compared to .83% for 
the year ended December 31, 1996. Without the restructuring and SAIF charges, 
return on average assets would have been .87% and 1.02%, respectively, for 
the years ended December 31, 1997 and 1996. The return on average equity for 
the year ended December 31, 1997 was 5.83% as compared to 9.83% for the year 
ended December 31, 1996. Without the restructuring and SAIF charges, return 
on average equity would have been 10.61% and 12.05%, respectively, for the 
years ended December 31, 1997 and 1996.
 
RESULTS OF OPERATIONS
 
    NET INCOME. For the year ended December 31, 1997, net income was $10.2 
million or basic earnings per share of $.83 as compared to net income of 
$16.1 million or basic earnings per share of $1.33. The decrease was largely 
the result of the restructuring charges of $8.4 million after tax and the 
$6.0 million after tax ($10.0 million pre-tax) increase in the provision for 
loan losses in connection with conforming loan loss reserve methodologies as 
a result of the acquisitions of IFC and CB in the third quarter of 1997, 
offset by the one-time SAIF charge in the third quarter of 1996 of $3.6 
million after tax. On a diluted basis, earnings per share was $.85 for the 
year ended December 31, 1997 as compared to $1.32 for the year ended December 
31, 1996. All per share income has been restated in accordance with the 
Financial Standards Board's Statement No. 128 "Earnings per Share" whcih 
requires the presentation of basic and diluted earnings per share in lieu of 
primary income per share previously reported by Pinnacle. Net income without 
the restructuring charges of $8.4 million after tax would have been $18.6 
million or basic earnings per share of $1.52 for the year ended December 31, 
1997 as compared to $1.64 for the year ended December 31, 1996 without the 
$3.6 million after tax SAIF charges in 1996, a decrease of 7.3%.
 
    NET INTEREST INCOME.  Net interest income is Pinnacle's primary source of
earnings and represents the excess of interest earned on earning assets over
interest expense associated with the deposits and other funding sources used to
finance those assets. Net interest income is influenced primarily by changes in
the volume and mix of earning assets and sources of funding and market rates of
interest. Other external factors, such as the strength of credit demands by
customers, liquidity and maturity preferences of deposit customers, and
governmental monetary policy, also can have a significant impact on earnings.

                  SUMMARY OF CONSOLIDATED NET INTEREST INCOME
 
    The following table sets forth certain information with respect to
Pinnacle's consolidated net income for each of the years ended December 31,
1997, 1996 and 1995.

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                      -------------------------------------------------------------
                                                  1997                            1996
                                      -----------------------------   -----------------------------
                                       Average              Average    Average              Average
                                       Balance    Interest   Rate      Balance    Interest   Rate
                                      ----------  --------  -------   ----------  --------  -------
                                                         (dollars in thousands)
<S>                                   <C>         <C>       <C>       <C>         <C>       <C>
Assets
Federal funds sold..................  $    3,053  $    166   5.44%    $    7,728  $    410   5.31%
 
<CAPTION>
                                                  1995
                                      -----------------------------
                                       Average              Average
                                       Balance    Interest   Rate
                                      ----------  --------  -------
 <S>                                   <C>         <C>       <C>
Assets
Federal funds sold..................       4,458       257   5.76%
</TABLE>
 
                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                      -------------------------------------------------------------
                                                  1997                            1996
                                      -----------------------------   -----------------------------
                                       Average              Average    Average              Average
                                       Balance    Interest   Rate      Balance    Interest   Rate
                                      ----------  --------  -------   ----------  --------  -------
                                                         (dollars in thousands)

<S>                                   <C>         <C>       <C>       <C>         <C>       <C>
Interest-bearing deposits with
  financial institutions............       5,490       358   6.52         13,356       982   7.35
U.S. Treasury and goverment
  agencies..........................     358,928    25,905   7.22        254,299    17,125   6.73
Other Securities (1)................     169,236    11,218   6.63        220,649    14,666   6.65
Loans (2)...........................   1,478,238   129,425   8.76      1,316,487   114,720   8.71
                                      ----------  --------  -------   ----------  --------  -------
Total interest earning assets.......   2,014,945   167,072   8.29      1,812,519   147,903   8.16
                                      ----------  --------  -------   ----------  --------  -------
Cash and due from banks.............      39,721                          35,663
Premises and equipment, net.........      27,259                          26,153
Allowance for loan losses...........     (17,045)                        (14,122)
Other assets........................      81,625                          77,941
                                      ----------                      ----------
Total assets........................  $2,146,505                      $1,938,154
                                      ----------                      ----------
Liabilities
Interest-bearing demand.............  $  149,124  $  2,991   2.01%    $  142,843  $  3,007   2.11%
Savings and money market accounts...     437,494    15,779   3.61        426,575    14,731   3.45
Time deposits.......................     776,474    43,925   5.66        757,158    42,829   5.66
                                      ----------  --------  -------   ----------  --------  -------
Total interest-bearing deposits.....   1,363,092    62,695   4.60      1,326,576    60,567   4.57
                                      ----------  --------  -------   ----------  --------  -------
Federal Home Loan Bank advances.....     414,421    24,286   5.86        278,391    15,928   5.72
Securities sold under repurchase 
  agreements and other borrowings...      85,220     4,505   5.29         59,835     3,104   5.19
                                      ----------  --------  -------   ----------  --------  -------
Total interest-bearing
 
<CAPTION>
                                                  1995
                                      -----------------------------
                                       Average              Average
                                       Balance    Interest   Rate
                                      ----------  --------  -------
<S>                                   <C>         <C>       <C>
Interest-bearing deposits with
  financial institutions............       7,219       680   9.42
U.S. Treasury and goverment
  agencies..........................     106,552     6,792   6.37
Other Securities (1)................     145,307     9,607   6.61
Loans (2)...........................   1,052,995    90,580   8.60
                                      ----------  --------  -------
Total interest earning assets.......   1,316,531   107,916   8.20
                                      ----------  --------  -------
Cash and due from banks.............      28,739
Premises and equipment, net.........      20,751
Allowance for loan losses...........     (12,389)
Other assets........................      61,090
                                      ----------
Total assets........................  $1,414,722
                                      ----------
Liabilities
Interest-bearing demand.............  $  113,864  $  2,331   2.05%
Savings and money market accounts...     307,521    11,026   3.59
Time deposits.......................     566,595    30,199   5.33
                                      ----------  --------  -------
Total interest-bearing deposits.....     987,980    43,556   4.41
                                      ----------  --------  -------
Federal Home Loan Bank advances.....     159,055     8,821   5.55
Securities sold under repurchase
  agreements and other borrowings...      42,280     2,692   6.37
                                      ----------  --------  -------
Total interest-bearing
</TABLE>
 
                                       18
<PAGE>
<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                      -------------------------------------------------------------
                                                  1997                            1996
                                      -----------------------------   -----------------------------
                                       Average              Average    Average              Average
                                       Balance    Interest   Rate      Balance    Interest   Rate
                                      ----------  --------  -------   ----------  --------  -------
                                                         (dollars in thousands)
<S>                                   <C>         <C>       <C>       <C>         <C>       <C>
  liabilities.......................   1,862,733    91,486   4.91      1,664,802    79,599   4.78
                                      ----------  --------  -------   ----------  --------  -------
Noninterest-bearing deposits........      93,922                          92,987
Other liabilities...................      14,604                          16,750
                                      ----------  --------  -------   ----------  --------  -------
 
<CAPTION>
 
                                                  1995
                                      -----------------------------
                                       Average              Average
                                       Balance    Interest   Rate
                                      ----------  --------  -------
 
<S>                                   <C>         <C>       <C>
  liabilities.......................   1,189,315    55,069   4.63
                                      ----------  --------  -------
Noninterest-bearing deposits........      81,094
Other liabilities...................      14,251
                                      ----------  --------  -------
</TABLE>
 
                                       19
<PAGE>
<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                      -------------------------------------------------------------
                                                  1997                            1996
                                      -----------------------------   -----------------------------
                                       Average              Average    Average              Average
                                       Balance    Interest   Rate      Balance    Interest   Rate
                                      ----------  --------  -------   ----------  --------  -------
                                                         (dollars in thousands)
<S>                                   <C>         <C>       <C>       <C>         <C>       <C>
Total liabilities...................   1,971,259                       1,774,539
Stockholders' equity................     175,246                         163,615
Total liabilities and stockholders'
  equity............................  $2,146,505                      $1,938,154
Net interest income.................                75,586                          68,304
Net interest rate margin (3)........                         3.75%                           3.77%
 
<CAPTION>
 
                                                  1995
                                      -----------------------------
                                       Average              Average
                                       Balance    Interest   Rate
                                      ----------  --------  -------
 
<S>                                   <C>         <C>       <C>
Total liabilities...................   1,248,660
Stockholders' equity................     130,062
Total liabilities and stockholders'
  equity............................  $1,414,722
Net interest income.................                52,847
Net interest rate margin (3)........                          4.01%
</TABLE>

------------------------
(1) Income from state and political subdivisions securities and loans are stated
    on a tax equivalent basis.
 
(2) For purposes of these computations, nonaccrual loans and unearned income are
    included in the daily average loan amounts outstanding.
 
(3) Net interest rate margin is equal to total interest income less total
    interest expense divided by total average earning assets.

                                       20 

<PAGE>

    The following table describes the extent to which changes in interest 
rates and changes in volume of interest-related assets and liabilities have 
effected Pinnacle's interest income and expense during the periods indicated. 
For each category of interest-earnings assets and interest-bearing 
liabilities, information is provided on changes attributable to (i) changes 
in volume (change in volume multiplied by prior year rate), (ii) changes in 
rate (change in rate multiplied by prior year volume), (iii) changes in 
volume and rate combined (change in rate multiplied by change in volume), and 
(iv) total change in rate and volume.
 
<TABLE>
<CAPTION>

                                                                            1997/1996                          1996/1995
                                                                   Change in Interest Due to:         Change in Interest Due to:
                                                                ---------------------------------  ---------------------------------
                                                                                 Rate &     Net                     Rate &     Net
                                                                Volume    Rate   Volume   Change   Volume    Rate   Volume   Change
                                                                -------  ------  ------   -------  -------  ------  ------   -------
<S>                                                            <C>      <C>      <C>     <C>      <C>      <C>     <C>     <C>
                                                                                       (dollars in thousands)
ASSETS
  Federal funds sold.........................................  $  (248) $   10   $ (6)   $  (244) $   188  $  (20) $ (15)  $   153
  Interest-bearing deposits with financial institutions......     (578)   (111)    65       (624)     578    (149)  (127)      302
  U.S. Treasury and government agencies......................    7,042   1,246    492      8,780    9,411     384    538    10,333
  Other Securities (1).......................................   (3,419)    (44)    15     (3,448)   4,980      58     21     5,059
  Loans (1)..................................................   14,089     658    (42)    14,705   22,661   1,158    321    24,140
                                                                -------  ------  ------   -------  -------  ------  ------  ------
    Total interest-earning assets............................  $16,886  $1,759   $524    $19,169  $37,818  $1,431  $ 738   $39,987
                                                                -------  ------  ------   -------  -------  ------  ------  ------
LIABILITIES
  Interest-bearing demand....................................  $   133  $ (143)  $ (6)   $   (16) $   594  $   68  $  14   $   676
  Savings and money market accounts..........................      377     682    (11)     1,048    4,275    (431)  (139)    3,705
  Time deposits..............................................    1,093       0      3      1,096   10,157   1,870    603     2,630
                                                                -------  ------  ------   -------  -------  ------  ------   -----
Total interest-bearing deposits..............................    1,603     539    (14)     2,128   15,026   1,507    478    17,011
                                                                -------  ------  ------   -------  -------  ------  ------  ------
  Federal Home Loan Bank advances............................    7,769     390    199      8,358    6,624     270    213     7,107
  Securities sold under repurchase agreements
    and other borrowings.....................................    1,317      60     24      1,401    1,118    (499)  (207)      412

Total interest-bearing liabilities...........................   10,689     989    209     11,887   22,768   1,278    484    24,530
                                                                -------  ------  ------   -------  -------  ------  ------  ------
Net interest income..........................................  $ 6,197  $  770   $315    $ 7,282  $15,050  $  153  $ 254   $15,457
                                                                -------  ------  ------   -------  -------  ------  ------  ------
</TABLE>
 
--------------------------
 
(1) Income from state and political subdivisions securities and loans are stated
    on a tax equivalent basis.
 
    Net interest income on a tax equivalent basis was approximately $75.6
million for the year ended December 31, 1997 as compared to $68.3 million for
1996, an increase of $7.3 million. The increase was from the $202.4 million
increase in average earning assets for the year ended December 31, 1997 which
contributed $6.1 million to the increase in net interest

                                       21
<PAGE>

income. Net interest income on a tax-equivalent basis was approximately $68.3
million for the year ended December 31, 1996, as compared to $52.8 million for
the year ended December 31, 1995. The substantial increase in net interest
income during 1996 over the same period in 1995 was due primarily to the
increase in average earning assets associated with the Maco Acquisition and the
Mortgage Loan Reverse Repurchase Program. An increase in average earning assets
for the year ended December 31, 1996 of $496.0 million increased net interest
income by $15.1 million.
 
    Total loans as of December 31, 1997 were $1.5 billion, an increase of $92.5
million or 6.5% over total loans as of December 31, 1996 of $1.4 billion.
Commercial loans at December 31, 1997 totaled $491.9 million, an increase of
$70.0 million or 16.6% over the December 31, 1996 total of $421.9 million.
Mortgage repurchase loans were $179.7 million at December 31, 1997 as compared
to $95.3 million, an increase of $84.4 million or 88.6% as the increased level
of capital and alternative funding by way of a larger company, after the merger
of CB Bancorp into Pinnacle, allowed growth to accelerate in 1997. Real Estate
loans decreased $62.6 million to $588.0 million at December 31, 1997 as compared
to $650.6 million at December 31, 1996, as the company placed greater emphasis
on other loan types to reduce the loan mix of real estate lending into
commercial loans. Consumer loans were steady at $238.4 million at December 31,
1997 as compared to $238.3 million at December 31, 1996. The company decided to
manage consumer loan levels through the sale of home equity loans in 1997. Total
loans as of December 31, 1996 were $1.4 billion, an increase of $205.6 million
or 17% over total loans as of December 31, 1995 of $1.2 billion. Commercial
loans at December 31, 1996 totaled $421.9 million, an increase of $107.4 million
or 34.1% over the December 31, 1995 total of $314.6 million. Consumer loans,
including home equity loans, grew by 33.3% to $238.3 million at December 31,
1996 as compared to $178.7 million at December 31, 1995. Real estate loans at
December 31, 1996 increased slightly by 2.8%, or $18.0 million, to $650.6
million as compared to $632.7 million at December 31, 1995 as Pinnacle primarily
originated real estate loans for resale in the secondary market for fee income
and sought to control the level of real estate loans to manage interest rate
risk associated with these longer term assets.
 
    Securities, federal funds sold and interest-bearing deposits with financial
institutions decreased by $129.5 million at December 31, 1997 or 23.3% to total
$427.2 million as compared to $556.7 million at December 31, 1996 as the company
placed more emphasis on the growth in higher yielding loans. Securities, federal
funds sold and interest-bearing deposits with financial institutions increased
by $91.0 million or 19.4% to approximately $556.7 million at December 31, 1996
when compared to $466.1 million at December 31, 1995. The increase in this item
in 1996 as compared to 1995 was attributable primarily to Pinnacle using
specific adjustable rate security investments to match against short-term
funding sources as a tool to manage interest rate risk.
 
    The following table presents a breakdown by category of the average amount
of deposits (all in domestic offices) and the average rate paid for the years
indicated.
 
<TABLE>
<CAPTION>
                                                   1997      Average       1996      Average       1995      Average
                                                 Average      Rate       Average      Rate       Average      Rate
                                                 Balance      Paid       Balance      Paid       Balance      Paid
                                                ----------  ---------   ----------  ---------   ----------  ---------
<S>                                             <C>         <C>         <C>         <C>         <C>         <C>
                                                                        (dollars in thousands)
Noninterest-bearing demand deposits..........   $   93,922    0.00%     $   92,987    0.00%     $   81,094    0.00%
Interest-bearing demand deposits.............      149,124    2.01         142,843    2.11         113,864    2.05
Savings deposits.............................      437,494    3.61         426,575    3.45         307,521    3.59
Time deposits................................      776,474    5.66         757,158    5.66         566,595    5.33
                                                ----------              ----------              ----------
    Total....................................   $1,457,014              $1,419,563              $1,069,074
                                                ----------              ----------              ----------
</TABLE>
 
    Total deposits decreased by $45.6 million or 3.1% to $1.4 billion at
December 31, 1997. Non-interest bearing deposits decreased $22.0 million or
18.1% as lower levels of year end commercial deposits were experienced. Interest
bearing demand deposits increased $43.0 million or 29.9% as the company
continued to have success with its line of retail checking accounts in 1997.
Total deposits increased by $105.4 million or 7.7% to $1.5 billion at December
31, 1996 from $1.4 billion at December 31, 1995. Noninterest bearing demand
deposits increased $23.3 million or 23.8% as Pinnacle continued to have success
with a new line of checking accounts introduced in 1995.

                                       22
<PAGE>

    Time deposits decreased $62.2 million or 8.0% to $713.9 million at December
31, 1997 as compared to $776.1 million at December 31, 1996, primarily through
the decrease in reliance on funding the company with higher priced brokered time
deposits acquired with the acquisition of CB Bancorp on August 1, 1997. Time
deposits grew by $65.8 million, or 9.3%, to $776.1 million at December 31, 1996
as compared to $710.4 million at December 31, 1995, as interest rates on time
deposits remained attractive as compared to yields on products available from
non-bank competitors when compared to risk. Additionally, the increase is due to
management's decision to utilize the public fund and institutional deposit
markets to meet Pinnacle's funding needs. Management has found these markets to
be reliable and attractively priced funding sources and will continue to take
advantage of these funding sources as market conditions warrant.
 
                             SHORT-TERM BORROWINGS
<TABLE>

                                                                                At or for the year
                                                                                ended December 31,
                                                                         -------------------------------
                                                                           1997       1996       1995
                                                                         ---------  ---------  ---------
                                                                             (dollars in thousands)
<S>                                                                      <C>        <C>        <C>         
FEDERAL FUNDS PURCHASED:                                                                                   
  Balance at end of period.............................................  $       0  $  69,900  $   7,000   
  Weighted average interest rate at end of year........................          0%      6.24%      5.63%  
  Maximum amount outstanding (1).......................................  $  61,375  $  69,900  $  33,150              
  Average amount outstanding...........................................  $  25,760  $  22,100  $  13,569   
  Weighted average interest rate during year...........................       5.81%      5.61%      5.96%  
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS:                                                               
  Balance at end of period.............................................  $  69,511  $  32,103  $  21,810   
  Weighted average interest rate at end of year........................       5.59%      4.38%      4.26%             
  Maximum amount outstanding (1).......................................     90,692  $  52,861  $  77,170              
  Average amount outstanding...........................................  $  58,910  $  33,787  $  29,031   
  Weighted average interest rate during year...........................       5.11%      4.36%      4.51%  
 
</TABLE>
--------------------------

(1) Based on amount outstanding at month end during each year
 
    Federal Home Loan Bank advances, securities sold under repurchase 
agreements and other borrowing increased $12.4 million or 2.6% to $483.9 
million at December 31, 1997 when compared to December 31, 1996. Federal Home 
Loan Bank advances, securities sold under repurchase agreements and other 
borrowings increased $185.1 million, or 64.6%, to approximately $471.4 
million at December 31, 1996 when compared to the balance at December 31, 
1995 of $286.4 million. The increase was primarily used to match specific 
adjustable rate security purchases of approximately $40 million, to the match 
funding of approximately $30 million in longer term 15 year fixed rate home 
equity loans, to purchase $30 million in fixed-rate home equity loans and to 
fund a $25 million leveraging stratergy in fixed-rate investment securities.
 
    PROVISION FOR LOAN LOSSES.  The provision for loan losses for the year ended
December 31, 1997 was $13.3 million as compared to $2.7 million for the year
ended December 31, 1996, an increase of $10.6 million as additional provisions
were made to conform loan loss reserve methodologies as a result of the
acquisitions of IFC and CB. Nonaccrual loans decreased to $10.8 million at
December 31, 1997 as compared to $11.1 million at December 31, 1996. Total
nonperforming loans to total loans decreased to 1.19% at December 31, 1997 as
compared to 1.27% at December 31, 1996. Total loans past due over 90 days
increased from $6.2 million at December 31, 1996 to $7.0 million at December 31,
1997. For the year ended December 31, 1996, the provision for loan losses
totaled $2.7 million, as compared to $1.4 million, for the same period in 1995.
Non-accrual loans increased to $11.1 million, at December 31, 1996 as compared
to $10.5 million at December 31, 1995. Total nonperforming loans to total loans
decreased to 1.27% as of December 31, 1996 compared to 1.14% as of December 31,
1995. Total past due loans over 90 days increased from $2.6 million in 1995 to
$6.2 million in 1996.

                                       23
<PAGE>

Pinnacle's management believes these increases are attributable primarily to the
Maco Acquisition and to the significant increase in loans receivable and are not
due to any general decline in credit quality.
 
    NONINTEREST INCOME.  The following table reflects various components of
noninterest income for each time period reported.
 
NONINTEREST INCOME
 
<TABLE>
<CAPTION>
                                                                             1997       1996       1995
                                                                           ---------  ---------  ---------
                                                                               (dollars in thousands)
<S>                                                                        <C>        <C>        <C>
Service charges on deposit accounts......................................  $   5,279  $   4,341  $   3,653
Trust income.............................................................        912        789        605
Brokerage fees...........................................................      1,927      1,982      1,263
Merchant and loan service fees...........................................      1,627      1,716      1,326
Recoveries on distressed assets..........................................        479        250        296
Gain (loss) on sale of loans, net........................................      3,411      1,019        545
Securities gains and losses, net.........................................        813        708        790
Fees related to loans purchased under agreement to resell................      1,135        689        369
Other income.............................................................      2,937      1,359        962
                                                                           ---------  ---------  ---------
    Total noninterest income.............................................  $  18,520  $  12,853  $   9,809
                                                                           ---------  ---------  ---------
                                                                           ---------  ---------  ---------
</TABLE>
 
    Noninterest income for the year ended December 31, 1997 was approximately
$18.5 million, an increase of $5.7 million or 44.1% as compared to $12.9 milion
for the year ended December 31, 1996. Gain on sale of loans increased $2.4
million or 234.7% as the company started selling home equity loans in 1997.
Additionally, fees related to loans purchased under agreements to resell
increased $446,000 or 64.7% as the company increased this line of business in
1997. Service charges on deposit accounts increased $938,000 or 21.6% primarily
from higher levels of NSF fees related to retail checking accounts. Trust fees
increased $123,000 or 15.6%. Other income increased $1.6 million primarily from
higher wire transfer fees associated with the mortgage repurchase program,
insurance income, check printing charges and increased lease income. Noninterest
income for the year ended December 31, 1996 was approximately $12.9 million and
approximately $9.8 million for the year ended December 31, 1995. Of this $3.0
million increase, $1.8 million was attributable to the Maco Acquisition
(including $315,000, attributable to security gains from the sale of securities
available-for-sale). Additionally, deposit service charges increased $688,000,
or 18.8%, trust income increased $184,000, or 30.4.%, and brokerage fees
increased $719,000 , or 56.9%.
 
    NONINTEREST EXPENSE.  The following table presents the major components of
noninterest expense for each period reported.
 
NONINTEREST EXPENSE
 
<TABLE>
<CAPTION>
                                       1997       1996       1995
                                     ---------  ---------  ---------
                                          (dollars in thousands)
<S>                                  <C>        <C>        <C>
Salaries and benefits..............  $  23,858  $  21,690  $  17,599
Occupancy..........................      4,638      4,123      3,076
Equipment..........................      3,748      3,473      2,813
Postage and delivery...............      1,378      1,202        900
Supplies...........................      1,573      1,434        973
Marketing and promotion............      1,982      2,244      1,469
Professional services..............      2,486      1,969      1,257
FDIC insurance premiums............       681      7,858      1,965
Amortization of intangibles........      2,021      2,037      1,269

</TABLE>

                                       24
<PAGE>

<TABLE>
<S>                                   <C>        <C>        <C>
Computer processing................      1,934      1,972      1,702
Directors fees.....................      1,864        702        566
Restructuring costs................     11,508          0          0
Other expense......................      8,340      6,242      5,071
                                     ---------  ---------  ---------
Total noninterest expense..........  $  66,011     54,946     38,660
                                     ---------  ---------  ---------
</TABLE>
 
    Non-interest expense for the year ended December 31, 1997 was $66.0 
million, an increase of $11.1 million or 20.1% over the $54.9 million for the 
year ended December 31, 1996. The company incurred restructuring costs 
associated with the acquistion of Indiana Federal Corp. and CB Bancorp on 
August 1, 1997 of $11.5 million, offset by $6.0 million in charges related to 
the SAIF assessment in the third quarter of 1996, which accounted for $5.5 
million of the increase. Salary and benefits increased $2.2 million or 10.0% 
for the year ended December 31, 1997 as compared to the year ended December 
31, 1996, primarily related to compensation expense of the former IFC ESOP of 
$728,000 in 1997. Professional services expense increased $517,000 or 26.3% 
for the year ended December 31, 1997, primarily from consulting expenses 
incurred to assist in organizational design to facilitate a larger 
organization. Occupancy expense and equipment related expenses increased 
$790,000 or 10.4% as additional space and equipment upgrades were needed to 
facilitate growth in the combined entities. Non-interest expenses as a 
percent of average assets was 2.54% for the year ended December 31, 1997 as 
compared to 2.53% for the year ended December 31, 1996, before the one-time 
restructuring charges and the SAIF special assessment.
 
