PINNACLE BANCSHARES, INC.
                     LETTER TO OUR STOCKHOLDERS AND FRIENDS






Dear Stockholders:

     In 2000, Pinnacle  Bancshares,  Inc. earned $1,742,000,  or $.97 per share.
This represents an increase of 4% over 1999.

     The  increase  in net  income  for 2000  was  primarily  attributable  to a
$384,000  decrease  in the loss on the  sale of other  real  estate  owned.  The
increase in net income for the year was achieved despite a $353,000  increase in
the  provision  for losses on loans and a $125,000  decrease  in the net gain on
loans held for sale, which are carried at the lower of aggregate  amortized cost
or fair  value.  The  increase  in the  provision  for loan  losses  in 2000 was
primarily  due to overall  loan  portfolio  growth  with a greater  emphasis  on
commercial,  construction  and consumer  lending.  Total loans  receivable,  net
increased $5,600,000, to $152,000,000 at December 31, 2000.

     The Board of Directors and  management of the Company and Pinnacle Bank are
committed to enhancing  shareholder value through continued growth in our market
area. We continue to believe that your Company is best  positioned by delivering
quality services to Pinnacle Bank's customers.

     We greatly appreciate your support.

                                   Sincerely,




                                  Robert B. Nolen, Jr.
                                  President and Chief Executive Officer
                                  Pinnacle Bancshares, Inc.
                                  Pinnacle Bank

<PAGE>
                          BALANCE SHEET AND OTHER DATA

                                                             AT DECEMBER 31,
                                                         -----------------------
                                                            2000        1999
                                                          (Dollars in Thousands)
TOTAL AMOUNT OF:
      Assets                                               $230,269     $231,032
      Loans, net                                            152,021      146,430
      Interest-bearing deposits in other banks                1,136        2,177
      Securities available-for-sale                          61,069       64,599
      Loans held for sale                                     1,337          894
      Deposits                                              187,471      187,884
      Borrowed funds                                         20,500       21,890
      Stockholders' equity                                   19,230       17,849
NUMBER OF:
      Real estate loans outstanding                           3,209        3,419
      Savings accounts                                       14,962       17,509
      Full-service offices open                                   6            6




                          STATEMENT OF OPERATIONS DATA

                                                               FOR THE YEARS
                                                             ENDED DECEMBER 31,
                                                             ------------------

                                                                2000      1999
                                                                ----      ----
                                                                (In Thousands)
INTEREST INCOME                                                $17,805   $16,130

INTEREST EXPENSE                                                10,573     9,238
                                                               -------   -------
    Net interest income before provision for loan losses         7,232     6,892

PROVISION FOR LOAN LOSSES                                          530       177
                                                               -------   -------
    Net interest income after provision for loan losses          6,702     6,715

NONINTEREST INCOME                                               1,250     1,116

NONINTEREST EXPENSE                                              5,152     5,195

INCOME TAX EXPENSE                                               1,058       958
                                                               -------   -------
    Net income                                                 $ 1,742   $ 1,678
                                                               =======   =======

                                       2
<PAGE>
                                   OTHER DATA
<TABLE>
<CAPTION>
                                                                          FOR THE YEARS ENDED
                                                                             DECEMBER 31,
                                                                             ------------
                                                                             2000    1999
                                                                             ----    ----
<S>                                                                         <C>     <C>
Interest rate spread                                                         3.2%    3.2%
Yield on average interest earning assets                                     8.3     7.8
Return on assets (net income divided by average total assets)                0.8     0.8
Return on equity (net income divided by average equity)                     10.6     9.4
Equity-to-assets ratio (average equity divided by total average assets)      8.0     8.0
Dividend payout ratio (dividends declared divided
      by net income)                                                        40.8    42.7
</TABLE>

                          YIELDS EARNED AND RATES PAID

     The following  table sets forth,  for the periods and the dates  indicated,
the weighted average yields earned on  interest-bearing  assets and the weighted
interest rates paid on the Bank's  interest-bearing  liabilities,  together with
the net yield on interest earning assets.


                                                     FOR THE YEARS ENDED
                                                        DECEMBER 31,
                                                        ------------
                                                       2000    1999
                                                       ----    ----

Weighted average yield on loans ...................     9.3%   8.9%

Weighted average yield on securities available-
    for-sale ......................................     6.0    5.9

Weighted average yield on all interest-earning
    assets ........................................     8.3    7.8

Weighted average rate paid on deposits ............     4.9    4.6

Weighted average rate paid on
    borrowed funds ................................     6.4    5.8

Weighted average rate paid on all interest-
    bearing liabilities ...........................     5.1    4.6

Interest rate spread (spread between weighted
    average rate on all interest-bearing assets and
    all interest bearing-liabilities) .............     3.2    3.2

Net yield (net interest income as percentage of
    interest-earning assets) ......................     3.4    3.3


                                       3
<PAGE>
                      MANAGEMENT'S DISCUSSION AND ANALYSIS


INTRODUCTION

Pinnacle Bancshares, Inc. (the "Company") is a bank holding company incorporated
under the laws of the State of Delaware.  The Company is the holding company for
Pinnacle Bank (the "Bank"), an Alabama chartered  commercial bank that maintains
six branches in Jasper, Haleyville,  Sumiton, Vestavia and Trussville,  Alabama.
The Bank  converted  from a federal stock  savings bank to an Alabama  chartered
commercial bank and was acquired by the Company in January 1997.

The Company  generates  revenue  primarily  from net interest  margin derived by
soliciting  deposits and  borrowings,  which are used to fund the Company's loan
portfolio,  mortgage-backed  securities,  and investment securities. The Company
also derives revenue from fees and charges on loans and deposit accounts.

Historically,  the Company's  business  strategy has been to engage primarily in
residential  lending and retail consumer lending.  To enhance growth and achieve
greater  portfolio  diversification,  as well as to provide an improved interest
rate spread, the Company's strategy has expanded to include active participation
in commercial real estate and other commercial lending activities in its primary
market area of Walker,  Winston,  Jefferson,  and Shelby Counties.  Although the
inherent risks associated with geographic  concentrations  in the Company's loan
portfolio  do not  appear  to have had a  significant  effect  on the  Company's
earnings to date, any dramatic  fluctuations  in the economic  conditions in the
Company's   market  area  could  have  a  material   effect  on  the   Company's
profitability.

In recent  years,  the Company has expanded its  operations  in the  Birmingham,
Alabama,  metropolitan area. During fiscal year 1998, the Company  established a
new branch in Trussville,  Alabama,  which is located in the  Birmingham  market
area. The Company  currently  intends to expand further in the Birmingham market
as appropriate opportunities become available.

The  following  is a  discussion  and  analysis  of the  consolidated  financial
condition of the Company and the results of  operations  as of the dates and for
the  years  indicated.  It is  intended  to be  read  in  conjunction  with  the
consolidated  financial  statements,  and the notes thereto,  along with various
other financial data disclosures, both current and historical, contained in this
Annual Report.

Management's discussion and analysis includes certain forward-looking statements
addressing , among other  things,  the Company's  prospects for earnings,  asset
growth and net interest margin.  Forward-looking  statements are accompanied by,
and  identified  with,  such  terms  as  "anticipates,"  "believes,"  "expects,"
"intends,"  and similar  phrases.  Management's  expectations  for the Company's
future necessarily  involve a number of assumptions and estimates.  Factors that
could cause  actual  results to differ from the  expectations  expressed  herein
include:  substantial  changes in  interest  rates and  changes  in the  general
economy,  as  well  as  changes  in the  Company's  strategies  for  credit-risk
management,   interest-rate   risk   management   and   investment   activities.
Accordingly, any forward-looking statements included herein do not purport to be
predictions of future events or circumstances and may not be realized.

ASSET-LIABILITY MANAGEMENT

The  Securities  and  Exchange  Commission  issued  final rules in January  1997
governing   disclosure   requirements  for  financial   instruments,   including
derivatives.  The final rules require a detailed  description  of the accounting
policies  used  for  derivatives,   as  well  as  qualitative  and  quantitative
disclosures regarding market risk exposures.

                                        4
<PAGE>

The  Company's  primary  market risk is its exposure to interest  rate  changes.
Interest rate risk  management  strategies are designed to optimize net interest
income while  minimizing  fluctuations  caused by changes in the  interest  rate
environment. It is through these strategies that the Company seeks to manage the
maturity and repricing characteristics of its balance sheet.

Interest   rate  risk   management   is   administered   through  the  Company's
Asset/Liability Committee. This Committee reviews interest rate risk, liquidity,
capital  positions,  and discretionary  on- and off-balance sheet activity.  All
decisions are made within established risk management guidelines and strategies.

The modeling  techniques  used by the Company  simulate net interest  income and
impact on fair values under various rate scenarios.  Important elements of these
techniques include the mix of floating versus fixed rate assets and liabilities,
and the scheduled, as well as expected, repricing and maturing volumes and rates
of the existing  balance sheet.  Under a scenario  simulating a hypothetical 100
basis point rate increase  applied to all fixed rate interest earning assets and
interest-bearing  liabilities, the Company would expect a net gain in fair value
of the underlying instruments of approximately  $560,000. This hypothetical gain
is not a  precise  indicator  of  future  events.  Instead,  it is a  reasonable
estimate of the results  anticipated  if the  assumptions  used in the  modeling
techniques were to occur.

FINANCIAL CONDITION

Total deposits decreased  approximately  $600,000, to $187.5 million at December
31, 2000 from $187.9 million at December 31, 1999. This decrease was primarily a
result of rate competition.  Total assets decreased $763,000,  to $230.3 million
at December 31,  2000,  compared to $231.0  million at December  31, 1999.  This
decrease was due  primarily to a decrease in  securities  available-for-sale  of
approximately  $3.5 million and a decrease in cash and interest bearing deposits
in other banks of  approximately  $2.9  million.  This increase was offset by an
increase in loans  receivable,  net of  approximately  $5.6 million and a slight
increase in all other assets of approximately $37,000.