    Non-interest expense for the year ended December 31, 1996 was $54.9 million
as compared to $38.7 million for the same period in 1995. Of this $16.3 million
or 42.1% increase in non-interest expense, approximately $11.0 million was
attributable to the Maco Acquisition (including $2.0 million attributable to the
one-time Special Assessment against financial institutions with deposits insured
by SAIF). The balance of this increase, which was attributable primarily to the
activities of Pinnacle Bank and approximately $300,000, in costs associated with
changing of the name of First Federal, $3.9 million, for the Special Assessment
charged against Pinnacle's thrift deposits, $4.1 million for salaries and
benefits, $1.0 million for occupancy expenses and $775,000 for marketing and
promotion.
 
    INCOME TAXES.  Income taxes were approximately $4.6 million for the year
ended December 31, 1997 as compared to $7.4 million for the year ended December
31, 1996. The decrease was primarily the result of lower levels of earnings in
1997 as a result of the restructuring charges associated with the IFC and CB
acquisitons. Income taxes were approximately $7.4 million for the year ended
December 31, 1996 and approximately $6.4 million for the year ended December 31,
1995. The increase was the result of higher levels of earnings, including, in
substantial part, earnings associated with the Maco Acquisition and partially
offset by increasing tax credits received for investments in low and moderate
income housing by Pinnacle's subsidiary, IndFed Mortgage Company.
 
    The effective tax rates for 1997, 1996 and 1995 were 30.9%, 31.6% and 
28.1%, respectively. The increase in 1996 was primarily from the 
non-deductibility of goodwill expenses associated with the Maco Acquisition 
and a higher state income tax rate associated with income in the Indiana 
market.
 
ANALYSIS OF FINANCIAL CONDITION
 
    EARNING ASSETS.  Average earning assets equaled 93.9%, 93.5% and 93.1% of
total average assets for the year ended December 31, 1997, 1996 and 1995,
respectively. Generally, the higher earning assets are to total assets, the
greater the contribution of Pinnacle's net interest margin to profitability.
 
    Average loans outstanding for the year ended December 31, 1997 were $1.5
billion as compared to $1.3 billion for the year ended December 31, 1996 and
increase of $162,000 or 12.3%. This increase was primarily in average commercial
loans and average mortgage repurchase loans offset by a decrease in average
mortgage loans. Average loans outstanding for the year ended December 31, 1996
were $1.3 billion. Average loans outstanding at December 31, 1995 were $1.1
billion. The increase in this item was attributable to the Maco Acquisition
which added $222.5 million in loans.

                                       25
<PAGE>

    The following table presents the amortized cost of securities
held-to-maturity as of December 31, 1996.
 
<TABLE>
<CAPTION>

                                                            December 31, 1996
                                                         -----------------------
                                                         (dollars in thousands)

<S>                                                      <C>
U.S. Treasury and agency securities....................         $   3,000
Corporate securities...................................             2,789
Mortgage-backed securities.............................             8,510
                                                                  -------
  Total................................................         $  14,299
                                                                  -------
                                                                  -------
</TABLE>
 
    The following table presents the carrying value of securities
available-for-sale at the dates indicated.

<TABLE>
<CAPTION>
                                                                 At December 31,
                                                               --------------------
                                                                 1997       1996
                                                               ---------  ---------
                                                              (dollars in thousands)
<S>                                                            <C>        <C>
U.S. Treasury and agency securities..........................  $ 157,483  $ 205,183
Obligations of states and political subdivisions.............     33,103     22,447
Corporate securities.........................................      1,992     12,321
Equity securities............................................     31,108     23,725
Mortgage-backed securities...................................    195,598    249,810
                                                               ---------  ---------
  Total......................................................  $ 419,284  $ 513,486
                                                               ---------  ---------
</TABLE>
 
    The following table sets forth certain information regarding securities
available-for-sale at December 31, 1997.

<TABLE>
<CAPTION>
                                                                                                     After 5 But
                                                                                    After 1 But       Within 10          After
                                                                  Within 1 Year    Within 5 Years       Years           10 Years
                                                                  --------------   --------------   --------------   --------------
                                                                  Amount   Yield   Amount   Yield   Amount   Yield   Amount   Yield
                                                                  -------  -----   -------  -----   -------  -----   -------  -----
                                                                                       (dollars in thousands)
 <S>                                                              <C>      <C>     <C>      <C>     <C>      <C>     <C>      <C>
U.S. Treasury securities........................................ $ 9,046   5.75%  $ 5,017   5.69%  $11,393   5.79%         0     0%
Obligations of other U.S. government agencies and
  corporations..................................................   1,522   5.67     3,759   6.38    51,884   7.35     74,862  7.51
Obligations of states and political subdivisions (1)............   1,148   3.80     5,996   4.19     5,920   4.72     20,039  5.12
Corporate securities............................................       0      0     1,992   6.13         0      0          0     0
Equity securities...............................................  31,108   7.83         0      0         0      0          0     0
Mortgage-backed securities (2)..................................       0      0     9,302   6.70     5,029   6.76    181,267  7.17
                                                                  -------  -----   -------  -----   -------  -----   -------  -----
Total amount/yield.............................................. $42,824   7.21%  $26,066   5.84%  $74,226   6.86%  $276,168  7.11%
                                                                  -------  -----   -------  -----   -------  -----   -------  -----
                                                                  -------  -----   -------  -----   -------  -----   -------  -----
</TABLE>
 
--------------------------
 (1) Weighted yields on tax-exempt obligations have not been computed on a fully
    tax-equivalent basis.
 
(2) Maturities of mortgage backed securities are determined based on original
    maturity dates.
 
    Average securities for the year ended December 31, 1997 was approximately 
$528.2 million as compared to $474.9 million for the year ended December 31, 
1996, primarily in mortgage backed securities and tax-exempt obligations of 
state and political subdivisions. Average securities for the year ended 
December 31, 1996 was approximately $474.9 million as

                                       26
<PAGE>

compared to $251.9 million at December 31, 1995, as the Maco Acquisition added
$185.6 million to average security balances.
 
    Gross loan balances as of December 31, 1997 totaled $1.5 billion, an
increase of $92.5 million or 6.5%. Commercial loans increased $70.0 million or
16.6% at December 31, 1997 to $491.9 million. Mortgage repurchase loans
increased $84.4 million to $179.7 million at December 31, 1997 as compared to
$95.3 million at December 31, 1996. Real estate loans decreased $62.6 million or
9.6% to $588.0 million at December 31, 1997. Consumer loans were approximately
the same at $238.4 million on December 31, 1997 as compared to $238.3 million at
December 31, 1996. Gross loan balances as of December 31, 1996 totaled $1.4
billion, an increase of $205.6 million, or 17.0% as compared to the balance at
December 31, 1995 of $1.2 billion. Commercial loans increased by $107.4 million,
or 34.1%, at December 31, 1996 to $421.9 million. Consumer loans (primarily in
home equity loans) increased $59.6 million, or 33.3%, to $238.3 million. Real
estate loans grew slightly in 1996 by $18.0 million, or 2.8%, to $650.6 million
as Pinnacle originated real estate loans primarily for sale in the secondary
market in order to manage interest rate risk.
 
    The following table presents loans outstanding, according to loan category
at the dates indicated.

<TABLE>
<CAPTION>
                                                                                    At December 31,
                                                                 ------------------------------------------
                                                                   1997       1996       1995       1994       1993
                                                                 ---------  ---------  ---------  ---------  ---------
                                                                                (dollars in thousands)
<S>                                                              <C>        <C>        <C>        <C>        <C>
Commercial..................................................... $  491,932    421,948    314,562    287,709    243,552
Real estate....................................................    588,046    650,624    632,664    457,743    398,664
Consumer.......................................................    238,427    238,321    178,720    143,375    113,917
Tax exempt loans...............................................     10,240      9,686      4,295      6,392      6,307
Mortgage loans purchased under agreements to resell............    179,720     95,276     80,031     25,179     34,193
                                                                 ---------  ---------  ---------  ---------  ---------
  Total Loans..................................................  1,508,365  1,415,855  1,210,272    920,398    796,633
Less allowance for loan losses.................................    (20,528)   (14,909)   (13,853)   (11,787)   (11,165)
                                                                 ---------  ---------  ---------  ---------  ---------
  Net Loans.................................................... $1,487,837 $1,400,946 $1,196,419  $ 908,611  $ 785,468
                                                                 ---------  ---------  ---------  ---------  ---------
</TABLE>
 
    The following table presents loans outstanding at December 31, 1997, which,
based on remaining scheduled repayments of principal, are due in the period
indicated.

<TABLE>
<CAPTION>
                                                         1997
                                ------------------------------------------------------------------------
                                                                         Mortgage Loans
                                                                         Purchased Under
                                              Real                 Tax-  Agreements to     Total Loans
                                Commercial    Estate   Consumer   Exempt    Resell         Receivable
                                ----------   --------  --------  ------- ---------------   -------------
                                                       (dollars in thousands)

<S>                              <C>          <C>        <C>          <C>        <C>          <C>
Due in 1 year or less..........   $ 139,884   $  23,280   $  34,578   $   2,785   $ 179,720   $  380,247
Due in 1 through 5 years.......     157,920      91,471     106,100       4,001           0      359,492
Due after 5 years..............     194,128     473,295      97,749       3,454           0      768,626
                                 -----------  ---------  -----------  ---------  -----------  -----------
  Total........................   $ 491,932   $ 588,046   $ 238,427   $  10,240   $ 179,720   $1,508,365
                                 -----------  ---------  -----------  ---------  -----------  -----------
                                 -----------  ---------  -----------  ---------  -----------  -----------
</TABLE>
 
    The following table sets forth at December 31, 1997, the dollar amount of
gross loans receivable contractually due after December 31, 1998, and whether
such loans have fixed interest rates or adjustable interest rates.

<TABLE>
<CAPTION>
                                     Due after December 31, 1998
                                  ---------------------------------
                                    Fixed     Variable      Total
                                  ---------  -----------  ---------
                                        (dollars in thousands)
<S>                               <C>        <C>          <C>
Commercial......................  $  95,137   $ 256,911   $ 352,048
Real Estate.....................    166,588     398,178     564,766
Consumer........................    148,839      55,010     203,849
Tax-exempt......................      7,064         391       7,455
</TABLE>

                                       27 
<PAGE>

<TABLE>
<S>                              <C>        <C>         <C>
  Total Loans...................  $ 417,628   $ 710,490   $1,128,118
                                  ----------  ----------- ----------
                                  ----------  ----------- ----------
 
</TABLE>
 
    The following table presents information concerning nonperforming loans
including nonaccrual, past due, and restructured loans at the indicated dates.

<TABLE>
<CAPTION>
                                                       At December 31,
                                          -----------------------------------------
                                           1997     1996     1995     1994    1993
                                          -------  -------  -------  ------  ------
                                                  (dollars in thousands)
<S>                                       <C>      <C>      <C>      <C>     <C>
Loans accounted for on a nonaccrual
  basis (1).............................  $10,767  $11,129  $10,469  $5,832  $3,712
Accruing loans contractually past due 90
  days or more as to principal or
  interest payments.....................    7,038    6,201    2,555   1,378   1,583
Restructured loans......................      174      684      820     945   3,933
                                          -------  -------  -------  ------  ------
  Total nonperforming loans.............  $17,979  $18,014  $13,844  $8,155  $9,228
                                          -------  -------  -------  ------  ------
                                          -------  -------  -------  ------  ------
</TABLE>
 
--------------------------
 
(1) Loans are generally placed on a nonaccrual basis when, in the opinion of
    management, collection of principal or interest payments is unlikely. Income
    on such loans is then recognized only to the extent that cash is received
    and where future collection is likely. If nonaccrual loans had been
    maintained current in accordance with their original terms, additional
    interest income of $840,000, $1,100,000, $449,000, $207,000, and $149,000
    would have been recorded during the periods ended December 31, 1997, 1996,
    1995,1994, and 1993 respectively.
 
    Effective January 1, 1995, Pinnacle adopted FASB Statement No. 114, (as
amended by Statement 118), "Accounting by Creditors for Impairment of a Loan".
For further discussion see Note 7 to consolidated financial statements of
Pinnacle's contained later in this document.
 
    Pinnacle has no loans for which the terms have been renegotiated to less
than market rates due to weakening of a borrower's financial condition.
 
POTENTIAL PROBLEM LOANS
 
    In addition to the loans classified as nonaccrual or greater than 90 days
delinquent and still accruing interest, there were other loans of approximately
$21.5 million and $11.1 million at December 31, 1997 and 1996, respectively,
where management is closely following the borrower's ability to continue to
comply with loan payment terms. Current conditions do not warrant classification
as nonperforming, nor is any principal loss on these loans considered likely at
this time.
 
FOREIGN LOANS
 
    Pinnacle's loans outstanding to borrowers in foreign countries as of
December 31, 1997 and 1996 did not exceed 1% of its total assets.
 
LOAN CONCENTRATIONS
 
    As of December 31, 1997, there were no concentrations of loans to individual
borrowers that exceeded 10% of total loans.
 
    The following table summarizes the loan loss experience, and provides a
breakdown of the allowance for loan losses at December 31 of each year.

                                       28
<PAGE>

<TABLE>
<CAPTION>
                                                                   1997       1996       1995       1994       1993
                                                                 ---------  ---------  ---------  ---------  ---------
                                                                                (dollars in thousands)
<S>                                                              <C>        <C>        <C>        <C>        <C>
Loans Outstanding at end of period, net of unearned discount... $1,508,365  $1,415,855 $1,210,272 $ 920,398  $  796,633
                                                                ----------  ----------  ---------  ---------  ---------
Average loans for the period...................................  1,478,238   1,316,487  1,052,995    806,823    799,841
                                                                ----------  ----------  ---------  ---------  ---------
Allowance for loan losses, beginning of period.................  $  14,909  $   13,853  $  11,787  $  11,165  $  10,768
                                                                ----------  ----------  ---------  ---------  ---------
Conform CB fiscal year to December 31, 1996 calendar year......        501          --         --         --         --
Charge-offs for period:
  Commercial loans.............................................      4,634  $      281         85        284      1,037
  Real Estate loans............................................         93          69         50         34         91
  Consumer loans...............................................      1,991       1,509      1,190        460        590
  Mortgage loans purchased under agreements to resell..........      1,999         501        221         --         --
                                                                ----------  ----------  ---------  ---------  ---------
    Total charge-offs..........................................      8,717       2,360      1,546        778      1,718
                                                                ----------  ----------  ---------  ---------  ---------
Recoveries for period:
  Commercial loans.............................................          8         249        160        130        174
  Real Estate loans............................................         47         286         23         42        136
  Consumer loans...............................................        204         200        152        191        245
  Mortgage Loans purchased under agreements to resell..........        256          --         --         --         --
                                                                ----------  ----------  ---------  ---------  ---------
    Total recoveries...........................................        515         735        335        363        555
                                                                ----------  ----------  ---------  ---------  ---------
Net charge-offs for the period.................................      8,202       1,625      1,211        415      1,163
                                                                ----------  ----------  ---------  ---------  ---------
Allowance recorded for acquired loans..........................         --          --      1,855        655         --
Provision for loan losses......................................     13,320       2,681      1,422        382      1,560
                                                                ----------  ----------  ---------  ---------  ---------
Allowance for loan losses, end of period.......................  $  20,528      14,909     13,853     11,787     11,165
                                                                ----------  ----------  ---------  ---------  ---------
Ratio of net charge-offs during the period to average loans
  outstanding..................................................        .55%        .12%       .12%       .05%       .15%
                                                                ----------  ----------  ---------  ---------  ---------
Allocation of allowance for loan losses:
  Commercial loans.............................................  $   9,145  $    8,740  $   8,511  $   7,270  $   6,650
  Real Estate loans............................................      4,394       2,234      2,409      1,928      1,919
  Consumer loans...............................................      4,475       2,731      2,533      2,387      2,448
  Mortgage loans purchased under agreements to resell..........      2,514       1,204        400        202        148
                                                                ----------  ----------  ---------  ---------  ---------
    Total allowance for loan losses............................  $  20,528      14,909     13,853     11,787     11,165
                                                                ----------  ----------  ---------  ---------  ---------
Percentage of loan to total gross loans:
  Commercial loans.............................................         32%         30%        26%        31%        31%
  Real Estate loans............................................         39          46         52         49         50
  Consumer loans...............................................         16          17         15         16         14
  Tax-exempt loans.............................................          1           1         --          1          1
</TABLE>

                                       29 
<PAGE>

<TABLE>
<CAPTION>
<S>                                                              <C>        <C>        <C>        <C>        <C>
   Mortgage loans purchased under agreements to resell.........         12          6          7          3          4
                                                                 ---------  ---------  ---------  ---------  ---------
    Total......................................................        100%       100%       100%       100%       100%
                                                                 ---------  ---------  ---------  ---------  ---------
</TABLE>
 
    The allowance for loan losses has been allocated according to the amount
deemed to be reasonably necessary to provide for the possibility of losses being
incurred within the above categories of loans at the dates indicated. The
allowance is based on management's periodic evaluation of the loan portfolio and
reflects an amount that, in management's opinion, is adequate to absorb losses
in the existing portfolio. In evaluating the portfolio, management takes into
consideration numerous factors, including current economic conditions, prior
loan loss experience, the composition of the loan portfolio, and management's
evaluation of the collectability of specific loans.
 
    ALLOWANCE FOR LOAN LOSSES.  The allowance for loan losses increased by $5.6
million or 37.7% to approximately $20.5 million at December 31, 1997 from
approximately $14.9 million at December 31, 1996. The increase was largely the
result of an additional $10.0 million provision for loan losses recorded in the
third quarter of 1997 to conform loan loss reserve methodologies in connection
with the third quarter 1997 acquisitons of IFC and CB. In completing Pinnacle's
allowance for loan losses conformity review of IFC and CB, Pinnacle applied the
general reserve assumptions consistent with those utilized historically by
Pinnacle. The allowance for loan losses increased by $1.1 million or 7.62% to
approximately $14.9 million at December 31, 1996 from approximately $13.9
million at December 31, 1995. The allowance as a percentage of total loans was
1.05%, and 1.14%, respectively, for such dates indicated. The allowance for loan
losses increased primarily due to the $205.6 million increase in loans
receivable during the year.
 
    Net charge-offs for the year ended December 31, 1997 were $8.2 million or
 .55% of average loans outstanding as compared to $1.6 million, or .12% for the
year ended December 31, 1996. The increase in net charge-offs for the year ended
December 31, 1997 were primarily in the commercial real estate and commercial
loan portfolio which totaled $4.6 million in 1997 as compared to $32,000 in 1996
and the mortgage loan repurchase portfolio which totaled $2.0 million for the
year ended December 31, 1997 as compared to $501,000 for the year ended December
31, 1996. Pinnacle realized losses on those loans that had specific reserves
established. Net charge-offs for the year ended December 31, 1996 were $1.6
million, or .12%, of average loans outstanding as compared to $1.2 million, or
 .12%, for the year ended December 31, 1995. Recoveries on previously charged-off
loans were $735,000, in 1996 and $335,000, in 1995. At December 31, 1996 and
1995, nonaccrual loans amounted to $11.1 million, and $10.5 million,
respectively. Pinnacle's management believes these increases are attributable
primarily to the Maco Acquisition and to the significant increase in loans
receivable and are not due to any general decline in credit quality.
 
    Other loans of concern to Pinnacle management increased to approximately 
$21.5 million as of December 31, 1997. Other loans of concern to Pinnacle 
management increased to approximately $11.1 million as of December 31, 1996 
as compared to approximately $10.5 million in 1995. In the opinion of 
Pinnacle's management, the allowance for loan losses is adequate and 
appropriately reflects the risk inherent in each of the period-end loan 
portfolios. While management uses available information to recognize losses 
on loans, future additions to the allowance may be necessary based on 
economic conditions and borrower circumstances. In addition, various 
regulatory agencies, as an integral part of their examination process, 
periodically review Pinnacle's allowance for loan losses. Such agencies may 
require Pinnacle to recognize additions to the allowance based on their 
judgments regarding information available to them at the time of their 
examination.
 
    NONEARNING ASSETS.  Premises and equipment increased $3.2 million to $29.3
million as of December 31, 1997 from $26.1 million as of December 31, 1996. The
increase was primarily from investment in technology and computer based systems
needed to support the consolidated operations after the acquistions of IFC and
CB. Premises and equipment increased $229,000 to $26.1 million as of December
31, 1996 from $25.9 million as of December 31, 1995. Capital improvements for
the year ended December 31, 1997 and 1996 totaled $6.3 and $1.7 million,
respectively.
 
    Interest receivable and other assets increased $30.2 million to $109.2
million at December 31, 1997 as compared to $79.0 million at December 31, 1996.
The increase was primarily from the company's investment of $25.0 million in
bank owned life insurance purchased in 1997. Other real estate decreased
$618,000 to $4.5 million for the same time periods. Goodwill and other purchased
intangible assets decreased $1.7 million to $16.8 million at December 31, 1997,
primarily

                                       30
<PAGE>

through expense provisions in 1997. Interest receivable and other assets
increased to $79.0 million from $73.9 million as of December 31, 1996 and 1995,
respectively. The increase was primarily from higher levels of accrued interest
associated with higher levels of earning assets. Other real estate decreased to
$5.2 million from $5.9 million for the same time periods. Goodwill and other
purchased intangible assets decreased $2.4 million to $18.5 million as of
December 31, 1996 as compared to $20.9 million at December 31, 1995, primarily
through expense provision in 1996 and through a favorable tax treatment in 1996
on the recapture of bad debt reserves for thrifts of approximately $600,000.
 
    INTEREST-BEARING LIABILITIES.  In 1997, average interest bearing liabilities
increased from $1.7 billion at December 31, 1996 to $1.9 billion at December 31,
1997, an increase of $197.9 million or 11.9%. The increase was primarily from
increased advances from the FHLB and securities sold under repurchase agreements
and other borrowing which increased $161.4 million or 47.7%. In 1996, average
interest-bearing liabilities increased from $1.2 million at December 31, 1995 to
$1.7 million at December 31, 1996. The Maco Acquisition was the primary reason
for the increase with the acquisition providing $393.6 million of the increase
and the increase of FHLB advances, securities sold under repurchase agreements
and other borrowings which increased $185.1 million or 64.6%.
 
    OTHER LIABILITIES.  At December 31, 1997, other liabilities increased $2.7
million or 18.4% to $17.5 million from $14.8 million as of December 31, 1996
which decreased $2.4 million, or 14.0% from $17.2 million as of December 31,
1995.
 
LIQUIDITY
 
    Liquidity is the ability to satisfy demands for extensions of credit,
deposit withdrawals, and other customer and operational needs. Traditional
sources of liquidity include asset maturities and core deposit growth. Pinnacle
maintains a portion of its assets in liquid form to meet anticipated withdrawal
requirements and loan demand from customers. At December 31, 1997, cash and due
from banks, federal funds sold, and money market instruments equaled
approximately $57.2 million. Additional liquidity, is provided by the ability to
borrow from the Federal Reserve Bank and Federal Home Loan Bank of Indianapolis.
As of December 31, 1997, Pinnacle had borrowed $414.4 million from the Federal
Home Loan Bank of Indianapolis to match longer term loans and specific
securities with matching maturities.
 
    Pinnacle identified securities totaling approximately $419.3 million and
$513.5 million, respectively, as being available-for-sale at December 31, 1997
and December 31, 1996, respectively. They also identified securities totaling
approximately $14.3 million as being held-to-maturity at December 31, 1996.
Consequently, this portfolio, which totaled $419.3 million at December 31, 1997,
is available to meet most any liquidity need of Pinnacle.
 
    Proceeds from the sales of securities available-for-sale amounted to 
$205.1 million in 1997 and $146.6 million in 1996, with resulting net gains 
of $813,000 and $708,000, respectively. At December 31, 1997, gross 
unrealized holding gains and gross unrealized holding losses in Pinnacle's 
total security portfolio amounted to approximately $4.1 million and 
approximately $723,000, respectively. At December 31, 1996 gross unrealized 
holding gains and gross unrealized holding losses in Pinnacle's total 
security portfolio amounted to approximately $2.9 million and $2.8 million 
respectively.
 
    The focus of liquidity management at Pinnacle is to satisfy general
operating expenses, to service existing debt, and to take advantage of
investment opportunities which Pinnacle's management believes will result in an
improved return to stockholders.
 
    There are statutory and regulatory requirements applicable to the payment of
dividends by Pinnacle Bank as well as by Pinnacle to its stockholders. Under
applicable dividend restrictions, Pinnacle Bank, without obtaining government
approvals, could declare aggregate dividends in 1997 of approximately $ million
from retained net profits of the preceding two years, plus an amount
approximately equal to the net profits (as measured under current regulations),
if any, earned for the period from January 1, 1997 through the date of
declaration less dividends previously paid in 1997.
 
INTEREST RATE SENSITIVITY

                                       31
<PAGE>

    Interest rate sensitivity is measured by analyzing the maturity and timing
of interest rate changes on assets and liabilities. The "gap" is the amount by
which interest-sensitive assets exceed interest-sensitive liabilities for any
given period. In periods of increasing interest rates, a positive gap will
generally result in increased net interest income; conversely, a negative gap
will result in decreased net interest income in such periods. In periods of
decreasing interest rates, a positive gap will result in decreased net interest
income, and a negative gap will result in increased net interest income.
 
    To manage Pinnacle's exposure to changes in interest rates, management of
Pinnacle closely monitors its interest rate risk. An asset/liability committee
consisting of senior officers meets regularly and reviews Pinnacle's interest
rate risk position and makes recommendations for adjustments to the position. In
addition, the Board of Directors of Pinnacle periodically reviews their
asset/liability position, including simulations of the effect on Pinnacle's
earnings and capital of various interest rate scenarios.
 