During the fiscal years ended December 31, 2000 and 1999, the Bank  periodically
borrowed funds from the Federal Home Loan Bank of Atlanta ("FHLB"). The proceeds
from  borrowings  along with the proceeds from loan repayments were used to fund
lending activities.

The Company's  securities  portfolio  decreased to $61.1 million at December 31,
2000 from $64.6 million at December 31, 1999.  The decrease was primarily due to
principal  repayments on  mortgage-backed  securities.  The entire  portfolio is
classified as  "available-for-sale,"  causing it to be marked-to-market with the
unrealized  gains/losses  reflected  directly in stockholders'  equity.  See the
"Liquidity"  discussion  herein  and Note 2 of Notes to  Consolidated  Financial
Statements.

Total  loans  receivable,  net  increased  $5.6  million,  to $152.0  million at
December 31, 2000 from $146.5  million at December 31, 1999.  This  increase was
primarily due to a decrease in the sale of loans of approximately  $14.0 million
during the fiscal year ended  December  31, 2000.  Management  decided to retain
more loans in the Company's portfolio during 2000.

RESULTS OF OPERATIONS

GENERAL.  The Company's income is derived from net interest income, which is the
difference  between interest income on loans and securities and interest expense
on deposits and borrowings.  In addition, net income is affected by the gain and
loss on the sale of loans  and  securities,  loan  servicing  income,  operating
expenses,  and income taxes. Although changes in interest rates necessarily lead
to changes in net interest  income,  the level and direction of overall interest
rates have had a minimal impact on the Company's operations to date.

NET INCOME.  The Company  reported net income of $1,742,000  for the fiscal year
ended  December 31, 2000,  compared  with net income of  $1,678,000 in the prior
year.  The  increase in net income for the year was  attributable  to a $384,000
decrease in loss on sales of real estate  owned.  Additionally,  the increase in
net income was achieved  despite a $353,000  increase in the  provision for loan
losses and a $125,000 decrease in the net gain on loans held for sale.

                                       5
<PAGE>

INTEREST INCOME. Interest income on loans and securities increased approximately
$1.7  million  from the fiscal year ended  December  31, 1999 to the fiscal year
ended  December 31, 2000.  The increase was  primarily due to an increase in the
average  balance of loans and  securities  outstanding  of  approximately  $13.4
million, as well as an increase in yields from 7.8% in 1999 to 8.30% in 2000.

Other  interest  decreased  approximately  $200,000  from the fiscal  year ended
December 31, 1999 to the fiscal year ended  December 31, 2000.  The decrease was
primarily due to a decrease in the average balance of interest-bearing  deposits
in other banks of  approximately  $5.0  million and was offset by an increase in
yields earned.

INTEREST EXPENSE.  Interest expense on deposits increased approximately $400,000
from the fiscal year ended  December 31, 2000  compared to the fiscal year ended
December 31, 1999. The increase was primarily due to an increase in the weighted
average rate paid on deposits, from 4.6% in 1999 to 4.9% in 2000, and was offset
by a decrease in the average balance of deposits of approximately $8.0 million.

Interest  expense on borrowed funds  increased  approximately  $900,000 from the
fiscal year ended  December 31, 1999 to the fiscal year ended December 31, 2000.
The increase was due primarily to an increase in the average balance of borrowed
funds of  approximately  $14.0 million and was  compounded by an increase in the
average rate paid in borrowed funds, from 5.8% in 1999 to 6.4% in 2000.

PROVISIONS  FOR  LOAN  LOSSES.  The  provision  for  loan  losses  is  based  on
management's  analysis of the various factors that affect the loan portfolio and
management's  desire  to  maintain  the  allowance  for loan  losses  at a level
considered adequate to absorb inherent losses. The provision for losses on loans
amounted to $530,000 and $177,000,  for the fiscal years ended December 31, 2000
and 1999,  respectively.  The increase in the  provision in fiscal year 2000 was
primarily  due to overall  loan  portfolio  growth  with a greater  emphasis  on
commercial, construction and consumer lending, which entails greater credit risk
and  increased  charge-offs  incurred by the  Company.  Total  charge-offs  were
$469,000 and  $226,000  for the fiscal  years ended  December 31, 2000 and 1999,
respectively.

Management reviews the adequacy of the allowance for loan losses on a continuous
basis by assessing the quality of the loan portfolio and adjusting the allowance
when appropriate.  Management's  evaluation of certain  specifically  identified
loans includes a review of the financial condition and capacity of the borrower,
the value of the collateral, current economic trends, historical losses, workout
and collection  arrangements,  and possible  concentrations of credit.  The loan
review  process also includes a collective  evaluation of credit  quality within
the mortgage and installment  loan  portfolios.  In establishing  the allowance,
loss   percentages   are   applied  to  groups  of  loans  with   similar   risk
characteristics. These loss percentages are determined by historical experience,
portfolio mix, regulatory  influence,  and other economic factors.  Each quarter
this review is quantified in a report to management,  which uses it to determine
whether  an  appropriate  allowance  is being  maintained.  This  report is then
submitted  to the Board of  Directors  and to the  appropriate  Board  committee
quarterly.  Total nonaccural loans, which include loans on nonaccrual status and
loans 120 days past due,  were  approximately  $2.3  million and $1.1 million at
December 31, 2000 and 1999, respectively.

NONINTEREST  INCOME.  Noninterest  income,  which  includes  fees and charges on
deposit accounts, service fee income on loans, income on real estate operations,
and gain (loss) on sale of assets increased  $133,000 from the fiscal year ended
December 31, 1999 to the fiscal year ended  December 31, 2000.  The increase was
due  primarily to a decrease in the loss on sale and  write-down  of real estate
owned of  $384,000.  This was offset by a  decrease  in gain on sale of loans of
$125,000, and by decreases in all other noninterest income of $126,000.

NONINTEREST EXPENSE.  Noninterest expense decreased $43,000 from the fiscal year
ended December 31, 1999 to the fiscal year ended December 31, 2000. The decrease
was due  primarily to a decrease in  compensation  and benefits of $70,000 and a
decrease in all other  noninterest  expense of $34,000.  This total decrease was
offset by an increase in occupancy of $61,000.

                                       6
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY.  Liquidity  refers to the  ability or the  financial  flexibility  to
manage  future cash flows to meet the needs of  depositors  and borrowers and to
provide  funds for  operations,  as well as future  acquisitions  if they become
available.  Maintaining  appropriate  levels of liquidity  allows the Company to
have sufficient  funds available for reserve  requirements,  customer demand for
loans,  withdrawal  of deposit  balances  and  maturities  of deposits and other
liabilities.  The Company's primary source of liquidity is dividends paid by the
Bank,  which actively manages both assets and liabilities to achieve its desired
level of liquidity.  Alabama law imposes restrictions on the amount of dividends
that may be declared by the Bank.  Further,  any dividend payment by the Bank is
subject  to the  continuing  ability  of the Bank to  maintain  compliance  with
federal  regulatory  capital  requirements.   See  "Market  Price  and  Dividend
Information" and Note 11 of Notes to Consolidated Financial Statements.

In the ordinary  course of its business,  the Company's  primary sources of cash
are interest and fee income,  in addition to loan repayments and the maturity or
sales of other  earning  assets  including  securities.  The  entire  securities
portfolio at December 31, 2000 , was  classified as  available-for-sale,  with a
fair  value  of  $61.1  million.  See  Notes 1 and 2 of  Notes  to  Consolidated
Financial Statements.  At December 31, 2000, liquid assets, consisting primarily
of cash on  hand,  interest-bearing  deposits  in  other  banks  and  securities
available-for-sale,  totaled  approximately  $65.7  million,  compared  to $72.1
million at December 31, 1999. This decrease in liquid assets of $6.4 million was
primarily attributable to the increase in the loan portfolio.

The Bank's  liability  base  provides  liquidity  through  deposit  growth,  the
rollover of maturing  deposits and  accessibility  to external sources of funds,
including borrowings from the FHLB of Atlanta and other sources. At December 31,
2000, the Bank had an approved credit  availability of $29.0 million at the FHLB
of Atlanta. At December 31, 2000, the Bank had $20.5 million in advances on this
credit line.

CAPITAL   RESOURCES.   The  Company's  capital  position  is  reflected  in  its
stockholders'  equity,  subject to certain adjustments for regulatory  purposes.
Stockholders'  equity is a measure of the  Company's  net worth,  soundness  and
viability.  The  capital  base of the  Company  allows  it and the  Bank to take
advantage  of business  opportunities,  while  maintaining  a level of resources
deemed  appropriate  by management to address  business  risks inherent in daily
operations.  Stockholders'  equity at December 31, 2000, was approximately $19.2
million.

Risk-based capital  regulations adopted by the Board of Governors of the Federal
Reserve Board and the Federal Deposit Insurance Corporation require bank holding
companies and banks,  respectively,  to achieve and maintain specified ratios of
capital to risk-weighted  assets.  The risk-based  capital rules are designed to
measure Tier 1 Capital and Total  Capital in relation to the credit risk of both
on- and off-balance sheet items. Under the guidelines,  one of four risk weights
is applied to the different  on-balance  sheet items.  Off-balance  sheet items,
such as loan commitments, are also subject to risk-weighting after conversion to
balance  sheet  equivalent  amounts.  All bank holding  companies and banks must
maintain a minimum total capital to total  risk-weighted  assets ratio of 8.00%,
at  least  half  of  which  must  be in the  form of  core,  or Tier 1,  capital
(consisting of stockholders'  equity, less goodwill).  At December 31, 2000, the
Company and the Bank satisfied the minimum  regulatory  capital  requirement and
were "well-capitalized"  within the meaning of federal regulatory  requirements.
See Note 11 of Notes to Consolidated Financial Statements.