    In managing its asset/liability mix, and depending on the relationship
between long- and short-term interest rates, market conditions and consumer
preference, Pinnacle may place somewhat greater emphasis on maximizing its net
interest margin than on matching the interest rate sensitivity of its assets and
liabilities in an effort to increase its net income. Management believes that
the increased net income resulting from a mismatch in the maturity of its asset
and liability portfolios can, during periods of declining or stable interest
rates, provide high enough returns to justify the increased exposure to sudden
and unexpected increases in interest rates which can result from such mismatch.
As a result, there may be relatively more exposure to rapid increases in
interest rates than some other institutions which concentrate principally on
matching the duration of their assets and liabilities.
 
    Pinnacle is managing its current negative gap position by emphasizing
variable rate loans, investing in short-term securities, and encouraging longer
term deposit products through pricing strategies. The following table sets forth
management's estimate of the projected maturities and/or repricing of Pinnacle's
assets and liabilities as of December 31, 1997. In preparing the table,
management of Pinnacle has assumed that loans prepay to varying degrees based on
type, maturity and rate. Certificates of deposit have been entered into the
analysis based on contractual maturity.
 
                      INTEREST RATE SENSITIVITY/GAP ANALYSIS
<TABLE>
<CAPTION>
                                                           Interest Rate Sensitivity Period
                                                                  December 31, 1997
                                     ----------------------------------------------------------------------------
                                        0-3         4-6        7-9       10-12       1-5       Over
                                       months     months     months     months      years    5 years     Total
                                     ----------  ---------  ---------  ---------  ---------  --------  ----------
<S>                                  <C>         <C>        <C>        <C>        <C>        <C>       <C>
                                                                   (dollars in thousands)
ASSETS:
  Fed funds sold...................  $    6,400  $  --      $  --      $  --      $  --      $  --     $    6,400
  Interest-bearing deposits with
    financial institutions.........       1,548     --         --         --         --         --          1,548
  Securities available for sale....      62,633     12,529     13,565     10,873    126,553   193,131     419,284
  Loans and loans held for sale....     241,116     68,585     33,241     37,304    359,493   781,376   1,521,115
  Nonearning assets................      --         --         --         --         --         --        167,148
                                     ----------  ---------  ---------  ---------  ---------  --------  ----------
    Total Assets...................  $  311,697  $  81,114  $  46,806  $  48,177  $ 486,046  $974,507  $2,115,495
                                     ----------  ---------  ---------  ---------  ---------  --------  ----------
FUNDING SOURCES:
  Interest-bearing demand..........  $   17,551  $  --      $  --      $  --      $  --      $169,257  $  186,808
</TABLE>

                                       32 
<PAGE>

<TABLE>
<S>                                                           <C>        <C>        <C>        <C>        <C>        <C>
  Savings and time deposits.................................    196,143    140,267    101,310     98,315    372,017    238,986
  Federal Home Loan Bank advances...........................     98,900     88,657     15,247      8,319    177,066     26,177
  Securities sold under repurchase agreements
   and other borrowings.....................................     69,511     --         --         --         --         --
  Noninterest bearing sources...............................     --         --         --         --         --         --
                                                              ---------  ---------  ---------  ---------  ---------  ---------
   Total funding sources...................................  $  382,105 $  228,924  $ 116,557  $ 106,634  $ 549,083  $ 434,419
                                                              ---------  ---------  ---------  ---------  ---------  ---------
REPRICING/MATURITY GAP
  Period....................................................  $ (70,408) $(147,810) $ (69,751) $ (58,457) $ (63,027) $ 540,088
Cumulative..................................................  $ (70,408) $(218,218) $(287,969) $(346,426) $(409,463) $ 130,625
  Cumulative rate sensitivity assets/ Cumulative rate
    sensitivity funding sources.............................       81.6%      64.3%      60.4%      58.5%      70.4%     107.2%
 
<CAPTION>
  Savings and time deposits.................................  1,147,038
<S>                                                           <C>
  Federal Home Loan Bank advances...........................    414,365
  Other borrowings..........................................     69,511
  Noninterest bearing sources...............................    297,773
                                                              ---------
    Total funding sources...................................  $2,115,495
                                                              ---------
REPRICING/MATURITY GAP
  Period....................................................  $   --
Cumulative..................................................
  Cumulative rate sensitivity assets/ Cumulative rate
    sensitivity funding sources.............................
</TABLE>
 
    Certain shortcomings are inherent in the above analysis. 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. Also, interest rates on certain types of assets and liabilities may
fluctuate in advance of, or lag behind, changes in market rates. Further, in the
event of a change in interest rates, prepayment and early withdrawal levels
could deviate significantly from those assumed in calculating the analysis.
Finally, in the event of rising interest rates, management may choose to
increase the rates paid on deposit accounts in order to retain those accounts.
 
Year 2000

     Many existing computer programs use only two digits to identify a year 
in the date field. These programs were designed without considering the 
impact of the upcoming change in the century. If not corrected, many computer 
applications and systems could fail or create erroneous results by or at the 
year 2000. The Company developed a plan to deal with the year 2000 problem 
and began a process to be year 2000 compliant. The plan provides for 
conversion efforts to be completed by the end of 1998. The total cost of the 
project cannot be estimated as of December 31, 1997. The Company is 
expensing all costs associated with these changes as the costs are incurred.

IMPACT OF INFLATION AND CHANGING PRICES
 
    The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The primary assets and liabilities of
Pinnacle are monetary in nature. As a result, interest rate have a more
significant impact on Pinnacle's performance than the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or
magnitude as the prices of goods and services.
 
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
 
    In June 1997, the Financial Accounting Standards Board issued SFAS No. 
130, "Reporting Comprehensive Income" ("Statement No. 130"). This 
Statement establishes standards for reporting and displaying comprehensive 
income and its components within the consolidated financial statements. 
Comprehensive income is defined in FASB Concepts Statement 6 as the 
"change in equity of a business enterprise during a period from transactions 
and other events and circumstances from nonowner sources. It includes all 
changes in equity during a period except those resulting from investments by 
owners and distributions to owners." The Statement is effective for fiscal 
years beginning after December 15, 1997 and is not expected to have a 
material impact on the Pinnacle results of operations.

    In June 1997, the Financial Accounting Standards Board issued SFAS No. 
131, "Disclosures about Segments of an Enterprise and Related Information" 
which establishes standards for the way that public business enterprises 
report information about operating segments in annual financial statements. 
This Statement requires that those enterprises report selected information 
about operating segments in interim financial reports issued to shareholders. 
This Statement supersedes FASB Statement No. 14, "Financial Reporting for 
Segments of a Business Enterprise." Operating segments are components of an 
enterprise about which separate financial information is available that is 
evaluated regularly by the chief operating decision maker in deciding how to 
allocate resources and in assessing performance. This Statement is effective 
for financial statements for periods beginning after December 15, 1997 and is 
not expected to have a material impact on Pinnacle.

    In February 1998, the Financial Accounting Standards Board issued SFAS 
No. 132, "Employers' Disclosures about Pensions and Other Postretirement 
Benefits." This Statement revises employers' disclosures about pension and 
other postretirement benefit plans and standardizes the disclosure 
requirements to the extent practicable, requires additional information on 
Changes in the benefit obligations and fair values of plan assets that will 
facilitate financial analysis and eliminates certain disclosures. This 
statement is effective for fiscal years beginning after December 15, 1997 and 
is not expected to have a material impact on Pinnacle.
 
RECENT LEGISLATION
 
    Legislation was enacted in 1996 that resulted in, among other things, the 
assessment of a one-time charge against financial institutions with deposits 
insured by SAIF. The amount of the charge equaled approximately .657% of the 
deposits of a financial institution held on March 31, 1995 and subject to the 
SAIF premium. The Special Assessment was due on October 1, 1996 and payable 
no later than November 27, 1996. As a result of the Special Assessment, 
Pinnacle paid an assessment of $5.9 million.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
    Managing interest rate risk is fundamental to the financial services 
industry. Pinnacle's policies are designed to manage the inherently different 
maturity and repricing characteristics of the loan, investment security, and 
deposit portfolios. In doing so, Pinnacle is able to achieve a desired 
interest sensitivity position and to limit exposure to interest rate risk, 
while optimizing interest income within the constraints of prudent capital 
adequacy and liquidity needs. Principal maturities and repricing profiles are 
monitored through static gap analysis and future operating results are 
simulated through computer modeling.

    The management of interest rate sensitivity includes monitoring the 
maturities and repricing opportunities of interest earning assets and 
interest bearing liabilities. The Corporation's interest rate sensitivity/GAP 
analysis as of December 31, 1997 is included in the Liquidity section of 
Management's Discussion and Analysis of this form 10-K. A rate sensitivity 
position is computed for various repricing intervals by calculating rate 
sensitivity gaps. Interest earning assets and interest bearing liabilities 
have been distributed based on their repricing opportunities. The maturities 
of certain investments, loans and deposits have been adjusted based on 
projected prepayment patterns or historical relationships to changes in 
market interest rates. Although rate sensitivity gaps constantly change as 
funds are acquired and invested, Pinnacle's negative gap of $346,426 million 
at one year or less at December 31, 1997, as approximately 16.4% of total 
assets. This, in the opinion of management, represented a relatively balanced 
position.

    For further discussion regarding Quantitative and Qualitative Disclosure 
about Market Risk, see Item 7 of this Form 10-K, "Management Discussion and 
Analysis of Financial Condition and Results of Operations--Liquidity.''

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                       33
<PAGE>

                         INDEPENDENT AUDITORS' REPORT


The Board of Directors
Pinnacle Financial Services, Inc.

We have audited the accompanying consolidated balance sheet of Pinnacle 
Financial Services, Inc. and subsidiaries (the Company) as of December 31, 
1997 and the related consolidated statements of income, changes in 
stockholders' equity, and cash flows for the year then ended. These 
consolidated financial statements are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these consolidated 
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audit provides a 
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of Pinnacle 
Financial Services, Inc. and subsidiaries as of December 31, 1997, and the 
results of their operations and their cash flows for the year then ended in 
conformity with generally accepted accounting principles.

We previously audited and reported on the consolidated balance sheet of 
Pinnacle Financial Services, Inc. and subsidiaries as of december 31, 1996, 
and the related consolidated statements of income, changes in stockholders' 
equity, and cash flows for the years ended December 31, 1996, and 1995, prior 
to their restatement for the 1997 pooling of interests. The contribution of 
Pinnacle Financial Services, Inc. and subsidiaries to total assets and net 
income represented 50% and 57% of the respective restated totals for the year 
ended December 31, 1996 and the contribution of Pinnacle Financial Services, 
Inc. and subsidiaries to total assets and net income represented 50% and 40% 
of the respective restated totals for the year ended December 31, 1995. 
Separate consolidated financial statements of the other companies included in 
the December 31, 1996 restated consolidated balance sheet and consolidated 
statements of income, changes in stockholders' equity, and cash flows for the 
years ended December 31, 1996 and 1995 were audited and reported on 
separately by other auditors. We also audited the combination of the 
accompanying consolidated balance sheet as of December 31, 1996 and 
consolidated statements of income, changes in stockholders' equity, and cash 
flows for the years ended December 31, 1996 and 1995, after restatement for 
the 1997 pooling of interests; in our opinion, such consolidated statements 
have been properly combined on the basis described in note 1 of the notes to 
the consolidated financial statements.


                                    /s/ KPMG Peat Marwick LLP



Chicago, Illinois
March 30, 1998

                                      34

<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
CONSOLIDATED BALANCE SHEETS
 
DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)                                                                1997       1996
<S>                                                                                            <C>        <C>
ASSETS:
  Cash and cash equivalents:
    Cash and due from banks..................................................................  $  49,209  $  60,957
    Federal funds sold.......................................................................      6,400     15,750
                                                                                               ---------  ---------
      Total cash and cash equivalents........................................................     55,609     76,707
  Interest-bearing deposits with financial institutions......................................      1,548     13,171
  Securities available-for-sale:
    Taxable..................................................................................    386,181    491,039
    Tax-exempt...............................................................................     33,103     22,447
  Securities held-to-maturity taxable........................................................     --         14,299
Mortgage loans held for sale.................................................................     12,750     11,485
Loans, net of unearned income................................................................  1,508,365  1,415,855
  Less: allowance for loan losses............................................................     20,528     14,909
                                                                                               ---------  ---------
    Net loans................................................................................  1,487,837  1,400,946
  Premises and equipment, net................................................................     29,299     26,082
  Interest receivable and other assets.......................................................    109,168     79,034
                                                                                               ---------  ---------
      Total assets........................................................................... $2,115,495 $2,135,210
                                                                                               ---------  ---------
LIABILITIES:
  Deposits:
    Noninterest-bearing demand............................................................... $   99,262 $  121,235
    Interest bearing demand..................................................................    186,808    143,821
    Savings..................................................................................    433,121    437,513
    Time.....................................................................................    713,917    776,142
                                                                                               ---------  ---------
      Total deposits.........................................................................  1,433,108  1,478,711
  Federal Home Loan Bank advances............................................................    414,365    369,238
  Securities sold under repurchase agreements and other borrowings...........................     69,511    102,206
  Interest payable and other liabilities.....................................................     17,516     14,796
                                                                                               ---------  ---------
      Total liabilities......................................................................  1,934,500  1,964,951
STOCKHOLDERS' EQUITY:
Common stock; no par value; 15,000,000 shares authorized; 12,619,499 shares issued and
  outstanding at December 31, 1997; and 12,151,514 shares issued and outstanding at December
  31, 1996...................................................................................     19,110     19,110
Additional paid-in capital...................................................................     78,094     78,192
Retained earnings............................................................................     81,764     83,599
Treasury stock...............................................................................     --        (10,304)
Guaranteed ESOP obligation...................................................................     --           (379)
Recognition and retention plan obligation....................................................     --             (4)
Net unrealized gain on securities available-for-sale.........................................      2,027         45
                                                                                               ---------  ---------
      Total stockholders' equity.............................................................    180,995    170,259
                                                                                               ---------  ---------
      Total liabilities and stockholders' equity............................................. $2,115,495 $2,135,210
                                                                                               ---------  ---------
</TABLE>
 
          See accompanying notes to consolidated financial statements.

                                       35
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
CONSOLIDATED STATEMENTS OF INCOME
 
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)                                                 1997       1996       1995
<S>                                                                                 <C>        <C>        <C>
INTEREST INCOME:
  Interest and fees on loans:
    Taxable.......................................................................  $ 128,758  $ 114,316  $  90,234
    Tax-exempt....................................................................        667        404        346
  Interest and dividends on securities:
    Available-for-sale
      Taxable.....................................................................     35,643     29,424     12,867
      Tax-exempt..................................................................      1,480      1,140        159
    Held-to-maturity
      Taxable.....................................................................     --          1,227      2,500
      Tax-exempt..................................................................     --         --            873
  Interest on federal funds sold..................................................        166        410        257
  Interest on interest-bearing deposits with financial institutions...............        358        982        680
                                                                                    ---------  ---------  ---------
      TOTAL INTEREST INCOME.......................................................    167,072    147,903    107,916
INTEREST EXPENSE:
  Interest on deposits............................................................     62,695     60,567     43,556
  Interest on Federal Home Loan Bank advances.....................................     24,286     15,928      8,821
  Interest on securities sold under repurchase agreements and other borrowings....      4,505      3,104      2,692
                                                                                    ---------  ---------  ---------
      TOTAL INTEREST EXPENSE......................................................     91,486     79,599     55,069
                                                                                    ---------  ---------  ---------
      NET INTEREST INCOME.........................................................     75,586     68,304     52,847
Provision for loan losses.........................................................     13,320      2,681      1,422
                                                                                    ---------  ---------  ---------
      NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.........................     62,266     65,623     51,425
Noninterest income:
  Service charges on deposit accounts.............................................      5,279      4,341      3,653
  Trust income....................................................................        912        789        605
  Securities gains and losses, net................................................        813        708        790
  Other income....................................................................     11,516      7,015      4,761
                                                                                    ---------  ---------  ---------
      TOTAL NONINTEREST INCOME....................................................     18,520     12,853      9,809
Noninterest expense:
  Salaries and employee benefits..................................................     23,858     21,690     17,599
  Occupancy.......................................................................      4,638      4,123      3,076
  Equipment.......................................................................      3,748      3,473      2,813
  FDIC insurance premiums.........................................................        681      7,858      1,965
  Other expense...................................................................     33,086     17,802     13,207
                                                                                    ---------  ---------  ---------
      TOTAL NONINTEREST EXPENSES..................................................     66,011     54,946     38,660
                                                                                    ---------  ---------  ---------
INCOME BEFORE INCOME TAX EXPENSE..................................................     14,775     23,530     22,574
INCOME TAX EXPENSE................................................................      4,559      7,443      6,353
                                                                                    ---------  ---------  ---------
NET INCOME........................................................................     10,216  $  16,087  $  16,221
                                                                                    ---------  ---------  ---------
</TABLE>

                                       36 
<PAGE>

<TABLE>
<S>                                                      <C>         <C>         <C>
NET INCOME PER SHARE:
  Basic..................................................$     .83  $     1.33   $    1.60
  Diluted................................................      .83        1.32        1.58
AVERAGE SHARES OUTSTANDING:
  Basic..................................................12,258,265  12,051,935  10,137,302
  Diluted................................................12,311,957  12,171,221  10,244,326
CASH DIVIDENDS DECLARED PER COMMON SHARE.................$    0.94   $    0.82   $    0.76

</TABLE>
 
          See accompanying notes to consolidated financial statements.

                                       37


<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                                                                       Net
                                                                                                    Unrealized
                                                                                                   (Losses) on
                                              Additional                       Guaranteed           Securities
                                     Common    Paid-in     Retained  Treasury     ESOP            Available-for-
                                      Stock    Capital     Earnings   Stock    Obligation   RRP        Sale         Total
(in thousands)                       -------  ----------   --------  --------  ----------   ----  --------------   --------
<S>                                  <C>      <C>          <C>       <C>       <C>          <C>   <C>              <C>
Balance, January 1, 1995...........  $19,110   $42,690     $67,351   $(8,900 )   $(715)     $(48 )     (3,347)      $116,141
Net income.........................    --        --         16,221     --        --         --        --             16,221
Common stock dividends declared:
                                                                                            --
  Pinnacle Financial Services, Inc.                                                         --
    $.76 per share.................    --        --         (3,295 )   --        --         --        --             (3,295)
  Pooled companies prior to
    merger.........................    --        --         (4,036 )   --        --         --        --             (4,036)
Issuance of common stock for:
  Employee incentive plan..........    --          636       --        --        --         --        --                636
  Stock offering, net of costs.....    --       13,184       --        --        --         --        --             13,184
  Purchase of Maco.................    --       20,985       --        --        --         --        --             20,985
  Bancorp, Inc.
Purchase of treasury stock.........    --        --          --         (957 )   --         --        --               (957)
Payments made on guaranteed ESOP
  obligation.......................    --        --          --        --          125      --        --                125
Amortization of RRP contribution...    --        --          --        --        --          27       --                 27
Issuance of treasury stock.........    --          (79)      --          147     --         --        --                 68
Tax benefit related to stock option
  plans............................    --           70       --        --        --         --        --                 70
Change in unrealized gain(loss) for
  securities available-for-sale,
  net of tax effect of $3,468......    --        --          --        --        --         --         5,289          5,289
                                     -------  ----------   --------  --------    -----      ----     -------       --------
Balance, December 31, 1995.........   19,110    77,486      76,241    (9,710 )    (590)     (21 )      1,942        164,458
Net income.........................    --        --         16,087     --        --         --        --             16,087
Common stock dividends declared:
  Pinnacle Financial Services, Inc.
    $.82 per share.................    --        --         (4,838 )   --        --         --        --             (4,838)
  Pooled companies prior to
    merger.........................    --        --         (3,891 )   --        --         --        --             (3,891)
Issuance of common stock for:
  Employee incentive plan..........    --     913 --           --      --        --         --        --                913
  Additional costs related to prior
    year stock offering............    --         (259)      --        --        --         --        --               (259)
Purchase of treasury stock.........    --        --          --         (612 )   --         --        --               (612)
Payments made on guaranteed ESOP
  obligation.......................    --        --          --        --          211      --        --                211
Amortization of RRP contribution...    --        --          --        --        --          17       --                 17
Issuance of treasury stock.........    --          (11)      --           18     --         --        --                  7
Tax benefit related to stock option
  plans............................    --           63       --        --        --         --        --                 63
Change in unrealized gain (loss)
  for securities
  available-for-sale, net of tax
  effect) of $(1,244)..............    --        --          --        --        --         --        (1,897)        (1,897)
                                     -------  ----------   --------  --------    -----      ----     -------       --------
Balance, December 31, 1996.........  $19,110   $78,192     $83,599   $(10,304)   $(379)     $(4 )    $    45       $170,259
Net income.........................    --        --         10,216     --        --         --                       10,216
Common stock dividends declared:
  Pinnacle Financial Services, Inc.
    $.94 per share.................    --        --         (8,675 )   --        --         --        --             (8,675)
  Pooled companies prior to
    merger.........................    --        --         (2,583 )   --        --         --        --             (2,583)
Redemption of Shareholder's Rights
  Plan.............................    --        --            (48 )   --        --         --        --                (48)
Common stock issuance upon exercise
  of options.......................    --        7,436       --        --        --         --        --              7,436
Payments made on guaranteed ESOP
  obligation.......................    --        --          --        --          379      --        --                379
Tax Benefit Related to stock option
  plans............................    --        1,630       --        --        --         --        --              1,630
Increase in fair value related to
  allocation of ESOP shares........    --          719       --        --        --         --        --                719
Amortization of RRP contribution...    --        --          --        --        --           4       --                  4
Issuance of treasury stock.........    --         (575)      --      1,000       --         --        --                425
Retirement of treasury stock.......    --       (9,304)      --      9,304       --         --        --               --
Cash paid in lieu of fractional
  shares...........................    --           (4)      --        --        --         --        --                 (4)
Adjustment for change in fiscal
  year of pooled entity............    --        --           (745 )   --        --         --        --               (745)
Change in unrealized gain (loss)
  for securities
  available-for-sale, net of tax
  effect of $......................    --        --                    --        --         --         1,982          1,982
                                     -------  ----------   --------  --------    -----      ----     -------       --------
Balance, December 31, 1997.........   19,110    78,094      81,764     --        --         --         2,027        180,995
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       38
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
 
<TABLE>
<CAPTION>

(in thousands)                                                                        1997        1996       1995
                                                                                   ---------  ----------  ---------
<S>                                                                               <C>         <C>         <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income..................................................................... $   10,216  $    16,087  $  16,221
  Adjustments to reconcile net income to net cash used in operating activities:
    Depreciation and amortization................................................      5,135        4,999      3,756
    Net amortization on loans and securities.....................................      1,116          636      1,088
    Provision for loan losses....................................................     13,320        2,681      1,422
    Deferred federal income taxes................................................     (2,029)      (1,206)      (446)
    Proceeds from sales of trading securities....................................         --       10,154      1,975
    Purchases of trading securities..............................................         --      (10,171)    (1,976)
    Mortgage loans purchased under agreements to resell..........................  (1,448,565) (1,111,965)  (795,862)
    Proceeds from sale of mortgage loans purchased under agreements to resell....   1,363,517   1,096,721    741,010
    Mortgage loans originated for sale...........................................     (84,502)   (175,118)   (58,845)
    Proceeds from sales of loans.................................................      85,146     136,662     56,800
    Gain on sale of securities...................................................        (813)       (708)      (790)
    Gain on sale of loans........................................................      (3,411)     (1,019)      (545)
    Decrease(increase) in interest receivable and other assets...................      (3,529)     (1,331)    (1,477)
    Decrease in other liabilities................................................         267      (1,920)    (2,899)
                                                                                   ----------  ----------  ---------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES.................................     (64,132)   (35,498)   (40,568)
                                                                                   ----------  ---------  ---------
                                                                                   ----------  ----------  ---------
  Net increase in loans, excluding loan sales and purchases......................      35,324    (67,920)    (5,654)
  Purchases of loans.............................................................     (50,269)    (79,642)   (17,723)
  Purchases of securities available-for-sale.....................................    (148,974)   (320,047)  (145,617)
  Purchases of securities held-to-maturity.......................................          --     (4,237)   (11,704)
  Purchases of Company owned life insurance policies.............................     (25,047)    (1,366)        (5)
  Proceeds from sales of securities available-for-sale...........................     205,091    146,580    140,291
  Proceeds from maturities and paydowns of securities available-for-sale.........      56,150     65,200     22,555
  Proceeds from maturities and paydowns of securities held-to-maturity...........          --      5,803     31,036
  Net (increase) decrease in interest-bearing deposits with financial
    institutions.................................................................      11,623     29,825    (24,583)
  Capital expenditures...........................................................      (6,331)     (3,086)    (3,185)
  Purchase of Forrest Holdings Inc. preferred stock..............................          --     (2,500)    --
  Purchase of MACO Bancorp, Inc., net of cash acquired and stock issued..........          --     --        (12,683)
  Purchase of NCB Corp., net of cash acquired....................................          --     --         (6,841)
                                                                                   ----------  ----------  ---------
NET CASH USED BY INVESTING ACTIVITIES............................................      77,567    (231,390)   (34,113)
                                                                                   ----------  ----------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase in deposits.......................................................     (45,603)   105,144     39,740
  Net increase in securities sold under repurchase agreements and other
    borrowings...................................................................      12,432     85,207     53,789
  Net change in obligation to limited partnership................................          --         18     --
  Common stock issued............................................................       7,436        654     13,752
  Contribution to fund ESOP......................................................         379        211        125
  Issuance of treasury stock.....................................................         425          7         68
  Purchase of treasury stock.....................................................          --       (612)      (957)
  Dividends paid.................................................................      (9,550)     (8,590)    (6,826)
  Redemption of shareholders' rights plan........................................         (48)         --         --
  Cash paid for fractional shares................................................          (4)         --         --
                                                                                   ----------  ----------  ---------
NET CASH USED BY FINANCING ACTIVITIES............................................     (34,533)    282,039     99,691
                                                                                   ----------  ----------  ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................     (21,098)    15,151     25,010
Cash and cash equivalents at beginning of year...................................      76,707     61,556     36,546
                                                                                   ----------  ----------  ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.........................................  $   55,609 $   76,707  $  61,556
                                                                                   ----------  ----------  ---------
                                                                                   ----------  ----------  ---------
SUPPLEMENTAL DISCLOSURES:
  Interest paid..................................................................  $   91,353 $   78,987  $  54,079
  Income taxes paid..............................................................  $   11,272 $    7,921  $   7,518
  Loans transferred to other real estate owned...................................  $    4,099 $      756  $     738
  Transfers of securities held-to-maturity to available-for-sale.................  $   14,299 $   --      $ 239,332
                                                                                   ---------  ----------  ---------
</TABLE>
 
See accompanying notes to consolidated financial statements.

                                       39
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1997 AND 1996


NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    The accounting and reporting policies of Pinnacle Financial Services, Inc.
and subsidiaries conform to generally accepted accounting principles and
prevailing practices within the banking industry. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make certain estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts,
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
 
    The following are significant accounting and reporting policies of Pinnacle
Financial Services, Inc. and subsidiaries.
 
(a) Consolidation
 
    The consolidated Pinnacle Financial Services, Inc. entity (the "Company")
was formed on August 1, 1997 through a merger transaction whereby Indiana
Federal Corporation and subsidiaries ("IFC") and CB Bancorp, Inc. and
subsidiaries ("CB") were merged with and into the then existing Pinnacle
Financial Services, Inc. and subsidiaries ("Pinnacle"). The merger transaction
was accounted for in accordance with the pooling-of-interests method of
accounting for a business combination. Accordingly, the consolidated financial
statements included herein reflect the combination of the historical financial
results of Pinnacle, IFC and CB and their respective recorded assets and
liabilities have been restated at their historical cost as if the combining
companies had been consolidated for all periods presented.
 
    As a result of the merger transaction, the consolidated financial statements
include the accounts of Pinnacle Financial Services, Inc. and its wholly-owned
subsidiaries, Pinnacle Bank (the "Bank"), IndFed Mortgage Company, and Pinnacle
Financial Consultants. Pinnacle Bank's two wholly-owned subsidiaries are
Starkeis, Inc. and Brookview Real Estate, LTD. Effective December 31, 1996,
Pinnacle Bank-Indiana (formerly a wholly-owned subsidiary of Pinnacle Financial
Services, Inc.) was merged with and into Pinnacle Bank-Michigan, now
collectively known as Pinnacle Bank. Significant intercompany balances and
transactions have been eliminated in consolidation.
 
    Prior to the combination, CB's fiscal year ended March 31. In restating the
historical consolidated financial statements included herein, the consolidated
financial statements as of and for the year ended December 31, 1997 reflect
transactions on a merged basis from January 1, 1997 through December 31, 1997.
Additionally, CB's financial statements as of March 31, 1997 and 1996 and for
each of the years in the two year period ended March 31, 1997 were combined with
Pinnacle's and IFC's financial statements as of December 31, 1996 and 1995 and
for each of the years in the two year period ended December 31, 1996. An
adjustment of $745,000 was recorded in the consolidated statement of changes in
stockholders' equity for the year ended December 31, 1997 to remove CB net 
income from January 1 through March 31, 1997 from retained earnings, which 
amount is included in December 31, 1996 retained earnings.

                                       40
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(b) Securities

    Securities which management believes could be sold prior to maturity in
order to manage interest rate risk, prepayment risk, liquidity risk, or other
corporate purposes are classified as available-for-sale and are carried at fair
value with unrealized gains and losses, net of applicable income taxes, reported
as a component of stockholders' equity. Securities which management believes are
held for resale in anticipation of short-term market movements are classified as
trading securities which are stated at fair value with unrealized holding gains
and losses recognized in the income statement. Securities, other than the
foregoing, which management has the positive ability and intent to hold until
maturity are classified as securities held-to-maturity and are accounted for 
using historical amortized cost. At December 31, 1997, the company had no 
trading or held-to-maturity securities.

    Premiums and discounts on securities are amortized and accreted over the
life of the related security as an adjustment to yield using the effective
interest method. Gain or loss on the sale of securities is determined based on
the adjusted cost of the specific security sold. A decline in the market value
of any available-for-sale or held-to-maturity security below cost that is deemed
other than temporary results in a charge to earnings thereby establishing a new
cost basis for the security.
 
(c) Mortgage Loans Purchased Under Agreements to Resell
 
    The Company purchases residential mortgage loans from various mortgage 
companies prior to sale of these loans by the mortgage companies in the 
secondary market. The Company held loans that were purchased under agreements 
to resell from approved mortgage companies as of December 31, 1997. The 
Company purchases such loans from mortgage companies at par, net of certain 
fees, and later sells them back to the mortgage companies at the same amount 
and without recourse provisions. As a result, no gains and losses are 
recorded at the resale of loans. The Company records interest income on the 
loans during the funding period and fee income received from the mortgage 
company for each loan when the loan is sold. The Company uses the stated 
interest rate in the agreement with each mortgage company for interest income 
recognition, and not the interest rates on individual loans. The Company does 
not retain servicing of the loans when they are resold. Purchase money and 
refinancing mortgage loans are generally held no more than 90 days by the 
Company and typically are resold within 30 days. Construction loan mortgages 
acquired are held for the duration of the construction loan period, which 
approximates one year or less.
 
(d) Mortgage loans Held for Sale
 
    Loans held for sale are carried at the lower of aggregate cost or market
value. Net unrealized losses are recognized in a valuation allowance by charges
to income.
 
(e) Allowance for Loan Losses
 
    The allowance for loan losses is increased by provisions charged to
operating expense, is decreased by charge offs, net of recoveries, and is
available for losses incurred on loans, including certain accrued interest
receivable. The allowance for loan losses is based on management's periodic
evaluation of the loan portfolio. In evaluating the portfolio, management takes
into consideration numerous factors, including current economic conditions,
prior loan loss experience, the composition of the loan portfolio, and
management's evaluation of the collectibility of specific loans. Management
believes that the allowance for loan losses is adequate to absorb potential
losses in the portfolio, however, future additions to the allowance may be
necessary based on changes in economic conditions. In addition, various
regulatory agencies periodically review the provision for loan losses. These
agencies may require that additions be made to allowance for loan losses based
upon their

                                       41
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


judgment of information available to them at the time of their examination.

    A loan is considered impaired when it is probable that a creditor will be
unable to collect contractual principal and interest due according to the
contractual terms of the loan agreement. Impaired loans are generally considered
by the Company to be nonaccrual commercial and commercial real estate loans,
restructured loans and commercial and commercial real estate loans for which
principal and/or interest is at risk. Impairment is measured by determining the
fair value of the loans based on the present value of expected cash flows, the
market price of the loans, or the fair value of the underlying collateral. If
the fair value of the loan is less than the recorded book value, a valuation 
allowance is established as a component of the allowance for loan losses.
 
(f) Nonperforming Assets

    Nonperforming assets are comprised of loans for which the accrual of
interest has been discontinued, loans contractually past due 90 days or more as
to interest and/or principal and not included in nonaccrual loans, and other
real estate which has been acquired primarily through foreclosure and is
awaiting disposition. Loans are generally placed on a nonaccrual basis when, in
the opinion of management, collection of principal or interest payments is
unlikely. Income on such loans is then recognized only to the extent that cash
is received and where future collection of principal is probable.
 
    Other real estate is carried at the lower of cost or fair value, less
estimated costs to sell. When the property is acquired through foreclosure, any
excess of the related loan balance over estimated fair value is charged to the
allowance for loan losses. Subsequent write-downs, losses upon sale, and
expenses related to maintenance of properties are charged to other expense.
 
(g) Premises and Equipment

    Premises and equipment are stated at cost less accumulated depreciation.
Depreciation, computed on the straight-line and accelerated methods, is charged
to operations over the estimated useful lives of the properties.
 
(h) Goodwill and Other Intangibles
 
    Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis up to 15 years with a
remaining life of approximately 10 years at December 31, 1997. At December 31,
1997 and 1996, goodwill of approximately $13,393,000 and $14,604,000,
respectively, is included in other assets in the accompanying consolidated
balance sheets.

                                       42
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    Core deposit intangibles, representing the premium associated with the
acquisition of certain deposit liabilities, are being amortized to operating
expenses on a straight-line basis over the average lives of approximately 7 to
10 years of such deposit liabilities, with a remaining life at December 31, 1997
of approximately 4 years. At December 31, 1997 and 1996, core deposit
intangibles of approximately $2,687,000 and $3,368,000, respectively, are
included in other assets in the accompanying consolidated balance sheets.

    The Company assesses the recoverability of its goodwill and other
intangibles through review of various economic factors on a periodic basis in
determining whether impairment, if any, exists.
 
(i) Loan Servicing Rights
 
    The Company recognizes as a separate asset the right to service loans for
others which are amortized over the estimated lives of the loans. The Company
also evaluates these servicing rights for impairment based on the current fair
value of those rights. Impairment is recognized through a valuation allowance
established through a charge to expense. Loan servicing rights as of December
31, 1997 and 1996 totaled approximately $1,029,000 and $477,000, respectively.
 
(j) Trust Assets
 
    Assets held by the Company in fiduciary or agency capacity for customers are
not assets of the Company and as such are not included in the consolidated
financial statements. Fee income is recognized on an accrual basis for financial
reporting purposes.
 
(k) Employee Stock Ownership Plan

    The Company has established an Employee Stock Ownership Plan (the ESOP) 
for the former employees of IFC and CB.  The Company recognizes compensation 
expense for the applicable ESOP shares based on the fair value of those 
shares when committed to be released to employees, rather than based on their 
original cost in accordance with the American Institute of Certified Public 
Accountants & Statement of Position 93-6, "Employers' Accounting for Employee 
Stock Ownership Plans (SOP93-6).

(l) Retirement Plans
 
    Costs for the Company's defined benefit plans, which cover substantially all
employees of the former Pinnacle and CB entities, are accounted for in
accordance with the requirements of Statement of Financial Accounting Standards
No. 87, "Employers: Accounting for Pensions". The projected unit credit method
is utilized for measuring net periodic pension cost over the employees' service
life. The Company's funding policy is to contribute annually an amount
calculated under the minimum ERISA funding requirements.
 
(m) Postretirement Benefits Other Than Pensions
 
    An accrual for postretirement benefits is charged to current earnings based
upon the expected cost of providing postretirement benefits to employees during
the years that the employees render services.
 
(n) Stock Option Plan 

    As of December 31, 1996, the Company adopted the disclosure requirements of
Financial Accounting Standards Board Statement No. 123, "Accounting for 
Stock-Based Compensation". The Company applies APB Opinion 25, "Accounting for
Employee Benefit Plans" and related interpretations in accounting for 
its stock option plan.
 
(o) Income Taxes
 
    Prior to the merger Pinnacle, IFC and CB and their respective 
subsidiaries each filed consolidated U.S. income tax returns. The 
consolidated tax liability is settled between companies generally as if each 
company had filed a separate return. For the year ended December 31, 1997, 
the Company and its subsidiaries will file consolidated tax returns.

                                       43
<PAGE>


PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


    Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes", the effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
the period that includes the enactment date.
 
(p) Income Recognition

    The Company uses the accrual basis of accounting for financial reporting
purposes. Loans are stated at the principal amount outstanding, net of any
unearned income. Loan origination fees and certain direct loan origination costs
are deferred and recognized over the lives of the related loans as an adjustment
of the yield.
 
(q) Statements of Cash Flows
 
    For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold.
 
(r) Per Share Data
 
    Basic net income per share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding during each
period. The diluted net income per share calculation is adjusted for the effects
of options. Average shares have been increased for the assumed conversion of
outstanding options into common shares and is retroactively adjusted for stock
splits and stock dividends. Cash dividends declared per share are based upon the
number of shares outstanding at date of declaration, retroactively adjusted for
stock splits and stock dividends.
 
(s) Reclassifications
 
    Certain prior year amounts have been reclassified to conform to current year
presentation.
 
NOTE 2 SUPERVISION AND REGULATION
 
    The Company and its subsidiary bank are subject to supervision, regulation
and periodic examination by various federal and state banking regulatory
agencies including the Board of Governors of the Federal Reserve Board (the
"FRB"), the Federal Deposit Insurance Corporation (the "FDIC"), and the Michigan
Financial Institutions Bureau (the "FIB"). Since the Company is a bank holding
company, the Company's activities are limited to the business of banking and
activities closely related to banking.
 
    The following is a summary of certain statutes and regulations affecting the
Company. This summary is qualified in its entirety by such statutes and
regulations, which are subject to change based on pending and future legislation
and action by regulatory agencies.

                                       44
<PAGE>


PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
    BANK HOLDING COMPANIES.  As a bank holding company, the Company is subject
to regulation under the Bank Holding Company Act of 1956, as amended (the
"BHCA"), and by the FRB.
 
    Banking laws and regulations restrict transactions by insured banks owned by
a bank holding company, including loans to and certain purchases from the parent
holding company, non-bank and bank subsidiaries of the parent holding company,
principal stockholders, officers, directors and their affiliates, and
investments by the subsidiary banks in the shares or securities of the parent
holding company (or of any other non-bank or bank affiliates), and acceptance of
such shares or securities as collateral security for loans to any borrower. The
regulators also review other payments, such as management fees, made by
subsidiary banks or affiliated companies.
 
    Under the BHCA, a bank holding company is prohibited, with certain limited
exceptions, from engaging in activities other than those of banking or of
managing or controlling banks and from acquiring or retaining direct or indirect
ownership or control of voting shares or assets of any company which is not a
bank or bank holding company, other than subsidiaries engaged in activities
which the Federal Reserve Board determines to be so closely related to banking
and managing or controlling banks as to be a proper incident thereto.
 
    BANKS.  The Company's subsidiary bank is subject to regulation, supervision
and periodic examination by the Michigan FIB. Additionally, as an institution
whose deposits are insured by the Bank Insurance Fund (the "BIF") and the
Savings Association Insurance Fund (the "SAIF") of the FDIC, Pinnacle Bank is
also subject to supervision, regulation and periodic examination by the FDIC.
 
    The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--- actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Bank must meet specific capital guidelines that
involve quantitative measures of the Company's and the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Company's and the 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 Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1997, that the Company and the Bank meet all capital adequacy requirements to
which they are subject.
 
    As of December 31, 1997, the most recent notification from the primary 
regulator of Pinnacle Bank categorized the Bank as WELL CAPITALIZED under the 
regulatory framework for prompt corrective action. To be categorized as WELL 
CAPITALIZED the Bank must maintain minimum total risk-based, Tier I 
risk-based, Tier I leverage ratios as set forth in the table. This 
notification occurred prior to the effective date of the pooling. There are 
no conditions or events since that notification that management believes have 
changed the institution's category.

                                       45
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


    The Company's and the Bank's actual capital amounts and ratios are also
presented in the tables for 1997 and 1996.
 
<TABLE>
<CAPTION>
                                                                                                    To be well-
                                                                                                 Capitalized Under
                                                                             For Capital         Prompt Corrective
                                                        Actual            Adequacy Purposes      Action Provisions
                                                 ---------------------  ---------------------  ---------------------
                                                   Amount      Ratio      Amount      Ratio      Amount      Ratio
                                                 ----------  ---------  ----------  ---------  ----------  ---------
<S>                                              <C>         <C>        <C>         <C>        <C>         <C>
AS OF DECEMBER 31, 1997
Total Capital (to Risk Weighted Assets):
  CONSOLIDATED.................................  $  180,984      14.54% $   99,611       8.00% $  124,513      10.00%
  Pinnacle Bank................................     199,193      12.25%     97,412       8.00%    121,765      10.00%
Tier 1 Capital (to Risk Weighted Assets):
  CONSOLIDATED.................................  $  165,359      13.28% $   49,805       4.00% $   74,708       6.00%
  Pinnacle Bank................................     133,907      11.00%     48,706       4.00%     73,059       6.00%
Tier 1 Capital (to Average Assets):
  CONSOLIDATED.................................  $  165,359       7.29% $   90,682       4.00% $  113,352       5.00%
  Pinnacle Bank................................     133,907       6.44%     83,198       4.00%    103,998       5.00%
AS OF DECEMBER 31, 1996
Total Capital (to Risk Weighted Assets):
  CONSOLIDATED.................................  $  168,081      13.30% $  100,870       8.00% $  126,087      10.00%
  Pinnacle Bank................................     145,522      11.61%    100,297       8.00%    125,372      10.00%
Tier 1 Capital (to Risk Weighted Assets):
  CONSOLIDATED.................................  $  153,172      12.12% $   50,435       4.00% $   75,652       6.00%
  Pinnacle Bank................................     130,613      10.42%     50,149       4.00%     75,223       6.00%
Tier 1 Capital (to Average Assets):
  CONSOLIDATED.................................  $  153,172       7.41% $   83,832       4.00% $  104,790       5.00%
  Pinnacle Bank................................     130,613       6.27%     83,367       4.00%    104,208       5.00%
</TABLE>
 
NOTE 3 MERGERS AND ACQUISITIONS
 
    Effective August 1, 1997, the Company issued 4,790,736 and 1,553,144 
shares of its common stock in exchange for all outstanding common stock of 
Indiana Federal Corporation ("IFC") and CB Bancorp, Inc. ("CB"), 
respectively, both of which were thrift holding companies located in 
Valparaiso and Michigan City, Indiana, respectively. Total assets acquired of 
IFC and CB were $835 million and $288 million respectively. The business 
combinations have been accounted for as pooling-of-interests transactions, 
and accordingly, the consolidated financial statements for periods prior to 
the combinations have been restated to include the accounts and results of 
operations of IFC and CB.

                                       46
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


    The results of the operations previously reported by the separate
enterprises and the combined amounts presented in the accompanying consolidated
financial statements are summarized below (in thousands):
 
<TABLE>
<CAPTION>
                                                                        Six Months            Years ended,
                                                                      Ended June 30,   December 31,   December 31,
                                                                           1997            1996           1995
                                                                      ---------------  -------------  -------------
                                                                        (unaudited)
<S>                                                                   <C>              <C>            <C>
Net interest income:
  Pinnacle..........................................................        18,431          34,276         19,344
  IFC...............................................................        13,546          25,674         26,141
  CB................................................................         4,628           8,354          7,362
                                                                            ------          ------         ------
Consolidated........................................................        36,605          68,304         52,847
                                                                            ------          ------         ------
                                                                            ------          ------         ------
Net income:
  Pinnacle..........................................................         6,081           9,152          6,459
  IFC...............................................................         4,251           4,623          7,304
  CB................................................................         1,619           2,312          2,458
                                                                            ------          ------         ------
Consolidated........................................................        11,951          16,087         16,221
                                                                            ------          ------         ------
                                                                            ------          ------         ------
</TABLE>
 
    On October 1, 1996, the Company , through Pinnacle Bank, purchased Starke's,
Inc., a local insurance agency, through the issuance of 99,451 shares of
Pinnacle common stock. The assets acquired were $1,241,000 and the transaction
was accounted for using the pooling-of-interests method with no restatement of
prior periods as amounts involved were not material.
 
    On December 1, 1995, the Company acquired all of the outstanding stock of
Maco Bancorp, Inc. ("Maco"), a Delaware corporation and registered savings and
loan holding company headquartered in Merrillville, Indiana, for a purchase
price of $41,944,000 (the "Purchase Price"). Approximately 50% of the Purchase
Price was paid in cash ($20,959,000) and the balance was paid in Pinnacle common
stock valued at $20,985,000. The acquisition of Maco was accounted for as a
purchase. All assets (approximately $412,800,000) and all liabilities
(approximately $384,200,000) of Maco and its subsidiaries (First Federal Savings
Bank of Indiana, Brookview Real Estate Ltd. and First Insurance, Inc.) were
adjusted to fair value as of the effective date creating goodwill in the amount
of $13,350,000 which is being amortized on a straight line basis over 15 years.
Premiums and discounts on the fair value adjustments amounted to approximately
$3,895,000 and $830,000, respectively. The operating results of Maco have been
included in the Company's financial statements since the date of acquisition.
 
    On January 31, 1995, the Company acquired, for $8.2 million, NCB Corporation
("NCB"), a bank holding company with total assets of approximately $45.0 million
with offices in Culver and Granger, Indiana. The operations of NCB are included
in the Company's financial statements since the date of acquisition and reflect
the application of the purchase method of accounting. Under this method of
accounting, the aggregate cost to the Company of the acquisition was allocated
to the assets acquired and liabilities assumed, based on their estimated fair
values as of January 31, 1995, creating goodwill in the amount of $1.5 million 
which is being amortized on a straight line basis over 15 years.

                                       47
<PAGE>


PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 FAIR VALUE OF FINANCIAL INSTRUMENTS
 
    Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" (Statement 107), requires that the Company
disclose estimated fair values for its financial instruments in its 
consolidated financial statements. Fair value estimation methods and 
assumptions are presented below for the Company's consolidated financial
statements.
 
    The estimated fair value of the Company's financial instruments at 
December 31, 1997 and 1996 was as follows:
 
<TABLE>
<CAPTION>
                                                                        1997                       1996
                                                               -----------------------    --------------------------
                                                                 Carrying        Fair       Carrying        Fair
                                                                  Value          Value       Value         Value
                                                               ------------  ---------    ------------  ------------
<S>                                                            <C>           <C>          <C>           <C>
Financial Assets:
  Cash and due from banks....................................  $     49,209  $   49,209   $     60,957  $     60,957
  Federal funds sold.........................................         6,400       6,400         15,750        15,750
  Interest-bearing deposits with financial institutions......         1,548       1,548         13,171        13,171
  Securities available-for-sale..............................       419,284     419,284        513,486       513,486
  Securities held-to-maturity................................       --           --             14,299        14,348
  Mortgage loans held for sale...............................        12,750      12,750         11,485        11,491
  Net loans..................................................     1,487,837   1,494,377      1,400,946     1,405,485
  Accrued interest receivable................................        17,282      17,282         15,778        15,778
                                                               ------------  ----------   ------------  ------------
    Total financial assets...................................  $  1,994,310  $2,000,850   $  2,045,872  $  2,050,466
 
Financial Liabilities:
  Noninterest-bearing deposits...............................  $     99,262  $   99,262   $    121,235  $    121,235
  Interest-bearing deposits..................................     1,333,846   1,335,907      1,357,476     1,361,453
  Federal Home Loan Bank advances, securities sold under 
    repurchase agreements, and other borrowings..............       483,876     485,070        471,444       474,376
  Accrued interest payable...................................         5,239       5,239          5,130         5,130
                                                               ------------  ---------    ------------  ------------
    Total financial Liabilities..............................  $  1,922,223  $1,925,478   $  1,955,285  $  1,962,174
</TABLE>
 
    CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD: The carrying value of cash
and due from banks and federal funds sold approximates fair value due to the
short term maturity of those instruments.
 
    INTEREST-BEARING DEPOSITS WITH FINANCIAL INSTITUTIONS AND SECURITIES: Fair
values of these instruments are based on quoted market prices, when available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable assets.
 
    MORTGAGE LOANS HELD FOR SALE: Fair value are estimated based on quoted
market prices.
 
    NET LOANS: Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as commercial,
commercial real estate, residential mortgage, and consumer, including credit
card loans. Each loan category is further segmented into fixed and adjustable
rate interest terms.

                                       48
<PAGE>


PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


    The fair value of performing loans, except credit card loans, is calculated
by discounting scheduled cash flows through the estimated maturity using the
current rates at which similar loans would be made to borrowers with similar
credit ratings with the same remaining maturities. The estimate of the maturity
is based on industry forecast experience with repayments for each loan
classification. The fair value of variable rate loans repricing within
three months and credit card loans were assumed to be at carrying value.
 
    Fair value for nonperforming loans is based on recent external appraisals.
If appraisals are not available, estimated cash flows are discounted using a
rate commensurate with the risk associated with the estimated cash flows.
Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific borrower
information.
 
    ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE: The carrying value
of accrued interest receivable and accrued interest payable approximates fair
value due to the relatively short period of time to expected realization.
 
    NONINTEREST-BEARING AND INTEREST-BEARING DEPOSITS: The fair value of
deposits with no stated maturity, such as demand deposits, savings, NOW accounts
and money market accounts, is equal to the amount payable on demand as of
December 31, 1997 and 1996. The fair value of time deposits is based on the
discounted value of contractual cash flows. The discount rate is estimated using
the rates currently offered for similar remaining maturities.
 
    FEDEERAL HOME LOAN BANK ADVANCES, SECURITIES SOLD UNDER REPURCHASE
AGREEMENTS AND OTHER BORROWINGS: The carrying amounts for securities sold under
repurchase agreements and certain other borrowings approximate fair value as
they mature in 90 days or less. The fair value of certain other borrowings with
maturities greater than 90 days are based on the discounted value of contractual
cash flows. The discount rate is estimated using the rates currently offered for
similar remaining maturities.
 
    COMMITMENTS TO EXTEND CREDIT AND LETTERS OF CREDIT: The value of commitments
to extend credit is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counterparties. For fixed rate loan
commitments, fair value also considers the difference between current levels of
interest rates and the committed rates. The fair value of letters of credit is
based on fees currently charged for similar agreements or on the estimated cost
to terminate them or otherwise settle the obligations with the counterparties.
 