IMPACT OF INFLATION

Virtually  all of the assets and  liabilities  of a  financial  institution  are
monetary in nature. As a result,  interest rates have a more significant  impact
on a financial  institution's  performance than the effects of general levels of
inflation.  Interest rates do not necessarily move in the same direction or with
the same  magnitude as the prices of goods and  services,  since such prices are
affected by inflation. Liquidity and the maturity structure of the Bank's assets
and  liabilities  are  believed  to be critical  to the  maintenance  of desired
performance levels, and management  considers the Bank's liquidity sources to be
adequate to meet its current and projected needs.

                                       7
<PAGE>

                      MARKET PRICE AND DIVIDEND INFORMATION

The common stock of the Company is traded on the American  Stock  Exchange under
the symbol "PLE".  As of December 31, 2000, the Company had 1,775,384  shares of
common stock  outstanding and 392  stockholders  of record.  This total does not
reflect the number of persons or  entities  who hold stock in nominee or "street
name" through various brokerage firms.

Following are the high and low sale prices of the Company's common stock for the
periods indicated:

                                                           Price Range
                                                          Common Stock
                                                          ------------
                                                     High             Low
                                                     ----             ---

      Fiscal Year Ended December 31, 2000
            First quarter                      $     9-1/4         $   7-5/8
            Second quarter                           9-1/2             7-3/4
            Third quarter                            9-1/8             8
            Fourth quarter                           8-13/16           6-1/2

      Fiscal Year Ended December 31, 1999
            First quarter                      $    12             $   9
            Second quarter                          11-3/16            9-1/2
            Third quarter                           10-1/8             8-1/2
            Fourth quarter                           9-1/2             8


Dividends  of $.40 ($.10 in each of the four  quarters)  were  declared and paid
during each of fiscal  years 2000 and 1999.  Under  Alabama law, the approval of
the  Superintendent of Banks of the State of Alabama is required if the total of
all the  dividends  declared by the Bank in any calendar year exceeds the Bank's
net income as defined for that year  combined  with its  retained net income for
the  preceding  two  calendar  years.  Federal  law  provides  that  no  insured
depository  institution  may make any  capital  distribution  (including  a cash
dividend)  if the  institution  would  not  satisfy  one or more of its  minimum
capital requirements after the distribution.

                                       8
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Pinnacle Bancshares, Inc.:

We have audited the accompanying  consolidated statements of financial condition
of Pinnacle  Bancshares,  Inc. (a Delaware  corporation)  and  subsidiary  as of
December  31,  2000  and  1999,  and  the  related  consolidated  statements  of
operations, stockholders' equity, and cash flows for the years then ended. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits  provide 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 Bancshares,
Inc. and  subsidiary as of December 31, 2000 and 1999,  and the results of their
operations  and their cash flows for the years then ended,  in  conformity  with
accounting principles generally accepted in the United States.

                                                         /s/ ARTHUR ANDERSEN LLP



Birmingham, Alabama
February 23, 2001

                                       9
<PAGE>

                            PINNACLE BANCSHARES, INC.

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                           DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                             2000             1999
                                                                             ----             ----
ASSETS:
<S>                                                                     <C>              <C>
      Cash on hand and in banks                                         $   3,480,036    $   5,289,619
      Interest-bearing deposits in other banks                              1,135,957        2,177,294
      Securities available-for-sale                                        61,068,531       64,599,164
      Loans held for sale                                                   1,337,032          893,733
      Loans receivable, net of allowance for loan losses
         of $1,338,631 and $1,222,978, respectively                       152,020,585      146,429,690
      Real estate owned, net                                                1,420,143        1,521,533
      Premises and equipment, net                                           6,463,478        6,995,375
      Goodwill                                                                347,355          388,220
      Accrued interest receivable                                           2,331,537        1,982,134
      Other assets                                                            664,373          754,801
                                                                        -------------    -------------
                      Total assets                                      $ 230,269,027    $ 231,031,563
                                                                        =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY:
      Deposits                                                          $ 187,470,754    $ 187,884,044
      Borrowed funds                                                       20,500,000       21,890,000
      Official checks outstanding                                             964,038        1,529,946
      Accrued interest payable                                              1,431,604        1,737,710
      Other liabilities                                                       672,306          141,101
                                                                        -------------    -------------
                      Total liabilities                                   211,038,702      213,182,801
                                                                        =============    =============

COMMITMENTS AND CONTINGENCIES (NOTES 3, 5, AND 13)