    LIMITATIONS: Fair value estimates are made at a specific point in time,
based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings of
particular financial instruments. Because no market exists for a significant
portion of the Company's financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.

                                       49
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


    Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For example, the Company has a substantial trust 
department that contributes net fee income annually. The trust department
is not considered a financial instrument, and its value has not been 
incorporated into the fair value estimates. Other significant assets and 
liabilities that are not considered financial assets or liabilities include the
mortgage servicing rights, premises and equipment, and intangible assets. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in the estimates.
 
NOTE 5 CASH AND DUE FROM BANKS
 
    The Bank is required to maintain certain daily reserve balances on hand in
accordance with Federal Reserve Board requirements. The reserve balances
maintained in accordance with such requirements at December 31, 1997 and 1996,
were $12,086,000 and $10,603,000, respectively.
 
NOTE 6 SECURITIES
 
    The following summarizes the amortized cost, gross unrealized holding gains,
gross unrealized holding losses and fair value for available-for-sale securities
at December 31, 1997.
 
<TABLE>
<CAPTION>
                                                                                   Gross            Gross
                                                                                Unrealized       Unrealized
                                                                 Amortized        Holding          Holding         Fair
                                                                   Cost            Gains           Losses         Value
                                                               -------------  ---------------  ---------------  ----------
                                                                                     (in thousands)
<S>                                                            <C>            <C>              <C>              <C>
AVAILABLE-FOR-SALE:
  U.S. Treasury and agency securities........................   $   156,978      $     881        $    (376)    $  157,483
  Obligations of states and political subdivisions...........        31,728          1,375           --             33,103
  Corporate securities.......................................         2,000         --                   (8)         1,992
  Equity securities..........................................        31,130         --                  (22)        31,108
  Mortgage backed securities.................................       194,114          1,801             (317)       195,598
                                                               -------------        ------            -----     ----------
    Total securities.........................................   $   415,950      $   4,057        $    (723)    $  419,284
                                                               -------------        ------            -----     ----------
                                                               -------------        ------            -----     ----------
</TABLE>

                                       50
<PAGE>


PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
    The following summarizes the amortized cost, gross unrealized holding gains,
gross unrealized holding losses and fair value for available-for-sale securities
at December 31, 1996.
 
<TABLE>
<CAPTION>
                                                                                   Gross           Gross
                                                                                Unrealized       Unrealized
                                                                 Amortized        Holding         Holding         Fair
                                                                   Cost            Gains           Losses        Value
                                                               -------------  ---------------  --------------  ----------
                                                                                     (in thousands)
<S>                                                            <C>            <C>              <C>             <C>
AVAILABLE-FOR-SALE:
  U.S. Treasury and agency securities........................   $   205,608      $     787       $   (1,212)   $  205,183
  Obligations of states and political subdivisions...........        21,873            582               (8)       22,447
  Corporate securities.......................................        12,350              4              (33)       12,321
  Equity securities..........................................        23,653            101              (29)       23,725
  Mortgage backed securities.................................       249,950          1,327           (1,467)      249,810
                                                               -------------        ------          -------    ----------
    Total securities.........................................   $   513,434      $   2,801       $   (2,749)   $  513,486
                                                               -------------        ------          -------    ----------
                                                               -------------        ------          -------    ----------
</TABLE>

    The following summarizes the amortized cost, gross unrealized holding gains,
gross unrealized holding losses and fair value for securities held to maturity
at December 31, 1996.
 
<TABLE>
<CAPTION>
                                                                                     Gross              Gross
                                                                                  Unrealized         Unrealized
                                                                  Amortized         Holding            Holding         Fair
                                                                    Cost             Gains             Losses          Value
                                                                -------------  -----------------  -----------------  ---------
<S>                                                             <C>            <C>                <C>                <C>
                                                                                        (in thousands)
HELD-TO-MATURITY:
  U.S. Treasury and agency securities.........................    $   3,000        $  --              $     (48)     $   2,952
  Corporate securities........................................        2,789                6                 (2)         2,793
  Mortgage backed securities..................................        8,510              102                 (9)         8,603
                                                                -------------          -----                ---      ---------
    Total securities..........................................    $  14,299        $     108          $     (59)     $  14,348
                                                                -------------          -----                ---      ---------
                                                                -------------          -----                ---      ---------
</TABLE>

                                       51
<PAGE>


PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


    Maturities of investment securities classified as available-for-sale at
December 31, 1997 by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                                                            Available-For-Sale
                                                                                         -------------------------
<S>                                                                                      <C>            <C>
                                                                                           Amortized       Fair
                                                                                             Cost         Value
                                                                                         -------------  ----------
<CAPTION>                                                                                     (in thousands)
<S>                                                                                      <C>            <C>
No maturity............................................................................   $    31,130   $   31,108
Due in one year or less................................................................        11,664       11,716
Due after one year through five years..................................................        16,498       16,763
Due after five years through ten years.................................................        68,309       69,198
Due after ten years....................................................................        94,235       94,901
Mortgage-backed securities.............................................................       194,114      195,598
                                                                                         -------------  ----------
Total securities.......................................................................   $   415,950   $  419,284
                                                                                         -------------  ----------
                                                                                         -------------  ----------
</TABLE>
 
    Proceeds from sales of securities (excluding trading securities) during
1997, 1996 and 1995 were $205,901,000, $146,580,000, and $140,291,000,
respectively. Gross gains of $1,236,000, $841,000, and $1,599,000 and gross
losses of $423,000, $150,000, and $809,000 were realized on those sales
for 1997, 1996, and 1995, respectively. During 1997, 1996, and 1995 there were
no sales of securities classified as held-to-maturity.
 
    On August 1, 1997, securities held-to-maturity were reclassified to 
available-for-sale upon consummation of the CB merger to conform to 
Pinnacle's classification of investment securities. At the date of transfer, 
the securities had an amortized cost and net unrealized gain of $14.0 million 
and $200,000, respectively.
 
    Mortgage-backed securities include mortgage-backed securities and
collateralized mortgage obligations. The mortgage-backed securities represent
participating interest of pools of long-term first mortgage loans originated and
serviced by the issuers of the securities. Collateralized mortgage obligations
are debt securities that are secured by mortgage loans or other mortgage-backed
securities.

    Securities with an amortized cost of $40,206,000 and $356,602,000 at 
December 31, 1997 and 1996, respectively, were pledged to secure public 
deposits and securities sold under agreements to repurchase and for other 
purposes as required by law or contract.
 
    The Company did not have any investment securities that individually 
exceeded 10% of stockholders' equity at December 31, 1997 and 1996.

                                       52
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 7 LOANS
 
    The following summarizes loans by classification at December 31 of each
year.
 
<TABLE>
<CAPTION>
                                                         1997       1996
                                                       ---------  ---------
                                                          (in thousands)
<S>                                                    <C>        <C>
Commercial loans.....................................  $ 491,932  $ 421,948
Real estate loans....................................    588,046    650,624
Consumer loans.......................................    238,427    238,321
Tax exempt loans.....................................     10,240      9,686
Mortgage loans purchased under agreements to
  resell.............................................    179,720     95,276
                                                       ---------  ---------
      Loans, net.....................................  $1,508,365 $1,415,855
                                                       ---------  ---------
                                                       ---------  ---------
</TABLE>
 
MORTGAGE LOANS PURCHASED UNDER AGREEMENTS TO RESELL
 
    The Company has entered into agreements with mortgage companies in which 
the Company purchases, at its discretion, mortgage loans from the mortgage 
companies at par, net of certain fees, and later sells them back to the 
mortgage companies at the same amount and without recourse provisions. The 
Company records interest income on the loans during the funding period and 
the Company records fee income (recorded as noninterest income) received from 
the mortgage company for each loan when resold. The interest income recorded 
is based on a rate of interest tied to the prime rate (as established from 
time to time by a major Chicago-based financial institution) during the 
funding period, and not the rates on individual loans. Such loans are 
reviewed, prior to purchase, for evidence that the loans are of secondary 
market quality or meet the Company's internal underwriting guidelines. An 
assignment of the mortgage to the Company is required. In addition, the 
Company either takes possession of the original note and forwards such note 
to the end investor or the Company receives a certified copy of the note and 
subsequently receives acknowledgment from the end investor of receiving the 
original note. A commitment to purchase from an end investor is generally 
required prior to purchase by the Company. In the event that the end investor 
would not honor this commitment and the mortgage companies would not be able 
to honor their repurchase obligations, the Company would then need to sell 
these loans in the secondary market at the fair value of these loans. 
Purchase money and refinance loans are generally held no more than 90 days by 
the Company and are typically resold within 30 days. The Company also 
purchases interim construction loans under this program and holds these loans 
for the duration of the construction loan period which typically approximates 
one year or less. The Company had approximately $21,566,000 and $25,407,000 
of interim construction loans purchased under agreements to resell at 
December 31, 1997 and 1996.

                                       53
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
NOTE 7 LOANS (CONTINUED)
 
    The following summarizes nonaccrual loans and loans greater than 90 days
delinquent which are still accruing interest at December 31 of each year.
 
<TABLE>
<CAPTION>
                                                                   1997                    1996
                                                          ----------------------  ----------------------
                                                            Non-       90 Days      Non-       90 Days
                                                           Accrual    Past Due     Accrual    Past Due
                                                          ---------  -----------  ---------  -----------
                                                                          (in thousands)
<S>                                                       <C>        <C>          <C>        <C>
Real estate loans.......................................  $   1,027   $   4,040   $   1,742   $   3,459
Commercial loans........................................      7,665       1,962       4,569       2,239
Consumer loans..........................................        446       1,036         118         503
Tax exempt loans........................................     --          --          --          --
Mortgage repurchase loans...............................      1,629      --           4,700      --
                                                          ---------  -----------  ---------  -----------
Total loans.............................................  $  10,767   $   7,038   $  11,129   $   6,201
                                                          ---------  -----------  ---------  -----------
                                                          ---------  -----------  ---------  -----------
</TABLE>
 
    For the years ended December 31, 1997, 1996 and 1995, if nonaccrual loans
had been maintained current in accordance with their original terms, additional
interest income of $840,000, $1,100,000, and $449,000, respectively, would
have been realized.
 

                                       54 
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
NOTE 7 LOANS (CONTINUED)

    The recorded investment in impaired loans at December 31, 1997 and 1996 
totaled $16.5 million and $13.3 million, respectively, for which a specific 
allowance for loan losses of $2.9 million and $1.6 million, respectively, was 
required as of and for the years then ended. As of December 31, 1997 and 
1996, the average recorded investment in impaired loans approximated $15.4 
million and $10.9 million, respectively. For the years ended December 31, 
1997 and 1996, interest income recorded on such loans totaled $1,031,000 and 
$688,000, respectively, of which $547,000 and $475,000 respectively has been 
recorded on a cash basis.
 
    Certain officers, directors, and entities with which they are affiliated 
have borrowed funds from the Company. These loans were made in the ordinary 
course of business on substantially the same terms as loans to other persons 
and, in the opinion of management, do not involve more than the normal risks 
of collectibility or present other unfavorable features. Such loans at 
December 31, 1997 and 1996 aggregated approximately $19,413,000 and 
$14,903,000, respectively. The net increase of $4,510,000 in such loans 
resulted from new loans of $5,087,000 and collections on loans of $577,000.

                                       55
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
    The following summarizes the activity in the allowance for loan losses for
the years ended December 31.
 
<TABLE>
<CAPTION>
                                                                                     1997       1996       1995
                                                                                   ---------  ---------  ---------
                                                                                           (in thousands)
<S>                                                                                <C>        <C>        <C>

Balance, beginning of year.......................................................  $  14,909  $  13,853  $  11,787
Adjustment due to change in fiscal year of pooled entity.........................        501     --         --
Provisions charged against income................................................     13,320      2,681      1,422
Recoveries.......................................................................        515        735        335
Allowance of acquired financial institutions.....................................     --         --          1,855
                                                                                   ---------  ---------  ---------
                                                                                      29,245     17,269     15,399
Loans charged off................................................................     (8,717)    (2,360)    (1,546)
                                                                                   ---------  ---------  ---------
Balance, end of year.............................................................  $  20,528  $  14,909  $  13,853
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
NOTE 8 PREMISES AND EQUIPMENT, NET
 
    The following summarizes premises and equipment by classification at
December 31.
 
<TABLE>
<CAPTION>
                                                                                                1997       1996
                                                                                              ---------  ---------
                                                                                                 (in thousands)
<S>                                                                                           <C>        <C>
Land and land improvements..................................................................  $   4,637  $   4,766
Buildings...................................................................................     26,704     25,746
Furniture, fixtures and equipment...........................................................     23,785     18,687
                                                                                              ---------  ---------
    Subtotal................................................................................     55,126     49,199
Less accumulated depreciation...............................................................     25,827     23,117
                                                                                              ---------  ---------
Premises and equipment, net.................................................................  $  29,299  $  26,082
                                                                                              ---------  ---------
                                                                                              ---------  ---------
Depreciation expense charged to operations was $3,114,000, $2,856,000, and $2,252,000 in
  1997, 1996, and 1995, respectively.
</TABLE>

                                       56 
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 9 TIME DEPOSITS
 
    The following summarizes time deposits and their remaining maturities,
included in interest-bearing deposits at December 31.
 
<TABLE>
<CAPTION>
                                                                            1997
                                                                         -----------
                                                                            (in
                                                                         thousands)

<S>                                                                      <C>
Due within one year....................................................   $ 535,391
From one to two years..................................................     112,424
From two to three years................................................      35,275
From three to four years...............................................       9,456
From four to five years................................................      11,350
Over five years........................................................      10,021
                                                                         -----------
    Total..............................................................   $ 713,917
                                                                         -----------
                                                                         -----------
</TABLE>
 
NOTE 10 BORROWINGS
 
    The following is a schedule of securities sold under repurchase agreements
and other borrowings at December 31 of each year.
 
<TABLE>
<CAPTION>
                                                            1997       1996
                                                          ---------  ---------
                                                             (in thousands)
<S>                                                       <C>        <C>
Securities sold under repurchase agreements.............  $  69,511  $  32,103
Federal funds purchased.................................     --         69,900
Federal Home Loan Bank advances.........................    414,365    369,238
Other borrowings........................................     --            203
                                                          ---------  ---------
Total...................................................  $ 483,876  $ 471,444
                                                          ---------  ---------
                                                          ---------  ---------
</TABLE>
 
    Securities sold under repurchase agreements represent an indebtedness of the
Company secured by certain securities. At December 31, 1997 and 1996, the
interest cost with regard to daily averages was 5.11% and 4.36%, respectively.
Securities with an amortized cost of $31.8 million and $29.9 million and an
estimated fair value of approximately $ 31.9 million and $29.8 million were
pledged as collateral for these agreements at December 31, 1997 and 1996,
respectively.

                                       57
<PAGE> 

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
    Federal funds purchased, which mature daily, had an interest cost of 
6.24% at December 31, 1996. There were no federal funds purchased at 
December 31, 1997.
 
    Federal Home Loan Bank advances represent borrowings from Federal Home Loan
Bank. Advances of $927.0 million, and $728.9 million, were drawn upon during
1997, and 1996, respectively. At December 31, 1997, 1996, and 1995,
respectively, the interest cost with regard to daily averages was 5.67 %, 5.78%,
and 6.13%, with maturities of one to ninety-four months. These borrowings are
secured by Federal Home Loan Bank stock (carried at $30.9 million), by all
eligible first mortgage loans on one-to-four family dwellings held by the Bank
(approximately $553.0 million at December 31, 1997) and by specific
securities with a carrying value of approximately $269.9 million.
 
    Other borrowings at December 31, 1996 consisted of the guaranteed ESOP
obligation. The ESOP entered into a loan agreement to borrow up to $1.2 million
with an unrelated financial institution to purchase shares of common stock in
the open market. The balance outstanding as of December 31, 1997 and 1996 was $
0 and $203,000, respectively.

NOTE 11 INCOME TAXES
 
    Income taxes (benefits) reported in the consolidated statements of
income for the years ended December 31, 1997, 1996, and 1995 include the
following components.
 
<TABLE>
<CAPTION>
                                                                        1997       1996       1995
                                                                      ---------  ---------  ---------
                                                                              (in thousands)
<S>                                                                   <C>        <C>        <C>
U.S. Federal
  Current...........................................................  $   7,048  $   7,304  $   5,811
  Deferred..........................................................     (2,596)    (1,267)      (593)
State
  Current...........................................................        217      1,443      1,190
  Deferred..........................................................       (110)       (37)       (55)
                                                                      ---------  ---------  ---------
    Total...........................................................  $   4,559  $   7,443  $   6,353
                                                                      ---------  ---------  ---------
                                                                      ---------  ---------  ---------
</TABLE>

                                       58 
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
    The following federal income tax expense differs from the amounts computed
by applying the federal income tax rate of 35% to pretax income at December 31
of each year.
 
<TABLE>
<CAPTION>
                                                                        1997       1996       1995
                                                                      ---------  ---------  ---------
                                                                              (in thousands)
<S>                                                                   <C>        <C>        <C>
Computed "expected" tax.............................................  $   5,171  $   8,199  $   7,755
Tax exempt interest, net............................................       (695)      (478)      (430)
Low income housing credit...........................................     (1,476)    (1,299)    (1,225)
Amortization of goodwill............................................        389        327         42
Acquisition cost....................................................      1,323     --         --
State income tax, net of federal benefit............................         70        860        768
Other, net..........................................................       (223)      (166)      (557)
                                                                      ---------  ---------  ---------
    Total...........................................................  $   4,559  $   7,443  $   6,353
                                                                      ---------  ---------  ---------
                                                                      ---------  ---------  ---------
</TABLE>
 
    The following presents the tax effects of temporary differences that give
rise to significant portions of the deferred tax assets and liabilities at
December 31 of each year.
 
<TABLE>
<CAPTION>
                                                                                1997       1996
                                                                              ---------  ---------
                                                                                 (in thousands)
<S>                                                                           <C>        <C>
Deferred Tax Assets:
  Allowance for loan losses.................................................      7,595      4,740
  Deferred directors compensation...........................................      1,308        395
  Capital loss and tax credit carryforward..................................     --            887
  Other.....................................................................        882      1,520
                                                                              ---------  ---------
    Total gross deferred tax assets.........................................      9,785      7,542
  Less valuation allowance..................................................     --            (61)
                                                                              ---------  ---------
    Net deferred tax assets.................................................      9,785      7,481
                                                                              ---------  ---------
                                                                              ---------  ---------
Deferred Tax Liabilities:
  Deposit base premium......................................................       (736)    (1,007)
  Deferred loan fees and costs..............................................     (1,647)      (992)
  Depreciation..............................................................       (390)      (372)
  Pension...................................................................       (463)      (271)
  Purchase discount.........................................................     (1,255)    (1,369)
  Unrealized gains on securities available-for-sale.........................     (1,307)       (16)
  Other.....................................................................       (321)    (1,273)
                                                                              ---------  ---------
    Total gross deferred tax liabilities....................................     (6,119)    (5,230)
                                                                              ---------  ---------
    Net deferred tax assets.................................................      3,666      2,251
                                                                              ---------  ---------
                                                                              ---------  ---------
</TABLE>
 
    The valuation allowance for deferred tax assets of $61,000 as of 
December 31, 1996 was reduced to zero during 1997 due to the utilization of 
the capital loss carry forward.

                                       59
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 12 EMPLOYEE BENEFITS
 
    The former Pinnacle, IFC and CB entities had various employee benefit
programs for which certain plans have remained in place upon consummation of the
merger transactions on August 1, 1997 and as of December 31, 1997. The details
of each plan are described herein.
 
401(K) PLAN
    The Company sponsors a defined contribution 401(k) plan for the benefit of
former Pinnacle employees. The Company matches employee contributions at levels
dependent upon current operating results. In 1997, 1996, and 1995, the Company
contributions amounted to $128,000, $63,000, and $121,000, respectively.
Employee contributions to the plan are based upon optional percentages (ranging
from 2% to 10%) of before tax compensation.
 
PENSION PLANS
    The Company sponsors a defined benefit pension plan which provides 
benefits to substantially all full time employees of the former Pinnacle 
entity. Benefits under the plan are based on the employees' years of service 
and compensation during the five highest paid plan years of the last ten 
years preceding retirement. The following presents the components of net 
pension income at December 31 of each year.
 
<TABLE>
<CAPTION>
                                                                      1997       1996       1995
                                                                    ---------  ---------  ---------
                                                                            (in thousands)
<S>                                                                 <C>        <C>        <C>
Service cost--benefits earned during the year.....................  $     536  $     463  $     333
Interest cost on projected benefit obligation.....................        379        401        268
Actual return on plan assets......................................       (735)      (923)    (1,093)
Net amortization and deferral.....................................       (157)       144        535
                                                                    ---------  ---------  ---------
  Net pension expense (income)....................................         23  $      85  $      43
                                                                    ---------  ---------  ---------
                                                                    ---------  ---------  ---------
</TABLE>

                                       60
<PAGE> 

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
   The following presents the funded status of the former Pinnacle Bank's plan
and amounts recognized in the consolidated balance sheets at December 31 of each
year.
 
<TABLE>
<CAPTION>
                                                                                      1997       1996       1995
                                                                                    ---------  ---------  ---------
<S>                                                                                 <C>        <C>        <C>
Actuarial present value of projected benefit obligation:
  Accumulated benefit obligation:
    Vested........................................................................  $  (3,754) $  (3,440) $  (2,837)
    Nonvested.....................................................................       (128)      (118)      (109)
  Provision for future salary increases...........................................     (1,976)    (2,580)    (1,969)
                                                                                    ----------  ---------  ---------
  Projected benefit obligation....................................................     (5,858)    (6,138)    (4,915)
Plan assets at fair value.........................................................      8,625      8,048      7,253
                                                                                    ---------  ---------  ---------
Excess of plan assets over projected benefit obligation...........................      2,767      1,910      2,338
Unrecognized net transition asset.................................................       (664)      (731)      (799)
Unrecognized net (gain)loss.......................................................       (498)        16       (259)
Unrecognized prior service cost...................................................       (468)       (35)       (36)
                                                                                    ---------  ---------  ---------
Prepaid pension cost, included in other assets....................................      1,137      1,160      1,244
                                                                                    ---------  ---------  ---------
                                                                                    ---------  ---------  ---------
Major assumptions used:
  Discount rate...................................................................       7.50%      7.50%      7.75%
  Rate of increase in compensation levels.........................................       5.50%      5.50%      6.00%
  Expected long-term rate on plan assets..........................................      10.00%     10.00%     10.00%
</TABLE>
 
    The plan assets are invested primarily in a collective investment trust at
December 31, 1997, 1996, and 1995.
 
    The Company is also a part of a multi-employer defined benefit pension plan
covering substantially all former CB employees. The plan is administered by the
directors of the Financial Institutions Retirement Fund. There is no separate
actuarial valuation of plan benefits nor segregation of plan assets specifically
for the Company. As of June 30, 1997, the latest actuarial valuation, the total
plan assets exceeded the actuarially determined value of total vested benefits.
The plan was terminated and assets transferred to participants in 1997. There
was no pension plan expense or contribution for the years ended December 31,
1997, 1996, and 1995. The administrative cost of the plan is charged to expense
and amounted to $1,600, 1,052, and $4,815 for the years ended December 31,
1997, 1996, and 1995, respectively.

                                       61
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
    The Company has a Retiree Medical Plan which provides a portion of 
retiree medical care premiums for certain former Pinnacle employees. The 
Company's level of contribution is based on age and service formula which 
provides benefits to substantially all retired participants until December 
31, 1997 and will provide benefits to active participants in a 100% co-pay 
basis until age 65. The components of the 1997, 1996 and 1995 net periodic 
postretirement benefit cost are shown below:
 
<TABLE>
<CAPTION>
                                                                                1997         1996         1995
                                                                                -----        -----        -----
                                                                                        (in thousands)
<S>                                                                          <C>          <C>          <C>
Service cost...............................................................    $ --        $   --       $   --
Interest cost..............................................................          13           19           21
Net amortization and deferral..............................................          23           33           33
                                                                                    ---          ---          ---
Net periodic postretirement benefit cost...................................          36    $      52    $      54
                                                                                    ---          ---          ---
                                                                                    ---          ---          ---
</TABLE>
 
    The funded status of the plan and the amounts recognized in the consolidated
balance sheets are shown below:
 
<TABLE>
<CAPTION>
                                                                          1997       1996       1995
                                                                        ---------  ---------  ---------
                                                                                (in thousands)
<S>                                                                     <C>        <C>        <C>
Retired participants and beneficiaries................................  $    (160) $    (248) $    (281)
Active participants...................................................     --         --         --
                                                                        ---------  ---------  ---------
  Accumulated postretirement benefit obligation.......................       (160)      (248)      (281)
Plan assets at fair value.............................................     --         --         --
Excess of accumulated postretirement benefit obligation over plan
  assets..............................................................       (160)      (248)      (281)
Unrecognized transition obligation....................................        160        193        226
Unrecognized loss(gain)...............................................        (61)        (6)         2
                                                                        ---------  ---------  ---------
  Accrued postretirement benefit obligation...........................  $     (61) $     (61) $     (53)
                                                                        ---------  ---------  ---------
                                                                        ---------  ---------  ---------
</TABLE>
 
    For measurement purposes, a 8.00%, 9.00%, and 10.00% annual rate of 
increase in the per capita cost of covered benefits (health care cost trend 
rate) was assumed for 1997, 1996, and 1995, respectively; the rate was 
further assumed to decline to 4.00% after 7 years. The health care cost trend 
rate assumption has an increasing effect on the amounts reported. For 
example, increasing the assumed health care cost trend rates by one 
percentage point in each year would increase the accumulated postretirement 
benefit obligation by $18,500 and $25,000 and the aggregate of the service and 
interest cost components of net periodic postretirement benefit cost by 
$1,000, $2,000 and $2,000 for years ended December 31, 1997, 1996 and 1995, 
respectively. The weighted average discount rate used in determining the 
accumulated postretirement benefit obligation was 7.50% for December 31, 
1997 and 1996, and 7.25% for December 31, 1995.

                                       62 

<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
SUPPLEMENTAL RETIREMENT PLANS
 
    The Company maintains a supplemental retirement plan for executives of 
the former CB entity. The plan requires acceleration of funding of benefits 
upon change of control of the former CB entity into the secular trusts 
already established. The cost of the plan charged to expense was $265,000 for 
the year ended December 31, 1997 which included the payments to fund the 
remaining liability under the plan as the merger transaction as described in 
Note 3 met the change in control provisions per the agreement. The cost of 
the plan charged to expense was $39,000 and $44,000 for the years ended 
December 31, 1996 and 1995, respectively. The Company has purchased 
corporate-owned life insurance to partially fund its obligation under this 
plan. The accrued liability to the company was $0 at December 31, 1997 and 
1996.

    The Company also maintains a supplemental retirement plan for certain 
senior executives of the former IFC entity. The plan requires acceleration of 
funding of benefits upon change of control of the former IFC entity for 
certain executives. The cost of the plan charged to expense was $$1,157,000 
for the year ended December 31, 1997 which included the payments to fund the 
remaining liability under the plan for certain executives as the merger 
transaction described in Note 3 met the change in control provisions per the 
agreement as well as the annual, actuarially determined amounts for the 
remaining IFC executives. The cost of the plan charged to expense was  
$230,000 and $25,000 for the years ended December 31, 1996 and 1995, 
respectively. The Company has purchased corporate-owned life insurance to 
partially fund its obligation under this plan. The accrued liability to the 
Company was $1,387,000 and $230,000 at December 31, 1997 and 1996, 
respectively.
 
EMPLOYEE STOCK OWNERSHIP PLANS

    The Company has established a leveraged Employee Stock Ownership Plan 
("ESOP") in which all former IFC employees who attain minimum age and service 
requirements are eligible to participate. The Company recorded compensation 
expense related to the plan of $724,335 , $278,000, and $407,000 for the 
years ended December 31, 1997, 1996, and 1995, respectively. The Company's 
1997 contribution to the ESOP was $257,995 compared to $350,350 in 1996 and 
$382,628 in 1995. The ESOP plan was terminated in 1997 upon repayment of the 
ESOP loan and allocation of all remaining shares to participants.

                                       63
<PAGE> 

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
    At December 31, 1997 and 1996, the outstanding ESOP loan balance was
$0 and $203,096, respectively. The interest incurred on the ESOP loan
amounted to $7,507 in 1997, $18,950 in 1996, and $31,250 in 1995. 
Dividends paid on the unallocated ESOP shares totaled $14,536 in 1997, $45,519
in 1996, and $50,023 in 1995. The table below summarizes shares of Company Stock
held by the ESOP.
 
<TABLE>
<CAPTION>
                                                                December 31,
                                                            --------------------
                                                              1997       1996
                                                            ---------  ---------
<S>                                                         <C>        <C>
Shares allocated to participants..........................    225,549    185,171
                                                            ---------  ---------
Unallocated shares:
  Grandfathered under SOP 93-6............................     --         10,672
  Unearned ESOP shares....................................     --         29,706
                                                            ---------  ---------
    Total.................................................     --        225,549
                                                            ---------  ---------
</TABLE>
 
    The Company also maintains an ESOP in which all former CB employees who 
attain minimum age and service requirements are eligible to participate. The 
Company recorded compensation expense of $192,634 for the year ended December 
31, 1997 and $64,211 for each of the years ended December 31, 1996 and 1995. 
The Company's contribution to the ESOP was $208,686, $82,993, and $88,772 for 
the years ended December 31, 1997, 1996, and 1995, respectively. The ESOP 
plan was terminated in 1997 upon repayment of the ESOP loan and the 
allocation of all remaining shares to participants. At December 31, 1997 and 
1996, the outstanding ESOP loan balance was $0 and $176,852, respectively. 
The interest incurred on the ESOP loan amounted to $16,052, $18,782, and 
$24,561 for the years ended December 31, 1997, 1996, and 1995, respectively. 
The table below summarizes shares of Company stock held by the ESOP.
 
<TABLE>
<CAPTION>
                                                               1997       1996
                                                             ---------  ---------
<S>                                                          <C>        <C>
Shares allocated to participants...........................    108,729     62,260
Unallocated shares.........................................     --         46,469
                                                             ---------  ---------
 ..........................................................      --        108,729
                                                             ---------  ---------
                                                             ---------  ---------
</TABLE>

                                       64
<PAGE> 

PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
RECOGNITION AND RETENTION PLANS
 
    The Company has established the Recognition and Retention Plans (RRP) as 
a method of providing directors, officers and other key employees of the 
former CB entity with a proprietary interest in the Company in a manner 
designed to encourage such persons to remain with the Company. The terms of 
each RRP will be identical, only the participants and the number of shares 
awarded to each participant vary. Eligible directors, officers and other key 
employees of the Company will earn (i.e., become invested in) shares of 
common stock covered by the award at a rate of 20% per year. The Company 
contributed funds to the RRP to enable the Plans to acquire in the aggregate 
46,600 shares of common stock. An expense of $7,705, $16,475, and $26,968 was 
recorded for these Plans for the years-ended December 31, 1997, 1996, and 
1995.
 
DIRECTORS COMPENSATION PLANS
 
    The Company sponsors a stock-based deferred compensation plan for 
directors of the former IFC entity, in which directors can defer fees and 
purchase phantom units of the Company's common stock at $11.63. The amount 
charged to expense related to this plan was $925,497, $156,839, and $162,199, 
in 1997, 1996, and 1995, respectively. At December 31, 1997, the directors 
had purchased 38,523 phantom units of which 6,629 were purchased in 1997.
 
    The Company also sponsors a deferred compensation plan for its Board of 
Directors of the former CB entity. Under the terms of the plan, directors may 
elect to defer a portion of their fees which would be retained by the Company 
with interest being credited to the participant's deferred balance. The plan 
was terminated on August 1, 1997 and directors were paid their accumulated 
deferred balance which approximated $267,000.
 
    The former CB Board of Directors adopted the Outside Directors' 
Consultation and Retirement Plan (the "Directors' Consultation Plan"). The 
purpose of the Directors' Consultation Plan is to provide possible retirement 
benefits to directors who are not officers or employees of the former CB 
entity to ensure that the Company will have their continued service and 
assistance, if annually contracted for by the Board of Directors in the 
conduct of the Company's business in the future. Effective April 1, 1996, the 
Board of Directors of the Company approved the Outside Director's Emeritus 
Plan (the "Directors' Emeritus Plan) to replace the Outside Directors' 
Consultation and Retirement Plan. The purpose of the Directors' Emeritus Plan 
is to ensure that the Company may, if the Board so desires, have the 
continued service and assistance of directors who are not officers or 
employees of the Company in the conduct of the Company's business in the 
future. 

                                       65
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The resulting liability from the Directors' Emeritus Plan approximates the 
liability accrued under the Directors' Consultation Plan. An expense of 
approximately $18,000, 33,000 and $37,000 was recorded for these plans for 
the years ended December 31, 1997, 1996 and 1995, respectively. The 
Directors' Emeritus Plan was terminated in 1997 and final payment of $240,000 
was made to the directors. Therefore, the  resulting liability to the Company 
was approximately $0 and $244,000 at December 31, 1997 and 1996, respectively.
 

                                       66
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 STOCK OPTION PLANS

    At Pinnacle's 1993 Annual Stockholders Meeting, a non-qualified stock 
option plan (the "Plan") was presented to and approved by the stockholders of 
the Company. The Compensation Committee of the Board of Directors, none of 
whom is eligible to participate in the Plan, awarded certain key employees 
options to purchase shares of the Company's common stock at an exercise price 
which approximates the fair market value at the date of grant. All stock 
options have five year terms and vest and become fully exercisable after five 
years from date of grant. The Board of Directors of the former CB entity has 
adopted the CB Bancorp, Inc. 1992 Stock Option Plan for outside directors 
(the Directors' Plan") of the former CB entity. Options for the purchase of 
shares of common stock are authorized under the Directors' Plan. The option 
exercise price must be at least 100% of the fair market value of the common 
stock on the date of the grant, and the option term cannot exceed 10 years. 
Eligible directors may exercise 100% of the options awarded to them.

    The Company also awards incentive and non-qualified stock options to 
certain former directors, officers and key employees. All options granted 
have 10 year terms and vest and become fully exercisable over a 5 year period 
from the grant date.

                                       67
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    A summary of the Company's stock options activity and related information 
for the year ended December 31, is as follows:

<TABLE>
<CAPTION>

                                                                          1997                  1996                  1995
                                                                  --------------------  --------------------  --------------------
                                                                       Wtd. Avg.              Wtd. Avg              Wtd. Avg.
                                                                        Exercise              Exercise              Exercise
                                                                  -------------------   --------------------  --------------------
                                                                   Options      Price    Options     Price     Options      Price
                                                                  ---------   --------  ---------   --------  ---------    -------
<S>                                                               <C>         <C>       <C>         <C>       <C>         <C>
Outstanding--beginning of year..................................    537,499      14.14    499,921      11.54    491,327       8.78
  Granted.......................................................    100,000      29.15    121,750      20.90    153,750      16.85
  Exercised.....................................................    471,168      16.86     61,311       6.37    105,239       6.05
  Forfeited or canceled.........................................     11,040      19.59     22,860      13.99     39,917      12.48
  Outstanding--end of year......................................    155,291      15.17    537,499      14.14    499,921      11.54
  Exercisable--end of year......................................    155,291      15.17    288,912      11.32    253,738       9.21
</TABLE>

    At December 31, 1997, the range of exercise prices and weighted average 
remaining contractual life of outstanding options was $4.62 to $21.16 and 
6.0 years, respectively.

    The Company applies APB Opinion No. 25 in accounting for its Plan and, 
accordingly, no compensation cost has been recognized for its stock options 
in the financial statements. Proforma information regarding net income and 
net income per share has been determined under a fair value method. The per 
share weighted-average fair value of stock options granted during 1997, 1996 
and 1995 was $6.63, $4.80, and $3.99, respectively. The fair value for these 
options was estimated at the date of grant using a Black-Scholes option 
pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>

                                            1997          1996          1995
                                            ----          ----          ----
<S>                                         <C>           <C>           <C>

Risk Free Interest rate                     6.50%         6.50%         6.50%
Dividend yield                              3.75%         3.75%         3.75%
Volatility                                  .306%         .341%         .341%
Expected Option life                    3.5 years     3.5 years     3.5 years

</TABLE>

    For purposes of pro forma disclosures, if the estimated fair value of the 
options is  amortized to expense over the options' vesting period, the effect 
on net income would be (in thousands, except per share data):

<TABLE>
<CAPTION>

                                            1997          1996          1995
                                           ------        ------        ------
<S>                                        <C>           <C>           <C>

Net income
   As reported                            $10,216       $16,087       $16,221
   Pro forma                                9,539        15,699        15,853
Basic earnings per share
   As reported                            $   .83          1.32          1.60
   Pro Forma                                  .78          1.30          1.55
Diluted earnings per share
   As reported                            $   .83          1.32          1.58
   Pro forma                                  .78          1.29          1.55

</TABLE>

   Pro forma net income and earnings per share reflect only options granted 
since December 31, 1994. Therefore, the full impact of calculating 
compensation cost for stock options under SFAS No. 123 is not reflected in 
pro forma net income and earnings per share presented above because 
compensation cost is reflected over the options' vested period of generally 
five years and compensation cost for options granted prior to January 1995 is 
not considered.

    The following table reconciles the denominators for basic and diluted net 
income per share:

<TABLE>
<CAPTION>

                                           1997          1996          1995
                                        ----------    ----------    ----------
<S>                                     <C>           <C>           <C>

Denominator
   For basic net income
      per share--average shares
      outstanding                       12,258,265    12,051,935    10,137,302
   Effect of dilutive securities--
      stock options                         53,692       119,286       107,024
   For diluted net income per
      share--average shares
      outstanding after assumed
      conversions                       12,311,957    12.171,221    10,244,326

</TABLE>

    There were no dilutive securities for the years ended December 31, 1997, 
1996, and 1995 in calculating the numerator for basic and diluted net income 
per share.

                                       68
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 14 SUPPLEMENTARY INCOME STATEMENT INFORMATION

    Other than the items listed below, other noninterest income and other 
noninterest expenses did not include any accounts that exceeded 1% of total 
revenue, which is the sum of total interest income and total noninterest 
income.

<TABLE>
<CAPTION>
                                                                                         1997       1996       1995
                                                                                       ---------  ---------  ---------
                                                                                               (in thousands)
<S>                                                                                    <C>        <C>        <C>
Other noninterest income:
  Service charges on deposit accounts................................................  $   5,279  $   4,341  $   3,653
  Trust fees.........................................................................        912        789        605
  Recoveries on distressed assets....................................................        479        250        296
  Gain on sale of loans, net.........................................................      3,411      1,019        545
  Merchant & loan servicing fees.....................................................      1,627      1,716      1,326
  Fees related to mortgage loans purchased under agreements to resell................      1,135        689        369
  Brokerage fees.....................................................................      1,927      1,982      1,263

Other noninterest expense:
  Salaries and benefits..............................................................     23,858     21,690     17,599
  Occupancy..........................................................................      4,638      4,123      3,076
  Equipment..........................................................................      3,748      3,473      2,813
  Professional and legal fees........................................................      2,486      1,969      1,257
  Amortization of intangibles........................................................      2,021      2,037      1,269
  FDIC Insurance.....................................................................        681      7,858      1,965
  Supplies...........................................................................      1,573      1,434        973
  Postage............................................................................      1,378      1,202        900
  Marketing and promotion............................................................      1,982      2,244      1,469
  Computer processing................................................................      1,934      1,972      1,702
  Restructuring charges..............................................................     11,508     --         --
  Director Fees......................................................................      1,864        702        566
</TABLE>

NOTE 15 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

    The Company is a party to financial instruments with off-balance sheet 
risk in the normal course of business to meet the financing needs of its 
customers. These financial instruments are loan commitments to extend credit 
and letters of credit. Those instruments involve, to varying degrees, 
elements of credit risk in excess of the amounts recognized in the 
consolidated balance sheets. The contract amount of these instruments 
reflects the extent of involvement the Company has in these financial 
instruments.

    The following presents financial instruments with off-balance sheet risk 
at December 31 of each year.

<TABLE>
<CAPTION>
                                                                                               1997        1996
                                                                                            ----------  ----------
                                                                                                (in thousands)
<S>                                                                                         <C>         <C>
Financial instruments whose contract amounts represent potential credit risk 
   Commitments to extend credit...........................................................  $  131,609  $  148,826
Letters of credit.........................................................................      24,477       5,660
Undisbursed construction loans in repurchase program......................................      11,582      12,419
</TABLE>

                                       69
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Loan commitments to extend credit are agreements to lend to a customer as 
long as there is no violation of any condition established in the contract. 
Commitments generally have fixed expiration dates or other termination 
clauses and may require payment of a fee. Since many of the commitments are 
expected to expire without being drawn upon, the total commitment amounts do 
not necessarily represent future cash requirements. The Company evaluates 
each customer's credit worthiness 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 counter party. 
Collateral held varies but may include accounts receivable, inventory, 
property, plant and equipment, and income-producing commercial properties.

    Letters of credit written are conditional commitments issued by the 
Company to guarantee the performance of a customer to a third party. All 
letters of credit are short-term guarantees of one year or less. The credit 
risk involved in issuing letters of credit is essentially the same as that 
involved in extending loans to customers. The Company has a secured interest 
in various assets as collateral supporting those commitments for which 
collateral is deemed necessary. The extent of collateral held on those 
commitments at December 31, 1997 and 1996 is in excess of the committed 
amount.

NOTE 16 PARENT COMPANY FINANCIAL INFORMATION

CONDENSED PARENT COMPANY ONLY BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                 December 31
                                                                                            ----------------------
                                                                                               1997        1996
                                                                                            ----------  ----------
                                                                                                (in thousands)
<S>                                                                                         <C>         <C>
ASSETS
  Cash and due from banks.................................................................  $    9,901  $    2,121
  Interest-bearing deposits with financial institutions...................................      --           6,076
  Securities available for sale...........................................................      --             217
  Investment in subsidiaries..............................................................     161,882     157,014
  Note receivable.........................................................................      --           1,450
  Other assets............................................................................      13,471       5,433
                                                                                            ----------  ----------
    TOTAL ASSETS..........................................................................  $  185,254  $  172,311
                                                                                            ----------  ----------
                                                                                            ----------  ----------
LIABILITIES
  Notes payable and other liabilities.....................................................  $    4,259  $    2,052
STOCKHOLDERS' EQUITY
  Common stock............................................................................      19,110      19,110
  Additional paid-in capital..............................................................      78,094      78,192
  Retained earnings.......................................................................      81,764      83,599
  Treasury stock at cost..................................................................      --         (10,304)
  Guaranteed ESOP obligation..............................................................      --            (379)
  Recognition and retention plan obligation...............................................      --              (4)
  Net unrealized gain on securities available-for-sale....................................       2,027          45
                                                                                            ----------  ----------
    Total stockholders' equity............................................................     180,995     170,259
                                                                                            ----------  ----------
    Total liabilities and stockholders' equity............................................  $  185,254  $  172,311
                                                                                            ----------  ----------
                                                                                            ----------  ----------
</TABLE>

                                       70
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 16 PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

CONDENSED PARENT COMPANY ONLY STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                      Years Ended December 31,
                                                                                   -------------------------------
                                                                                     1997       1996       1995
                                                                                   ---------  ---------  ---------
                                                                                            (in thousands)
<S>                                                                                <C>        <C>        <C>
Income
  Dividends from subsidiaries....................................................  $  12,805  $  14,445  $  27,522
  Interest and other income......................................................      1,933      1,200        414
                                                                                   ---------  ---------  ---------
    Total income.................................................................     14,738     15,645     27,936
                                                                                   ---------  ---------  ---------
Expenses
  Salaries and benefits..........................................................        907        290        222
  Other operating expenses.......................................................      7,137      1,492      1,115
                                                                                   ---------  ---------  ---------
    TOTAL EXPENSES...............................................................      8,044      1,782      1,337
                                                                                   ---------  ---------  ---------
Income before income tax benefit and undistributed earnings of subsidiaries......      6,694     13,863     26,599
Income tax benefit...............................................................       (947)      (210)      (342)
Equity in undistributed earnings of subsidiaries.................................      2,575      2,014    (10,720)
                                                                                   ---------  ---------  ---------
  NET INCOME.....................................................................  $  10,216  $  16,087  $  16,221
                                                                                   ---------  ---------  ---------
</TABLE>

                                       71
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16 PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

CONDENSED PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                      Years Ended December 31,
                                                                                   -------------------------------
                                                                                     1997       1996       1995
                                                                                   ---------  ---------  ---------
<S>                                                                                <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.....................................................................  $  10,216  $  16,087  $  16,221
  Equity in undistributed earning of subsidiaries................................     (2,575)    (2,014)    10,720
  Other, net.....................................................................    (12,137)    (1,188)    (1,056)
                                                                                   ---------  ---------  ---------
    NET CASH PROVIDED BY OPERATING ACTIVITIES....................................     (4,496)    12,885     25,885
                                                                                   ---------  ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Net decrease (increase) in interest-bearing deposits with financial
    institutions.................................................................      6,076     18,108    (17,610)
  Purchase acquisition, net of cash..............................................         --         --    (28,219)
  Borrow funds to IndFed Mortgage Company........................................         --         --       (950)
  Purchase preferred stock of Forrest Holdings, Inc..............................         --     (2,500)        --
  Purchase common stock of IFB Investment Services, Inc..........................         --       (100)      (100)
  Purchase common stock of IndFed Mortgage Company...............................         --         --     (1,000)
  Purchase of available-for-sale securities......................................         --       (507)       (35)
  Proceeds from paydowns of available-for-sale securities........................         --         27         27
  Proceeds from sales and maturities of available-for-sale securities............      1,089         --         --
                                                                                   ---------  ---------  ---------
    NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES.............................      7,165     15,028    (47,887)
                                                                                   ---------  ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of treasury stock.......................................  $     425         --         --
  Proceeds from issuance of common stock.........................................      7,436        662     13,821
  Purchase of treasury shares at cost............................................         --       (613)      (957)
  Contribution to fund ESOP......................................................        379        211        125
  (Repayments) Proceeds from short-term borrowings...............................        396    (18,000)    18,000
  Dividends paid.................................................................     (9,550)    (8,590)    (6,826)
  Redemption of shareholders' rights plan........................................        (48)        --         --
  Cash paid for fractional shares................................................         (4)        --         --
                                                                                   ---------  ---------  ---------
    NET CASH USED (PROVIDED) BY FINANCING ACTIVITIES.............................       (966)   (26,330)    24,163
                                                                                   ---------  ---------  ---------
Net increase in cash and cash equivalents........................................      1,703      1,583      2,161
Cash and cash equivalents at beginning of year...................................      8,198      6,615      4,454
                                                                                   ---------  ---------  ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.........................................     $9,901  $   8,198  $   6,615
</TABLE>

                                       71
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 17 DIVIDENDS FROM HOLDING COMPANY
 
    The Company is a legal entity separate and distinct from its subsidiaries.
Substantially all of the Company's revenues result from dividends paid to it by
its subsidiaries and from earnings on investments. There are statutory and
regulatory requirements applicable to the payment of dividends by Pinnacle Bank
as well as by the Company to its stockholders. Under the foregoing dividend
restrictions, Pinnacle Bank, without obtaining government approvals, could
declare aggregate dividends in 1997 of approximately $33.2 million.
 
NOTE 18 COMMITMENTS AND CONTINGENT LIABILITIES
 
    There are various other matters of litigation pending against the Company 
that have arisen during the normal course of business. Management is 
vigorously defending themselves in all matters. Management believes that the 
impact to the financial statements resulting from the ultimate resolution of 
these matters will not be significant.

                                       73
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 19 SUBSEQUENT EVENT- PENDING ACQUISITION
 
    On October 14, 1997, the Company entered into a definitive agreement to 
sell the Company to CNB Bancshares, Inc. (CNB) of Evansville, Indiana ($4.4 
billion in total assets). The fixed exchange ratio is 1.0365 shares of CNB 
Common Stock issued for each share issued and outstanding of Pinnacle Common 
Stock, and it is anticipated to be accounted for using the 
pooling-of-interests method of accounting. The sale is subject to shareholder 
approval and is expected to close in the second quarter of 1998.

                                       73
<PAGE>

                    SELECTED QUARTERLY FINANCIAL INFORMATION
 
<TABLE>
<CAPTION>
                                                             March 31           June 30       September 30      December 31
                                                            -----------       -----------      ------------     ------------
<S>                                                         <C>               <C>               <C>              <C>
                                                                    (in thousands, except per share data stock prices)
1997
Interest income...........................................       40,071           41,590           42,671           42,740
Net interest income.......................................       18,130           18,475           18,953           20,028
Provision for loan losses.................................          805              865           10,850              800
Income before income tax expense..........................        8,957            9,134          (10,172)           7,556
Net income................................................        5,996            5,955           (7,081)           5,346
 
Net income per share...................................... $       0.49     $        .49           ($0.58)    $       0.43
 
Stock price range......................................... $ 23.25-28.00    $ 25.13-29.00    $28.50-36.00     $35.00-49.38
 
1996
Interest income...........................................       34,646           35,649           37,452           40,156
Net interest income.......................................       16,118           16,651           17,383           18,152
Provision for loan losses.................................          241              520              810            1,110
Income before income tax expense..........................        6,925            6,329            2,637            7,639
Net income................................................        4,788            4,208            2,057            5,034
 
Net income per share...................................... $       0.39     $       0.35        $    0.17        $    0.41
 
Stock price range......................................... $17.75-20.50     $20.00-21.75     $19.50-24.75     $23.25-25.00
</TABLE>
 
                                       75
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
  ACCOUNTING AND FINANCIAL
  DISCLOSURE.
 
    None.

                                       76
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    As of March 20, 1998, the directors and executive officers of Pinnacle are
as indicated in the following table. The table also indicates the positions held
by such persons at Pinnacle Bank.
 
<TABLE>
<CAPTION>
Name                                   Age            Pinnacle Position(s)             Pinnacle Bank Position(s)
----------------------------------     ---     ----------------------------------  ----------------------------------
<S>                                 <C>        <C>                                 <C>
John P. Cunningham................  60         Director                            Director
 
Terrence A. Friedman..............  60         Director                            Director
 
Joseph F. Heffernan...............  62         Director                            Director, President of Mortgage
                                                                                   Repurchasing Division
 
James E. Hutton...................  59         Director                            Director
 
Donald A. Lesch...................  47         Director, President and Chief       Director
                                               Operating Officer
 
Richard L. Schanze................  57         Director, Chairman and Chief        Director, Chairman and Chief
                                               Executive Officer                   Executive Officer
 
Howard Silverman..................  59         Director                            Director
 
Arnold L. Weaver..................  52         Director                            Director, President and Chief
                                                                                   Operating Officer
 
Alton C. Wendzel..................  67         Director                            Director
 
Fred A. Wittlinger................  56         Director                            Director
 
Barbara A. Young..................  48         Director                            Director
 
Donald E. Radde...................  45         Executive Vice President and        Director, Executive Vice
                                               Secretary                           President, Chief Lending Officer
                                                                                   and Secretary
 
David W. Kolhagen.................  40         Senior Vice President and           Senior Vice President and Chief
                                               Treasurer                           Financial Officer
 
John A. Newcomer..................  46         Vice President and Corporate        Vice President and Corporate
                                               Affairs Officer                     Affairs Officer
</TABLE>
 
    John P. Cunningham is a director of both Pinnacle and Pinnacle Bank. He also
is a member of the Audit Committee, Retirement Committee, the Compensation
Committee and the Merger and Acquisition Committee of the Pinnacle Board. He is
also a member of the Audit Committee, the Retirement Committee, the Merger and
Acquisition Committee and the Compensation Committee of the Board of Directors
of Pinnacle Bank. He is currently the President and Chief Executive Officer of
Boston Optical Fiber, Inc., a manufacturer of plastic optical fiber. Prior to
1998, he was the Chief Financial Officer of Whirlpool Corporation, a
publicly-held appliance manufacturer with securities listed on the New York
Stock Exchange. In 1995 he was the Chief Financial Officer of Maytag, a
publicly-held appliance manufacturer with securities listed on the New York
Stock Exchange. Prior to that time he was the Controller of IBM, a publicly-held
company with securities listed on the New York Stock Exchange.
 