STOCKHOLDERS' EQUITY:
      Preferred stock, par value $.01 per share, no shares issued,
           100,000 authorized                                                       0                0
      Common stock, par value $.01 per share, 1,775,384 and 1,792,086
           issued,  2,400,000 authorized                                       17,921           17,921
      Additional paid-in capital                                            8,131,746        8,131,746
      Treasury stock, at cost (16,702 shares at December 31, 2000)           (128,075)               0
      Retained earnings                                                    11,440,810       10,414,858
      Accumulated other comprehensive loss, net of tax                       (232,077)        (715,763)
                                                                        -------------    -------------
                      Total stockholders' equity                           19,230,325       17,848,762
                                                                        -------------    -------------
                      Total liabilities and stockholders' equity        $ 230,269,027    $ 231,031,563
                                                                        =============    =============
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       10
<PAGE>
                            PINNACLE BANCSHARES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
<TABLE>
<CAPTION>
                                                           2000             1999
                                                           ----             ----
INTEREST REVENUES:
<S>                                                    <C>             <C>
      Interest on loans                                $ 13,895,419    $ 12,041,424
      Interest and dividends on securities                3,799,526       3,760,885
      Other interest                                        110,404         328,178
                                                         ----------      ----------
                                                         17,805,349      16,130,487

INTEREST EXPENSE:
      Interest on deposits                                9,223,769       8,831,557
      Interest on borrowed funds                          1,349,378         406,927
                                                         ----------      ----------
                                                         10,573,147       9,238,484
                                                         ----------      ----------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES      7,232,202       6,892,003
PROVISION FOR LOAN LOSSES                                   530,000         177,000
                                                         ----------      ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES       6,702,202       6,715,003
                                                         ----------      ----------
NONINTEREST INCOME:
      Fees and service charges on deposit accounts          474,335         460,864
      Service fee income, net                               171,324         189,954
      Fees and charges on loans                             240,679         231,524
      Net gain (loss) on sale or write-down of:
           Loans held for sale                              358,977         484,066
           Real estate owned                                (64,001)       (447,900)
      Other income                                           68,586         197,953
                                                         ----------      ----------
                                                          1,249,900       1,116,461
                                                         ----------      ----------
 NONINTEREST EXPENSE:
      Compensation and benefits                           2,838,833       2,908,928
      Occupancy                                           1,209,140       1,148,041
      Marketing and professional                            159,349         159,730
      Other                                                 944,691         978,523
                                                         ----------      ----------
                                                          5,152,013       5,195,222
                                                         ----------      ----------
INCOME BEFORE INCOME TAX EXPENSE                          2,800,089       2,636,242

INCOME TAX EXPENSE                                        1,058,488         958,520
                                                         ----------      ----------
NET INCOME                                             $  1,741,601    $  1,677,722
                                                       ============    ============
BASIC EARNINGS PER SHARE                               $       0.97    $       0.94
DILUTED EARNINGS PER SHARE                             $       0.97    $       0.93
CASH DIVIDENDS PER SHARE                               $       0.40    $       0.40
WEIGHTED AVERAGE  BASIC SHARES OUTSTANDING                1,789,457       1,791,079
WEIGHTED AVERAGE DILUTED SHARES                           1,789,457       1,796,474

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

                                       11

<PAGE>
                            PINNACLE BANCSHARES, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
<TABLE>
<CAPTION>
                                                                                                        ACCUMULATED
                                                                  ADDITIONAL                               OTHER         TOTAL
                                                COMMON STOCK       PAID-IN    TREASURY     RETAINED     COMPREHENSIVE STOCKHOLDERS'
                                              SHARES     AMOUNT     CAPITAL     STOCK      EARNINGS      GAIN (LOSS)     EQUITY
                                              ------     ------     -------     -----      --------      -----------     ------
<S>                                         <C>        <C>        <C>         <C>         <C>            <C>          <C>
BALANCE, December 31, 1998                  1,789,586  $ 17,895   $8,109,740  $       0   $ 9,453,693    $  30,779    $ 17,612,107
      Comprehensive Income:
      Net Income                                    0         0            0          0     1,677,722            0       1,677,722
      Change in unrealized gain (loss) on
           securities available-
           for-sale, net of tax                     0         0            0          0             0     (746,542)       (746,542)
         Comprehensive Income                 931,180
      Cash dividends ($.40 per share)               0         0            0          0      (716,557)           0        (716,557)
      Exercise of stock options                 2,500        26       22,006          0             0            0          22,032
                                           ----------  --------   ----------  ---------   -----------    ---------    ------------
BALANCE, December 31, 1999                  1,792,086    17,921    8,131,746          0    10,414,858     (715,763)     17,848,762
                                            =========    ======    =========  =========    ==========     ========      ==========
      Comprehensive Income:
      Net Income                                    0         0            0          0     1,741,601            0       1,741,601
      Change in unrealized gain (loss) on
           securities available-
           for-sale, net of tax                     0         0            0          0             0      483,686         483,686
                                                                                                                      ------------
         Comprehensive Income               2,225,287
      Cash dividends ($.40 per share)               0         0            0          0      (715,649)           0        (715,649)
      Repurchase of common stock              (16,702)        0            0   (128,075)            0     (128,075)       (128,075)
                                           ----------  --------   ----------  ---------   -----------    ---------    ------------
BALANCE, December 31, 2000                  1,775,384  $ 17,921   $8,131,746   (128,075)  $11,440,810     (128,075)   $ 19,230,325
                                            =========    ======    =========  =========    ==========     ========      ==========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       12
<PAGE>