    Terrence A. Friedman is a director of both Pinnacle and Pinnacle Bank and is
a member of the Compensation Committee and the Merger and Acquisition Committee
of the Board of Directors of Pinnacle. He is also a member of the Executive
Committee, the Compensation Committee, the Merger and Acquisition Committee and
the Loan Review Committee of the Board of Directors of Pinnacle Bank. He is
currently the Chairman of Trelleborg-YSH, Inc., a manufacturer of rubber
components primarily for the auto industry.
 
    Joseph F. Heffernan has been a director of both Pinnacle and Pinnacle Bank,
and the President of the Mortgage Repurchasing Division of Pinnacle Bank, since
August 1, 1997. Prior thereto, Mr. Heffernan was the Chairman of the Board,
President and Chief Executive Officer of CB Bancorp, Inc. and Community Bank. He
is a member of the Merger

                                       77
<PAGE>

and Acquisition Committee and the Strategic Planning Committee of the Pinnacle
Board. He is also a member of the Merger and Acquisition Committee and the
Strategic Planning Committee of the Board of Directors of Pinnacle Bank.
 
    James E. Hutton has been a director of both Pinnacle and Pinnacle Bank since
August 1, 1997. He is a member of the Audit Committee, the Retirement Committee
and the Compensation Committee of the Pinnacle Board. He is also a member of the
Executive Committee, the Audit Committee, the Retirement Committee and the
Compensation Committee of the Board of Directors of Pinnacle Bank. Since June
1993, Mr. Hutton has served as Vice President in charge of operations for
Burrell Professionals Labs, Inc., a professional photo processing company with
operations throughout the United States. Prior thereto, Mr. Hutton was Managing
Partner of the Northern Indiana office of Geo. S. Olive and Co., an accounting
firm. Mr. Hutton is a certified public accountant.
 
    Donald A. Lesch has been a director of both Pinnacle and Pinnacle Bank, and
the Vice Chairman, President and Chief Operating Officer of Pinnacle, since
August 1, 1997. He is an ex-officio member of all of the committees of the
Pinnacle Board. He is also a member of the Executive Committee, and an ex-
officio member of all of the committees of the Board of Directors of Pinnacle
Bank. Prior thereto, Mr. Lesch was the Chairman of the Board of IFC and IndFed
Bank since June 1, 1993. He became Chief Executive Officer of both of those
entities in 1996. Prior thereto, Mr. Lesch was an investor and consultant to
Gough and Lesch Development Corporation, a real estate development company
located in Merrillville, Indiana.
 
    Richard L. Schanze is a director of both Pinnacle and Pinnacle Bank and is
an ex-officio member of all of the committees of the Board of Directors of
Pinnacle, and a member of the Executive Committee and an ex-officio member of
all of the committees of the Board of Directors of Pinnacle Bank. He is
currently the Chairman and Chief Executive Officer of Pinnacle and the Chairman
and Chief Executive Officer of Pinnacle Bank.
 
    Howard Silverman has been a director of both Pinnacle and Pinnacle Bank
since August 1, 1997. He is a member of the Merger and Acquisition Committee and
the Strategic Planning Committee of the Pinnacle Board. He is also a member of
the Merger and Acquisition Committee and the Strategic Planning Committee of the
Board of Directors of Pinnacle Bank. Mr. Silverman is Chairman of the Board of
Directors of Reliance Acceptance Group, Inc., a specialty consumer finance
company, since the split-off of its subsidiary bank in February 1997. On
February 9, 1998, Reliance Acceptance Group, Inc. filed for bankruptcy under
Chapter 11 of the United States Bankruptcy Code. He has also been Chairman of
the Board of Reliance Acceptance Corporation, its operating subsidiary, since
its incorporation in 1992. For more than five years, Mr. Silverman has also been
President of Silverman and Associates, a consulting firm furnishing services to
businesses and financial institutions which provided services to Indiana Federal
Corporation, which was merged into Pinnacle effective August 1, 1997. During his
earlier career, he served as Chairman and Executive Officer of a multi-bank and
financial services company, which included a finance company subsidiary, and as
President of a securities broker/dealer. Mr. Silverman is also a director of
Forrest Holdings, Inc. which owns and operates Forrest Financial Corporation, a
leasing company that provides financing solutions for the acquisition of
information systems.
 
    Arnold L. Weaver is a director of both Pinnacle and Pinnacle Bank and is an
ex-officio member of all of the committees of the Board of Directors of
Pinnacle, and a member of the Executive Committee and an ex-officio member of
all of the committees of the Board of Directors of Pinnacle Bank. He is
currently the Vice Chairman of Pinnacle and the President and Chief Operating
Officer of Pinnacle Bank.
 
    Alton C. Wendzel is a director of both Pinnacle and Pinnacle Bank and is 
a member of the Audit Committee and the Strategic Planning Committee of the 
Board of Directors of Pinnacle. He is also a member of the Audit Committee, 
Strategic Planning Committee and the Loan Review Committee of the Board of 
Directors of Pinnacle Bank. He is currently the President of Greg Orchards 
and Produce, Inc. and Coloma Frozen Foods, Inc., processors of fresh and 
frozen producer.
 
    Fred A. Wittlinger has been a director of both Pinnacle and Pinnacle Bank
since August 1, 1997. He also is a member of the Audit

                                       78
<PAGE>

Committee and the Merger and Acquisition Committee of the Pinnacle Board. He is
a member of the Audit Committee and the Merger and Acquisition Committee of the
Board of Directors of Pinnacle Bank. Since 1988, Mr. Wittlinger has served as
President and Chief Executive Officer of United Consumers Club, Inc., a consumer
buying club franchising corporation located in Merrillville, Indiana.

    Barbara A. Young has been a director of both Pinnacle and Pinnacle Bank
since August 1, 1997. She is a member of the Compensation Committee and the
Retirement Committee of the Pinnacle Board. She is also a member of the
Compensation Committee, the Retirement Committee and the Risk Management
Committee of the Board of Directors of Pinnacle Bank. Since January 1, 1994, Ms.
Young has served as President of Benchmark LTD, a real estate development
company located in Valparaiso, Indiana. Prior thereto, Ms. Young was an attorney
with the law firm of Hoeppner, Wagner & Evans, located in both Valparaiso and
Merrillville, Indiana.
 
    Donald E. Radde is an Executive Vice President and the Secretary of
Pinnacle. He is also a Director, an Executive Vice President, Chief Lending
Officer and Secretary of Pinnacle Bank.
 
    David W. Kolhagen is a Senior Vice President and the Treasurer of Pinnacle
and a Senior Vice President and the Chief Financial Officer of Pinnacle Bank.
 
    John A. Newcomer is a Vice President and the Corporate Affairs Officer of
Pinnacle and of Pinnacle Bank.
 
    Directors of Pinnacle are elected annually by the stockholders of Pinnacle.
Executive officers of Pinnacle are appointed by the Pinnacle Board and serve
until their successors are appointed and qualified. No director or executive
officer of Pinnacle or Pinnacle Bank is related to any other director or to any
executive officer of Pinnacle or of any of its subsidiaries by blood, marriage
or adoption, and there are no arrangements or understandings between a director
or executive officer and any other person pursuant to which such person was
elected a director or executive officer of Pinnacle or any of its subsidiaries.

                                       79
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION
 
SUMMARY COMPENSATION TABLE.
 
    The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to each of the five
most highly compensated executive officers and/or employees of Pinnacle and its
subsidiaries (the "Named Pinnacle Executives") for the last three completed
fiscal years whose salary and bonus exceeded $100,000.

<TABLE>
<CAPTION>
                                       Annual Compensation
                                 --------------------------------
                                                    Other Annual
Name and                         Salary    Bonus    Compensation
Principle Position         Year    ($)      ($)       ($) (1)
-------------------------  ----  -------  -------  --------------
<S>                        <C>   <C>      <C>      <C>
 
Richard L. Schanze.......  1997  325,000  300,000    1,403,481
  Chairman/CEO             1996  288,875  225,000       23,000
                           1995  242,420  180,000       17,800
 
Donald A. Lesch..........  1997  275,000  427,000      564,608
  President/COO            1996  168,427    --         --
                           1995  139,992    --         --
 
Arnold L. Weaver.........  1997  225,000  125,000    1,031,405
  President/COO of         1996  208,875   75,000       23,000
  Pinnacle Bank            1995  167,200   70,000       17,800
 
Donald E. Radde..........  1997  170,000   45,000      762,711
  Exec. Vice President     1996  132,875   40,000      --
                           1995  106,620   28,000      --
 
David W. Kolhagen........  1997  145,000   40,000      696,021
  Senior Vice              1996   97,375   35,000      --
  President/CFO            1995   82,280   30,000      --
 
<CAPTION>
                                               Long Term     Payout
                                Awards        Compensation   ------
                           ----------------   ------------    LTIP     All Other
Name and                   Restricted Stock   Options/SARs   Payout   Compensation
Principle Position           Award(s) ($)         (#)         ($)       ($) (2)
-------------------------  ----------------   ------------   ------   ------------
<S>                        <C>                <C>            <C>      <C>
Richard L. Schanze.......      --                24,000       --        186,448
  Chairman/CEO                 --                 9,500       --         37,205
                               --                15,300       --         35,403
Donald A. Lesch..........      --                --           --         11,233
  President/COO                --                 3,000       --          9,000
                               --                --           --          8,400
Arnold L. Weaver.........      --                19,000       --         66,391
  President/COO of             --                 8,000       --          5,559
  Pinnacle Bank                --                10,600       --         10,833
Donald E. Radde..........      --                17,000       --         13,874
  Exec. Vice President         --                 7,000       --          4,800
                               --                 7,500       --          5,920
David W. Kolhagen........      --                17,000       --         10,660
  Senior Vice                  --                 6,500       --          7,116
  President/CFO                --                 7,000       --          8,534
</TABLE>
------------------------
 
(1) Amounts shown consist of director fees paid by Pinnacle and by Pinnacle
    Bank, and gains on exercise of stock options.
 
(2) Amounts shown for 1997 consist of the following: (i) Mr. Schanze: matching
    contributions under Pinnacle Bank's 401-k plan of $2,375, personal use of
    Company-owned automobile of $2,860, and contributions under Pinnacle Bank's
    Deferred Compensation Plan for Executive Officers of $181,213; (ii) Mr.
    Lesch: matching contributions under Pinnacle Bank's 401-k plan of $1,057,
    personal use of Company-owned automobile of $1,202, and contributions under
    IFC's Employee Stock Ownership Plan of $8,974; (iii) Mr. Weaver: matching
    contributions under Pinnacle Bank's 401-k plan of $2,375, personal use of
    Company-owned automobile of $2,855, and contributions under Pinnacle Bank's
    Deferred Compensation Plan for Executive Officers of $61,161; (iv) Mr.
    Radde: matching contributions under Pinnacle Bank's 401-k plan of $2,375,
    personal use of Company-owned automobile of $2,281, and contributions under
    Pinnacle Bank's Deferred Compensation Plan for Executive Officers of $9,218;
    and (v) Mr. Kolhagen: matching contributions under Pinnacle Bank's 401-k
    plan of $2,375, personal use of Company-owned automobile of $5,448, and
    contributions under Pinnacle Bank's Deferred Compensation Plan for Executive
    Officers of $2,837. Amounts shown for 1996 consist of the following: (i) Mr.
    Schanze: matching contributions under Pinnacle Bank's 401-k plan of $2,375,
    personal use of Company-owned automobile of $3,304, and contributions under
    Pinnacle Bank's Deferred Compensation Plan for Executive Officers of
    $31,526; (ii) Mr. Weaver: matching contributions under Pinnacle Bank's
    401-k plan of $2,375, and personal use of Company-owned automobile of
    $3,184; (iii) Mr. Radde: matching contributions under Pinnacle Bank's
    401-k plan of $2,375 and personal use of Company-owned automobile of $2,425;
    and (iv) Mr. Kolhagen: matching contributions under Pinnacle Bank's 401-k
    plan of $2,375 and personal use of Company-owned automobile of $4,741.
    Amounts shown for 1995 consist of the following: (i) Mr. Schanze: matching
    contributions under Pinnacle Bank's 401-k plan of $4,620, personal use of
    Company-owned automobile of $3,192, and contributions under Pinnacle Bank's
    Deferred Compensation Plan for Executive Officers of $27,591; (ii) Mr.
    Weaver: matching contributions under Pinnacle Bank's 401-k plan of $4,620,
    personal use of Company-owned automobile of $3,770 and contributions under
    Pinnacle Bank's Deferred Compensation Plan for Executive Officers of $2,443;
    (iii) Mr. Radde: matching contributions under Pinnacle's 401-k plan of
    $4,620 and personal use of Company-owned automobile of $1,300; and (iv)
    Mr. Kolhagen: matching contributions under Pinnacle Bank's 401-k
    plan of $3,781 and personal use of Company-owned automobile of $4,753.

                                       80
<PAGE>

    OPTION/SAR GRANTS IN LAST FISCAL YEAR. The following table sets forth
certain information concerning stock options/SARs granted during 1997 to the
Named Pinnacle Executives.
<TABLE>
<CAPTION>
                                                                                         Individual Grants
                                                                                         -----------------

                                                              Number of         % of Total
                                                             Securities        Options/ Sars
                                                             Underlying         Granted to       Exercise of
                                                Grant       Options/ Sars      Employees in      Base Price      Expiration
Name                                            Date           Granted          Fiscal Year        ($/sh)           Date
-------------------------------------------  -----------  -----------------  -----------------  -------------  ---------------
<S>                                          <C>          <C>                <C>                <C>            <C>

Richard L. Schanze
  Chairman/CEO.............................       07/97          24,000              24.00%       $   29.15             See
 
Donald A. Lesch
  President/COO............................      --              --                 --               --              --
 
Arnold L. Weaver
  President/COO of Pinnacle Bank...........       07/97          19,000              19.00%           29.15             See
 
Donald E. Radde
  Executive Vice President.................       07/97          17,000              17.00%           29.15             See
 
David W. Kolhagen
  Senior Vice President, CFO...............       07/97          17,000              17.00%           29.15             See
 
<CAPTION>



NAME                                            5%         10%
-------------------------------------------   -----     ---------
                                             Potential Realizable
                                               Value at Assumed
                                               Annual Rates of
                                                 Stock Price
                                               Appreciation for
                                                 Option Term

<S>                                          <C>        <C>
Richard L. Schanze
  Chairman/CEO.............................  Note       Below
Donald A. Lesch
  President/COO............................   --         --
Arnold L. Weaver
  President/COO of Pinnacle Bank...........  Note       Below
Donald E. Radde
  Executive Vice President.................  Note       Below
David W. Kolhagen
  Senior Vice President, CFO...............  Note       Below
</TABLE>
 
    The above listed stock options were granted pursuant to Pinnacle's Executive
Long-Term Incentive Plan, which is administered by the Compensation Committee of
the Board of Directors of Pinnacle. All of the above listed stock options that
were granted in 1997 became fully vested and immediately exercisable on August
1,1997 upon consummation of the mergers of IFC and CB with and into Pinnacle;
and all of the above listed options were exercised prior to December 31, 1997.



PENSION PLAN
 
    The following table shows estimated annual benefits payable upon retirement
to, and credited years of services for, each of the Named Executive Officers.
 
<TABLE>
<CAPTION>
                                                                   Annual Benefit Per Years of Service
                                                       -----------------------------------------------------------
Annual Comp                                               15         20         25         30       More Than 30
-----------------------------------------------------  ---------  ---------  ---------  ---------  ---------------
<S>                                                    <C>        <C>        <C>        <C>        <C>
 
$125,000.............................................  $  30,478  $  40,637  $  50,797  $  60,956     $  60,956
 
$150,000.............................................  $  37,040  $  49,387  $  61,734  $  74,081     $  74,081
 
$175,000.............................................  $  39,665  $  52,887  $  66,109  $  79,331     $  79,331
 
$200,000.............................................  $  39,665  $  52,887  $  66,109  $  79,331     $  79,331
 
$225,000.............................................  $  39,665  $  52,887  $  66,109  $  79,331     $  79,331
 
$250,000.............................................  $  39,665  $  52,887  $  66,109  $  79,331     $  79,331
 
$300,000.............................................  $  39,665  $  52,887  $  66,109  $  79,331     $  79,331
 
$400,000.............................................  $  39,665  $  52,887  $  66,109  $  79,331     $  79,331
 
$450,000.............................................  $  39,665  $  52,887  $  66,109  $  79,331     $  79,331
 
$500,000.............................................  $  39,665  $  52,887  $  66,109  $  79,331     $  79,331
</TABLE>
 
                                       81
<PAGE>

    The benefits shown above are payable in a straight-life annuity and are not
offset by any other benefits, including Social Security. The final average
annual compensation is determined under the defined benefit plan by the average
of the five highest consecutive years of annual compensation (including salary
and bonus payments) during the last ten years of employment, subject to a
maximum of $150,000 for 1994, 1995 and 1996, and $160,000 for all subsequent
years. As of December 31, 1997, Mr. Schanze had 22 years of credited service,
Mr. Lesch had 5 years of credited service, Mr. Weaver had 21 years of credited
service, Mr. Radde had 16 years of credited service, and Mr. Kolhagen had 17
years of credited service.
 
SEVERANCE AGREEMENTS
 
    Pinnacle currently has in effect certain severance agreements (the
"Severance Agreements") with seven executive officers (the "Executives"), which
include, among other things, provisions regarding payments under certain
circumstances following a "change in control." The Executives with Severance
Agreements are Richard L. Schanze, Chairman and Chief Executive Officer, Arnold
L. Weaver, Vice Chairman of Pinnacle and President and Chief Operating Officer
of Pinnacle Bank, Donald E. Radde, Executive Vice President, David W. Kolhagen,
Senior Vice President and Chief Financial Officer, John A. Newcomer, Vice
President and Corporate Affairs Officer, Donald A. Lesch, Vice Chairman,
President and Chief Operating Officer, and Michael J. Griffin, Senior Vice
President of Pinnacle Bank. Approval of the merger agreement with CNB by the
Pinnacle shareholders will constitute a "change in control" under each of the
Severance Agreements.
 
    The Severance Agreements provide, among other things, that upon a "change in
control," an Executive will be entitled to receive certain amounts in the event
that, within twenty-four months after the change in control, such Executive's
employment is terminated for any reason other than "cause" (as defined in the
Severance Agreements) or such Executive terminates his employment for "good
reason" (as defined in the Severance Agreements). In such an event, the
appropriate Severance Agreement provides that Mr. Schanze would be entitled to
receive the greater of 299% of his base amount, as determined under Section 280G
of the Code (the "Base Amount") or $1,118,000; Mr. Weaver would be entitled to
receive the greater of 299% of his Base Amount or $559,000; Mr. Radde would be
entitled to receive the greater of (a) the lesser of (i) 200% of his total
compensation or (ii) 299% of his Base Amount, or (b) $354,000; Mr. Kolhagen
would be entitled to receive the greater of (a) the lesser of (i) 200% of his
total compensation or (ii) 299% of his Base Amount, or (b) $287,000; Mr.
Newcomer would be entitled to receive the greater of (a) the lesser of (i) 100%
of his total compensation or (ii) 299% of his Base Amount, or (b) $156,000; Mr.
Lesch would be entitled to receive the greater of (a) 299% of his Base Amount,
or (b) $568,100; and Mr. Griffin would be entitled to receive the greater of
200% of his Base Amount or $87,816.
 
    The Severance Agreements each also provide that in the event that an
Executive's employment is terminated for cause or the Executive terminates his
employment for any reason other than good reason, in either event upon or at any
time following a change in control, such Executive will be entitled to the
following payment: Mr. Schanze, $1,118,000; Mr. Weaver, $559,000; Mr. Radde,
$354,000; Mr. Kolhagen, $287,000; Mr. Newcomer, $156,000; Mr. Lesch, $568,100;
and Mr. Griffin, $87,816.
 
    Pinnacle also currently has certain other severance contracts in effect with
Joseph F. Heffernan, Daniel R. Buresh and James D. Neff. These severance
contracts do not provide for additional payments upon a change in control, and
no benefits will be payable thereunder solely as a result of the consummation of
the merger with CNB. Under these severance contracts, in the event the
employee's employment is terminated for "Cause" (as defined therein), no
severance payment is due the employee; however, in the event the employee's
employment is terminated for any reason other than "Cause", Mr. Heffernan would
then be entitled to receive the greater of $223,000 or 100% of his then current
annual salary and bonus payments; Mr. Buresh would then be entitled to receive
the greater of $70,000 or 100% of his then current annual salary and bonus
payments; and Mr. Neff would then be entitled to receive the greater of $95,000
or 100% of his then current annual salary and bonus payments.
 
OTHER COMPENSATION ARRANGEMENTS

                                       82
<PAGE>

    Under Pinnacle Bank's Deferred Compensation Plan for Executive Officers,
certain highly compensated employees of Pinnacle Bank or its affiliates may be
granted certain awards of deferred compensation. These awards, which must be
approved by the Board of Directors of Pinnacle Bank, may be granted annually.
All awards remain the property of Pinnacle Bank until paid out. Awards, together
with any accrued interest thereon, are to be distributed to a participant in
annual installments over a ten-year period beginning on the January 1 following
the calendar year in which such participant ceases to be an employee of Pinnacle
Bank or its affiliates. (In the event of a participant's death the balance of
his awards will be paid in full to his estate within 90 days of the date of his
death.) These accounts are credited with interest at the end of each month at
110% of the rate then being paid on certain U.S. Treasury securities.
 
    IFC EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENTS.  Pinnacle has
assumed the obligations of its predecessor, IFC, under Executive Supplemental
Retirement Income Agreements ("IFC ESRIAs") with Mr. Lesch and certain other key
officers. The IFC ESRIAs are unfunded, non-qualified agreements which provide
for an annual benefit to each executive of an amount generally equal to a stated
percentage (of between 15% and 45%) of the executive's highest five-year average
"base compensation" (which includes salary, but excludes bonuses and fringe
benefits), to be paid over a 15-year period. The IFC ESRIAs also provide for
disability and death benefits, including a $10,000 burial expense payment. In
addition, the IFC ESRIAs provide that the beneficiaries will be eligible to
receive their full supplemental benefit in the event they involuntarily
terminate their employment prior to reaching retirement age. Until disbursed,
the amounts payable under the IFC ESRIAs are subject to the claims of general
creditors.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
    During 1997 only James E. Hutton, Terrence A. Friedman, and John P.
Cunningham and Barbara A. Young, each a director of Pinnacle, served as members
of the Compensation Committee of the Board of Directors of Pinnacle. No officers
or employees of Pinnacle or Pinnacle Bank served as members of the Compensation
Committee and no executive officer of Pinnacle served as a member of the
Compensation Committee of another entity.
 
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
 
    The compensation policy of Pinnacle, as applicable to executive officers, is
designed to assure Pinnacle's ongoing ability to attract, retain and motivate,
while at the same time recognizing the contributions of those individuals upon
whose judgement, efforts and results Pinnacle is largely dependent for its
success and future. Pinnacle is cognizant of the fact it competes for qualified
individuals at the local and regional levels and to a lesser degree, nationally.
As a result, compensation for executive officers is monitored carefully.
 
    To assist in this process, the Compensation Committee reviews information
from independent salary studies that include the financial industry and other
industrial classifications.
 
    While Pinnacle and Pinnacle Bank establish objective annual goals in
targeted areas such as asset growth, earnings, loan originations, etc. and
progress toward these goals is reviewed, a specific "trigger level" is not
required to be reached in each area.

    On a subjective basis, performance criteria encompass evaluation of each
officer's initiative and contribution to overall corporate performance, the
officer's managerial ability, the officer's leadership capacity and the
officer's performance in any special projects which the officer may have
undertaken. No formula was used to determine the Chief Executive Officer's, or
other named executives', bonus or award of stock options. This was the fifth
year stock options were awarded and the previous award schedule was taken into
consideration while awarding 1997's stock options. In future years, if awards
are granted, the Compensation Committee will take into consideration awards
previously made to a potential recipient, the vesting schedule of such awards,
and the number of awards outstanding in the aggregate to all recipients.

                                       83
<PAGE>

    In reviewing Mr. Schanze's total compensation, the primary focus of the
Compensation Committee was on Pinnacle's performance in 1997, which met
established goals. The Compensation Committee also considered Mr. Schanze's
contributions to various non-quantifiable community improvement activities and
the positive impact they have had upon Pinnacle and to various long-range
initiatives impacting the future of Pinnacle, including the acquisition
strategies currently in place, as well as acquisitions completed in 1997.
 
    Members of the Compensation Committee:
 
    James E. Hutton John P. Cunningham Terrence A. Friedman Barbara A. Young
 
DIRECTOR COMPENSATION
 
    Each director of Pinnacle is paid an annual retainer of $7,500 plus $1,000
for each meeting of the Board of Directors of Pinnacle attended. Each director
of Pinnacle Bank is paid an annual retainer of $7,500 plus $1,000 for each
meeting of the Board of Directors of Pinnacle Bank attended. Members of
committees of the Board of Directors of Pinnacle Bank also receive $1,000 for
each committee meeting attended. Messrs. Schanze, Lesch, and Weaver have waived
all fees for attending meetings of committees of the Board of Directors of
Pinnacle Bank in the past and intend to continue to do so in the future.
 
    Pinnacle and Pinnacle Bank each maintain deferred compensation plans under
which a director may elect to defer receipt of either all or 50% of directors'
fees otherwise payable during a calendar year to a later calendar year. Amounts
deferred are reflected as unsecured accounts payable on the books of the
appropriate corporation and are subject to claims of such corporation's general
creditors. These accounts are credited with interest at the end of each month at
110% of the rate being paid on U.S. Treasury Securities.
 
    IFC DIRECTORS DEFERRED COMPENSATION AGREEMENTS.  Pinnacle has assumed the
obligations of its predecessor, IFC, under certain Director Deferred
Compensation Agreements ("DDCA") with certain of its non-employee directors. The
DDCAs are unfunded, non-qualified agreements which provide for retirement, death
and disability benefits for the participants and their designated beneficiaries.
Under the DDCAs, each non-employee director may, for a period of five years,
make an annual election to defer receipt of all or a portion of his or her
monthly director fees paid prior to August 1, 1997 into a Guaranteed Investment
Contract ("GIC") Account and/or a Phantom Unit Account.
 
    Deferred amounts allocated to the GIC Account will be credited with interest
at the rate of .667% per month. Deferred amounts allocated to the Phantom Unit
Account are used to "purchase" Phantom Units, each representing a share,
initially of IFC Common Stock, and currently of Pinnacle Common Stock, at the
market price on the date of the deferral election. Phantom Units are credited
with dividends, and are adjusted for any stock splits or similar events.
Directors do not have the option to receive dividends in cash, but may elect to
reinvest such dividends in Phantom Units or in a GIC Account. Upon termination
of the director's service, the Phantom Units are deemed to be sold, and the
proceeds of such sale are distributed to the director in cash pursuant to the
payment provisions of the DDCAs.
 
    At normal retirement (age 65), each director will be entitled to receive
over a 15-year period his or her accrued benefit, which is determined by
annuitizing such benefit over the payment period using a monthly interest factor
of .833%. The DDCAs also provide for disability and death benefits, including a
$10,000 burial expense payment. Until disbursed, the amounts directed to be
deferred are subject to the claims of general creditors.

                                       84
<PAGE>

                               PERFORMANCE GRAPH
 
    The following graph compares the yearly percentage change in the cumulative
total shareholder return on Pinnacle's Common Stock against the cumulative total
return of the Standard & Poor's 500 Index and the Banks: Midwest Index for the
periods shown.
 
            PINNACLE FINANCIAL SERVICES, INC.; STANDARD & POORS 500;
                            AND BANKS: MIDWEST INDEX
 
                             TOTAL RETURN ANALYSIS*
<TABLE>
<CAPTION>
                                                                             December 31,
                                                      -----------------------------------------------------------------

                                                        1992       1993       1994       1995       1996        1997
                                                      ---------  ---------  ---------  ---------  ---------   ---------
<S>                                                   <C>        <C>        <C>        <C>        <C>         <C>
Pinnacle............................................     100.00     171.79     113.60     136.01     188.00     404.52
Standard & Poor's 500...............................     100.00     110.09     111.54     153.47     188.71     251.68
Banks: Midwest......................................     100.00     100.51      92.17     140.36     189.65     314.63
</TABLE>
 
------------------------
 
*   Shows performance results through December 31, 1997 for Pinnacle Financial
    Services, Inc. Common Stock, Standard & Poor's 500, and Banks: Midwest
    assuming $100 was invested at the close of trading December 1992 and all
    dividends are reinvested.
 
    Source: FactSet Data Systems

                                       85
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    The following table sets forth information provided by the persons indicated
with respect to the beneficial ownership (as defined under applicable rules of
the Commission) of shares of Pinnacle Common Stock as of March 20, 1998, by (i)
each person known by Pinnacle who is the owner of more than 5% of the
outstanding shares of Pinnacle Common Stock, (ii) each person who is a director
or an executive officer of Pinnacle, and (iii) all persons who are directors or
executive officers of Pinnacle as a group.
 
<TABLE>
<CAPTION>
                                                                                                   Percentage of
Name and Address(1)                                                    Number of Shares(2)    Beneficial Ownership(2)
---------------------------------------------------------------------  -------------------  ---------------------------
<S>                                                                    <C>                  <C>
Cyrus A. Ansary......................................................       1,188,994                      9.4%
Joseph P. Cunningham(3)..............................................           2,000                    *
Terrence A. Friedman(3)..............................................          35,288                    *
Joseph F. Heffernan(3)(4)............................................          62,798                    *
James E. Hutton(3)...................................................          55,559                    *
David W. Kolhagen(4).................................................          37,193                    *
Donald A. Lesch(3)(4)................................................          84,676                    *
John Newcomer(4).....................................................          26,148                    *
Donald E. Radde(4)...................................................          41,575                    *
Richard L. Schanze(3)(4).............................................         305,624                      2.4%
Howard Silverman(3)..................................................          32,799                    *
Arnold L. Weaver(3)(4)...............................................          53,138                    *
Alton C. Wendzel(3)..................................................          84,724                    *
Fred A. Wittlinger(3)................................................          53,619                    *
Barbara A. Young(3)..................................................          46,526                    *
All directors and executive officers of Pinnacle as a group (14
  persons)...........................................................         921,667                      7.3%
</TABLE>
 
------------------------
 
(1) Unless otherwise noted, Pinnacle believes that all persons named in the
    table have (i) sole voting and investment power with respect to all shares
    of Pinnacle Common owned by them, except to the extent that authority is
    shared by spouses under applicable law, and (ii) record and beneficial
    ownership of such shares. The business address of Mr. Ansary, the only owner
    of more than 5% of the outstanding shares of Pinnacle Common, is 1725 K
    Street, N.W., Suite 410, Washington, D.C. 20006. The business address of all
    other persons named in the table is 830 Pleasant Street, St. Joseph,
    Michigan 49085.
 
(2) Number of shares and percentages with respect to beneficial ownership of
    Pinnacle Common are based on ownership of Pinnacle Common as of March 20,
    1998 and have been calculated in accordance with Rule 13d-3(d)(1) under the
    Exchange Act and assuming 12,653,454 shares of Pinnacle Common are issued
    and outstanding. An asterisk indicates beneficial ownership of less than 1%.
 
(3) Director of Pinnacle.
 
(4) Executive Officer of Pinnacle.

                                       86
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    The directors, officers and principal stockholders of Pinnacle and their
associates may have had in the past, and expect to have in the future,
transactions in the ordinary course of business with Pinnacle and its
subsidiaries. Such transactions were, and are expected to be, on substantially
the same terms as those prevailing at the time for comparable transactions with
others.
                                       87
<PAGE>

                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
    (a) Exhibits:
 
<TABLE>
<CAPTION>

    Item 601
 Regulation S-K
    Exhibit
   Reference
     Number                                             Exhibit Description
----------------  ------------------------------------------------------------------------------------------------
<S>               <C>
(3)(a)/(4)(a)     Restated Articles of Incorporation of Pinnacle Financial Services, Inc. as filed with the
                  Department of Commerce of the State of Michigan on December 6, 1996 (incorporated by reference
                  to Exhibit (3)(a)/(4)(a) of the Registration Statement on Form S-4 of Pinnacle Financial
                  Services, Inc. (registration no. 333-19729)).
(3)(b)/(4)(b)     By-laws of Pinnacle Financial Services, Inc. (incorporated by reference to Exhibit (3)(ii) of
                  the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997, of Pinnacle
                  Financial Services, Inc. (Commission file no. 0-17937)).
(4)(c)            Specimen certificate for Pinnacle Financial Services, Inc. Common Stock (incorporated by
                  reference to Exhibit (4)(c) of the Registration Statement on Form S-2 of Pinnacle Financial
                  Services, Inc. (registration no. 33-95974)).
(10)(a)           Agreement and Plan of Merger dated as of October 14, 1997, by and between Pinnacle Financial
                  Services, Inc. and CNB Bancshares, Inc. (without exhibits) (incorporated by reference to Exhibit
                  (2) of the Current Report on Form 8-K dated October 14, 1997, of Pinnacle Financial Services,
                  Inc. (Commission file no. 0-17937)).
(10)(b)           Stock Option Agreement dated as of October 14, 1997, by and between Pinnacle Financial Services,
                  Inc. (as issuer) and CNB Bancshares, Inc. (as grantee) (incorporated by reference to Exhibit
                  99.1 of the Current Report on Form 8-K dated October 14, 1997, of Pinnacle Financial Services,
                  Inc. (Commission file no. 0-17937)).
(10)(c)           First Amendment to Pinnacle Financial Services, Inc. Executive Long-Term Incentive Plan
                  (incorporated by reference to Exhibit (10)(e) of the Registration Statement on Form S-4 of
                  Pinnacle Financial Services, Inc. (registration no. 333-19729)).
(10)(d)           Severance Agreement dated as of July 31, 1997, by and among Pinnacle Financial Services, Inc.,
                  Pinnacle Bank and Richard L. Schanze.*
(10)(e)           Severance Agreement dated as of July 31, 1997, by and among Pinnacle Financial Services, Inc.
                  and Donald A. Lesch.*
(10)(f)           Severance Agreement dated as of July 31, 1997, by and among Pinnacle Financial Services, Inc.,
                  Pinnacle Bank and Arnold L. Weaver.*
(10)(g)           Severance Agreement dated as of July 31, 1997, by and among Pinnacle Financial Services, Inc.,
                  Pinnacle Bank and Donald E. Radde.*
(10)(h)           Severance Agreement dated as of July 31, 1997, by and among Pinnacle Financial Services, Inc.,
                  Pinnacle Bank and David W. Kolhagen.*
(10)(i)           Severance Agreement dated as of July 31, 1997, by and among Pinnacle Financial Services, Inc.,
                  Pinnacle Bank and John A. Newcomer.*
(10)(j)           Severance Agreement dated as of July 31, 1997, by and among Pinnacle Financial Services, Inc.
                  and Michael J. Griffin.*
(10)(k)           Severance Agreement dated as of August 1, 1997, by and among Pinnacle Financial Services, Inc.
                  and Joseph F. Heffernan.*
(10)(l)           Severance Agreement dated as of August 1, 1997, by and among Pinnacle Financial Services, Inc.
                  and Daniel R. Buresh.*
(10)(m)           Severance Agreement dated as of August 1, 1997, by and among Pinnacle Financial Services, Inc.
                  and James D. Neff.*
(10)(n)           The Retirement Plan for the Employees of Peoples State Bank of St. Joseph, as amended
                  (incorporated by reference to Exhibit (10)(i) of the Registration Statement on Form S-2 of
                  Pinnacle Financial Services, Inc. (registration no. 33-95974)).
(10)(o)           Peoples State Bank of St. Joseph Savings Plan, as amended (incorporated by reference to Exhibit
                  (10)(j) of the Registration Statement on Form S-2 of Pinnacle Financial Services, Inc.
                  (registration no. 33-95974)).
(10)(p)           Form of Deferred Compensation Agreement for Directors of Pinnacle Financial Services, Inc.
                  (incorporated by reference to Exhibit (10)(k) of the Registration Statement on Form S-2 of
                  Pinnacle Financial Services, Inc. (registration no. 33-95974)).
(10)(q)           Form of Deferred Compensation Agreement for Directors of The Peoples State Bank of St. Joseph
                  (incorporated by reference to Exhibit (10)(l) of the Registration Statement on Form S-2 of
                  Pinnacle Financial Services, Inc. (registration no. 33-95974)).
(10)(r)           Pinnacle Financial Services, Inc. Executive Long-Term Incentive Plan (incorporated by reference
                  to Exhibit (10)(m) of the Registration Statement on Form S-2 of Pinnacle Financial Services,
                  Inc. (registration no. 33-95974)).
(10)(s)           Transfer Agreement dated May 4, 1995 by and between Maco Bancorp, Inc. (the
                  predecessor-in-interest to Pinnacle Financial Services, Inc.) and Cyrus A. Ansary (incorporated
                  by reference to Exhibit (99)(a) of the Registration Statement on Form S-2 of Pinnacle Financial
                  Services, Inc. (registration no. 33-95974)).
(10)(t)           Transfer Agreement dated as of May 4, 1995 by and between Maco Bancorp, Inc. (the
                  predecessor-in-interest to Pinnacle Financial Services, Inc.) and Investment Services
                  International Co. (incorporated by reference to Exhibit (99)(b) of the Registration Statement on
                  Form S-2 of Pinnacle Financial Services, Inc. (registration no. 33-95974)).
(10)(u)           Non-Competition Agreement dated December 1, 1995 by and between Pinnacle Financial Services,
                  Inc. and Cyrus A. Ansary (incorporated by reference to Exhibit (10)(d) of the Current Report on
                  Form 8-K of Pinnacle Financial Services, Inc. dated December 1, 1995) (Commission file no.
                  0-17937).
(10)(v)           Escrow Agreement dated December 1, 1995 by and among Pinnacle Financial Services, Inc., Cyrus A.
                  Ansary and NationsBank Trust, N.A. (incorporated by reference to Exhibit (10)(e) of the Current
                  Report on Form 8-K of Pinnacle Financial Services, Inc. dated December 1, 1995) (Commission file
                  no. 0-17937).
(10)(w)           Standstill Agreement entered into by and between Pinnacle Financial Services, Inc. and Cyrus A.
                  Ansary (incorporated by reference to Exhibit (10)(f) of the Current Report on Form 8-K of
                  Pinnacle Financial Services, Inc. dated December 1, 1995) (Commission file no. 0-17937).
(10)(x)           Indemnification Agreement dated December 1, 1995, and executed and delivered by Cyrus A. Ansary
                  in favor of Pinnacle Financial Services, Inc. (incorporated by reference to Exhibit (10)(g) of
                  the Current Report on Form 8-K of Pinnacle Financial Services, Inc. dated December 1, 1995)
                  (Commission file no. 0-17937).
(10)(y)           Peoples State Bank of St. Joseph (now Pinnacle Bank) Deferred Compensation Plan for Executive
                  Officers (incorporated by reference to Exhibit (10)(u) of the Registration Statement on Form S-4
                  of Pinnacle Financial Services, Inc.) (registration no. 333-19729)).
(10)(z)           Incentive Compensation Plan of Indiana Federal Corporation (a predecessor-in-interest to
                  Pinnacle Financial Services, Inc.) (incorporated by reference to the exhibits to Form 10-K for
                  the fiscal year ended December 31, 1992, filed by Indiana Federal Corporation (a
                  predecessor-in-interest to Pinnacle Financial Services, Inc.) (Commission file no. 0-17379)).
</TABLE>

                                       88
<PAGE>
 
<TABLE>
<CAPTION>

    Item 601
 Regulation S-K
    Exhibit
   Reference
     Number                                             Exhibit Description
----------------  ------------------------------------------------------------------------------------------------
<S>               <C>
(10)(aa)          Employee Stock Ownership Plan of Indiana Federal Corporation (a predecessor-in-interest to
                  Pinnacle Financial Services, Inc.) (incorporated by reference to the exhibits to Form S-4 filed
                  by Indiana Federal Corporation) (a predecessor-in-interest to Pinnacle Financial Services, Inc.)
                  (registration no. 33-20412)).
(10)(bb)          Stock Option and Incentive Plan, as amended, of Indiana Federal Corporation (a
                  predecessor-in-interest to Pinnacle Financial Services, Inc.) (incorporated by reference to the
                  exhibits to Form 10-K for the fiscal year ended December 31, 1995, filed by Indiana Federal
                  Corporation (a predecessor-in-interest to Pinnacle Financial Services, Inc.) (Commission file
                  no. 0-17379)).
(10)(cc)          Director Deferred Compensation Agreements of Indiana Federal Corporation (a
                  predecessor-in-interest to Pinnacle Financial Services, Inc.) (incorporated by reference to the
                  exhibits to Form 10-K for the fiscal year ended December 31, 1993, filed by Indiana Federal
                  Corporation (a predecessor-in-interest to Pinnacle Financial Services, Inc.) (Commission file
                  no. 0-17379)).
(10)(dd)          Executive Death Benefit Agreements of Indiana Federal Corporation (a predecessor-in-interest to
                  Pinnacle Financial Services, Inc.) (incorporated by reference to the exhibits to Form 10-K for
                  the fiscal year ended December 31, 1993, filed by Indiana Federal Corporation (a
                  predecessor-in-interest to Pinnacle Financial Services, Inc.) (Commission file no. 0-17379)).
(10)(ee)          Executive Supplemental Income Agreements of Indiana Federal Corporation (a
                  predecessor-in-interest to Pinnacle Financial Services, Inc.) (incorporated by reference to the
                  exhibits to Form 10-K for the fiscal year ended December 31, 1993, filed by Indiana Federal
                  Corporation (a predecessor-in-interest to Pinnacle Financial Services, Inc.) (Commission file
                  no. 0-17379)).
(10)(ff)          Community Bank, A Federal Savings Bank Employee Stock Ownership Plan and Trust (a
                  predecessor-in-interest to Pinnacle Bank) (incorporated by reference to exhibits to the
                  Registration Statement on Form S-1 of CB Bancorp, Inc. (a predecessor-in-interest to Pinnacle
                  Financial Services, Inc.) (registration no. 33-51882)).
(11)              No statement re computation of per share earnings is required to be filed because the
                  computations can be clearly determined from the materials contained herein.
(21)              List of subsidiaries of Pinnacle Financial Services, Inc.*
(23)              Consent of KPMG Peat Marwick LLP, independent auditors.*
(27)              Financial Data Schedules of registrant.*
</TABLE>
 
------------------------
 
*   Filed herewith.
 
    Management contracts and compensatory plans or arrangements:

    The management contracts and compensatory plans or arrangements required to
be filed as exhibits and included in such list of exhibits are as follows:
 
<TABLE>
<S>               <C>
(10)(c)           First Amendment to Pinnacle Financial Services, Inc. Executive Long-Term Incentive Plan.
(10)(d)           Severance Agreement dated as of July 31, 1997, by and among Pinnacle Financial Services, Inc.,
                  Pinnacle Bank and Richard L. Schanze.
(10)(e)           Severance Agreement dated as of July 31, 1997, by and among Pinnacle Financial Services, Inc.
                  and Donald A. Lesch.
(10)(f)           Severance Agreement dated as of July 31, 1997, by and among Pinnacle Financial Services, Inc.,
                  Pinnacle Bank and Arnold L. Weaver.
(10)(g)           Severance Agreement dated as of July 31, 1997, by and among Pinnacle Financial Services, Inc.,
                  Pinnacle Bank and Donald E. Radde.
(10)(h)           Severance Agreement dated as of July 31, 1997, by and among Pinnacle Financial Services, Inc.,
                  Pinnacle Bank and David W. Kolhagen.
</TABLE>

                                       89
<PAGE>

<TABLE>
<S>               <C>
(10)(i)           Severance Agreement dated as of July 31, 1997, by and among Pinnacle Financial Services, Inc.,
                  Pinnacle Bank and John A. Newcomer.
(10)(j)           Severance Agreement dated as of July 31, 1997, by and among Pinnacle Financial Services, Inc.
                  and Michael J. Griffin.
(10)(k)           Severance Agreement dated as of August 1, 1997, by and among Pinnacle Financial Services, Inc.
                  and Joseph F. Heffernan.
(10)(l)           Severance Agreement dated as of August 1, 1997, by and among Pinnacle Financial Services, Inc.
                  and Daniel R. Buresh.
(10)(m)           Severance Agreement dated as of August 1, 1997, by and among Pinnacle Financial Services, Inc.
                  and James D. Neff.
(10)(n)           The Retirement Plan for the Employees of Peoples State Bank of St. Joseph, as amended.
(10)(o)           Peoples State Bank of St. Joseph Savings Plan, as amended.
(10)(p)           Form of Deferred Compensation Agreement for Directors      Pinnacle Financial Services, Inc.
(10)(q)           Form of Deferred Compensation Agreement for Directors      The Peoples State Bank of St. Joseph.
(10)(r)           Pinnacle Financial Services, Inc. Executive Long-Term Incentive Plan.
(10)(y)           Peoples State Bank of St. Joseph (now Pinnacle Bank) Deferred Compensation Plan for Executive
                  Officers.
(10)(z)           Incentive Compensation Plan of Indiana Federal Corporation (predecessor-in-interest to Pinnacle
                  Financial Services, Inc).
(10)(aa)          Employee Stock Ownership Plan of Indiana Federal Corporation (predecessor-in-interest to
                  Pinnacle Financial Services, Inc).
(10)(bb)          Stock Option and Incentive Plan, as amended, of Indiana Federal Corporation
                  (predecessor-in-interest to Pinnacle Financial Services, Inc).
(10)(cc)          Director Deferred Compensation Agreements of Indiana Federal Corporation
                  (predecessor-in-interest to Pinnacle Financial Services, Inc).
(10)(dd)          Executive Death Benefit Agreements of Indiana Federal Corporation (predecessor-in-interest to
                  Pinnacle Financial Services, Inc).
(10)(ee)          Executive Supplemental Income Agreements of Indiana Federal Corporation (predecessor-in-interest
                  to Pinnacle Financial Services, Inc).
(10)(ff)          Community Bank, A Federal Savings Bank Employee Stock Ownership Plan and Trust (a
                  predecessor-in-interest to Pinnacle Bank).
</TABLE>
 
    Index to Financial Statements and Financial Statement Schedules:
 
<TABLE>
<CAPTION>
                                                                                                              10-K
                                                                                                             Report
                                                                                                             Page(s)
                                                                                                           -----------
<S>                                                                                                        <C>
 
Financial Statements:
 
Report of independent auditors...........................................................................
 
Consolidated balance sheets as of December 31, 1997 and 1996.............................................
 
Consolidated statements of income for each of the years ended December 31, 1997,1996 and 1995............
 
Consolidated statements of stockholders' equity for each of the years ended December 31, 1997, 1996 and
  1995...................................................................................................
 
Consolidated statements of cash flows for each of the years ended December 31, 1997, 1996 and 1995.......
</TABLE>

                                       90
<PAGE>

    All schedules for which provision is made in Regulation S-X either (i) are
not required under the related instructions or are inapplicable and, therefore,
have been omitted, or (ii) the information required is included in the
consolidated financial statements or the notes thereto that are a part hereof.
 
    (b) Reports on Form 8-K:
 
    Two (2) reports on Form 8-K were filed during the last quarter of the period
covered by this report. One report on Form 8-K dated October 14, 1997, was filed
to report, under Item 5, registrant's planned merger with CNB Bancshares, Inc.,
an Indiana corporation. The other report, being Amendment No. 1 to the Current
Report on Form 8-K dated August 14, 1997, was filed to report, under Item 7,
financial statements of businesses acquired by registrant through the mergers of
Indiana Federal Corporation and CB Bancorp, Inc. with and into the registrant,
effective as of August 1, 1997.

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<PAGE>

                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                PINNACLE FINANCIAL SERVICES, INC.
 
<TABLE>
<CAPTION>
<S>                             <C>  <C>
DATE: MARCH 31, 1998            BY:  /s/ David W. Kolhagen
                                     -----------------------------------------
                                                 David W. Kolhagen
                                        SENIOR VICE PRESIDENT AND TREASURER
                                           (PRINCIPAL FINANCIAL OFFICER)
</TABLE>

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>

          Signature                        Title                    Date
------------------------------  ---------------------------  -------------------
<S>                             <C>                          <C>
                                Chairman and Chief
  /s/ RICHARD L. SCHANZE         Executive Officer
------------------------------   (Principal Executive          March 31, 1998
      Richard L. Schanze         Officer)
 
  /s/ DAVID W. KOLHAGEN         Senior Vice President, and
------------------------------   Treasurer (Principal          March 31, 1998
      David W. Kolhagen          Financial Officer)
 
  /s/ JOHN P. CUNNINGHAM        Director
------------------------------                                 March 31, 1998
      John P. Cunningham
 
 /s/ TERRENCE A. FRIEDMAN       Director
------------------------------                                 March 31, 1998
     Terrence A. Friedman
 
 /s/ JOSEPH F. HEFFERNAN        Director
------------------------------                                 March 31, 1998
     Joseph F. Heffernan
 
   /s/ JAMES E. HUTTON          Director
------------------------------                                 March 31, 1998
       James E. Hutton
 
   /s/ DONALD A. LESCH          Director, President and
------------------------------   Chief Operating Officer       March 31, 1998
       Donald A. Lesch
 
  /s/ RICHARD L. SCHANZE        Director
------------------------------                                 March 31, 1998
      Richard L. Schanze
 
   /s/ HOWARD B. SILVERMAN      Director
------------------------------                                 March 31, 1998
       Howard Silverman
 
   /s/ ARNOLD L. WEAVER         Director
------------------------------                                 March 31, 1998
       Arnold L. Weaver
 
                                Director
------------------------------                                 
       Alton C. Wendzel
 
  /s/ FRED A. WITTLINGER        Director                       March 31, 1998
------------------------------
      Fred A. Wittlinger
</TABLE>

                                       92
<PAGE>

<TABLE>
<CAPTION>

<S>                             <C>                          <C>
   /s/ BARBARA A. YOUNG         Director
------------------------------                                 March 31, 1998
       Barbara A. Young

</TABLE>
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