                            PINNACLE BANCSHARES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
<TABLE>
<CAPTION>
                                                                                               2000             1999
                                                                                               ----             ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                       <C>              <C>
      Net income                                                                          $   1,741,601    $   1,677,722
      Adjustments to reconcile net income to net cash provided by operating activities:
           Depreciation                                                                         591,551          556,802
           Provision for loan losses                                                            530,000          177,000
           Provision for losses on real estate owned                                             46,000          458,785
           Provision (benefit) for deferred taxes                                               148,571          (13,068)
           Amortization, net                                                                   (387,679)        (430,375)
      Net (gain) loss on sale and write-down of:
           Loans held for sale                                                                 (358,977)        (484,066)
           Premises and equipment                                                                     0             (500)
           Securities available-for-sale                                                              0               93
           Real estate owned                                                                     64,001          (10,885)
      Proceeds from sale of loans                                                            35,810,970       49,910,385
      Loans originated for sale                                                             (35,895,292)     (47,334,354)
      Decrease (increase) in accrued interest receivable                                       (349,403)        (595,926)
      Decrease (increase) in other assets                                                      (653,564)          (8,877)
      Increase (decrease) in accrued interest payable                                          (306,106)          45,117
      (Increase) decrease in other liabilities                                                  838,259         (498,820)
                                                                                          -------------    -------------
                      Net cash provided by operating activities                               1,819,932        3,449,033
                                                                                          -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Principal collected on loans and securities                                            81,473,340       97,634,566
      Loans originated for portfolio                                                        (85,695,240)    (109,496,846)
      Net change in interest bearing deposits in other banks                                  1,041,337       28,668,123
      Purchase of securities available-for-sale                                                 (50,000)     (46,915,405)
      Proceeds from sale of securities available-for-sale                                        12,017        4,000,093
      Proceeds from maturing and callable securities available-for-sale                       1,000,000       11,620,700
      Purchases of premises and equipment                                                       (79,108)        (913,508)
      Proceeds from sales of premises and equipment                                              19,454           10,148
      Proceeds from sale of real estate owned                                                 1,861,607          823,344
                                                                                          -------------    -------------
                            Net cash used in investing activities                              (416,593)     (14,568,785)
                                                                                          -------------    -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Net increase (decrease) in passbook, NOW, and money market deposit accounts            (3,568,032)      (1,430,751)
      Proceeds from sales of time deposits                                                   27,584,624       19,999,705
      Payments on maturing time deposits                                                    (24,429,882)     (24,126,761)
      Net increase (decrease) in borrowed funds                                              (1,390,000)      18,370,000
      Increase (decrease) in official checks outstanding                                       (565,908)         330,712
      Repurchase of common stock                                                               (128,075)               0
      Proceeds from stock options exercised                                                           0           22,032
      Payments of cash dividends                                                               (715,649)        (716,557)
                                                                                          -------------    -------------
                            Net cash provided by (used in) financing activities              (3,212,922)      12,448,380
                                                                                          -------------    -------------

NET INCREASE (DECREASE) IN CASH                                                              (1,809,583)       1,328,628

CASH AT BEGINNING OF PERIOD                                                                   5,289,619        3,960,991
                                                                                          -------------    -------------
CASH AT END OF PERIOD                                                                     $   3,480,036    $   5,289,619
                                                                                          =============    =============
SUPPLEMENTAL DISCLOSURES:
      Cash payments for interest on deposits and borrowed funds                           $   9,666,809    $   9,176,467
      Cash payments for income taxes                                                            787,000        1,330,263
      Real estate acquired through foreclosure                                                1,870,218          617,821
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       13
<PAGE>
                            PINNACLE BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2000 AND 1999


1.   SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

     Following  is a  description  of the  business  and  the  more  significant
     accounting policies followed by Pinnacle  Bancshares,  Inc. (the "Company")
     and Pinnacle Bank (the "Bank") in  presenting  the  consolidated  financial
     statements.

     NATURE OF OPERATIONS

     The Bank is primarily  in the  business of  obtaining  funds in the form of
     various  savings  deposit  products and investing  those funds in mortgage,
     consumer,  and  commercial  loans.  The Bank operates in six offices in the
     central and northwest  portion of Alabama and  originates its loans in this
     market area. The Company's principal  activities do not constitute separate
     reportable  segments of its  business,  but encompass  traditional  banking
     activities  which  offer  similar  products  and  services  within the same
     primary geographic area and regulatory and economic environment.

     USE OF ESTIMATES

     The  preparation  of financial  statements  in conformity  with  accounting
     principles  generally accepted in the United States requires  management to
     make estimates and assumptions  that affect the reported  amounts of assets
     and liabilities and disclosures of contingent assets and liabilities at the
     date of the financial  statements  and the reported  amounts of revenue and
     expenses during the reporting period.  Actual results may differ from those
     estimates.  The primary  estimates  that are reflected in the  consolidated
     financial  statements are the valuation allowances for loan losses and real
     estate owned.

     CONSOLIDATION

     The consolidated  financial  statements include the accounts of the Company
     and the Bank. All significant  intercompany  transactions and accounts have
     been eliminated in consolidation.

     CASH AND CASH EQUIVALENTS

     Cash and cash equivalents include cash on hand and in banks.

     SECURITIES

     Securities  are  classified as  available-for-sale  and are carried at fair
     value. The unrealized  difference  between amortized cost and fair value of
     securities available-for-sale is excluded from earnings and is reported net
     of  deferred  taxes as a  separate  component  of  stockholders'  equity in
     accumulated  other   comprehensive  gain  (loss).  The   available-for-sale
     category includes  securities that management intends to use as part of its
     asset/liability  management  strategy  or that may be sold in  response  to
     changes in interest rates,  changes in prepayment risk, liquidity needs, or
     for other purposes.  Included in securities  available-for-sale is stock in
     the Federal Home Loan Bank, which is carried at cost as there is no readily
     available market for this stock.

     Amortization  of premiums and accretion of discounts is computed  using the
     level yield method. The adjusted cost of the specific security sold is used
     to compute gain or loss on the sale of securities.

                                       14
<PAGE>

     LOANS HELD FOR SALE

     Loans held for sale are carried at the lower of aggregate amortized cost or
     fair  value as such  loans are not  intended  to be held to  maturity.  Net
     unrealized  losses  measured in the aggregate are recognized in a valuation
     allowance  by charges to income.  There were no  unrealized  losses  during
     December 31, 2000 or 1999.  Gains or losses on loan sales are recognized at
     the time of sale and are  determined  by the  difference  between net sales
     proceeds and the carrying value of the loan sold.

     LOANS RECEIVABLE

     Loans  receivable are stated at their unpaid  principal  balance,  less the
     undisbursed  portion of loans,  unearned interest income, net deferred loan
     fees, and an allowance for loan losses. Unearned interest on consumer loans
     is accreted  into income by use of a method  which  approximates  the level
     yield method over the lives of the related  loans.  Loans that are 120 days
     contractually  past due  generally  are placed on  nonaccrual  status,  and
     uncollected accrued interest is reversed. Income is subsequently recognized
     only to the extent that cash payments are received  until,  in management's
     judgment,  the borrower's  ability to make interest and principal  payments
     has been  demonstrated,  in which  case the  loan is  returned  to  accrual
     status.

     ALLOWANCE FOR LOAN LOSSES

     The allowance  for loan losses is  maintained  at a level which  management
     considers to be adequate to absorb losses  inherent in the loan  portfolio.
     Management's  estimation  of the  amount  of the  allowance  is  based on a
     continuing  evaluation  of the loan  portfolio and includes such factors as
     economic  conditions,  analysis  of  individual  loans,  overall  portfolio
     characteristics,  delinquencies  and  the  balance  of any  impaired  loans
     (generally  considered to be  nonperforming  loans,  excluding  residential
     mortgages and other homogeneous loans). Changes in the allowance can result
     from changes in economic events or changes in the  creditworthiness  of the
     borrowers.  The effect of these  changes is  reflected  when known.  Though
     management believes the allowance for loan losses to be adequate,  ultimate
     losses may vary from  estimations.  Specific  allowances for impaired loans
     are  based  on  comparisons  of the  carrying  values  of the  loans to the
     estimated fair value of the collateral.

     LOAN ORIGINATION FEES, LOAN COMMITMENT FEES AND PREMIUMS AND DISCOUNTS

     Amortization of loan fees, net of certain direct costs of loan origination,
     are treated as an  adjustment  to the yield of the  related  loans over the
     contractual  term of the loan adjusted for prepayments as they occur.  Loan
     commitment   fees  are  recognized  into  income  upon  expiration  of  the
     commitment period or sale of the loan, unless the commitment results in the
     loan being funded and maintained in the loan portfolio.

     REAL ESTATE OWNED

     Real estate owned acquired through foreclosure is carried at the fair value
     of the foreclosed property, less estimated costs of disposition at the date
     of foreclosure. Any excess of the recorded investment over fair value, less
     estimated costs of disposition of the property, is charged to the allowance
     for loan losses at the time of foreclosure. Subsequent to foreclosure, real
     estate owned is evaluated on an individual basis for changes in fair value.
     Declines in fair value of the asset,  less costs of  disposition  below its
     carrying amount,  require an increase in the valuation  allowance  account.
     Future increases in fair value of the asset, less cost of disposition,  may
     cause a reduction in the valuation  allowance account,  but not below zero.
     Increases or decreases in the  valuation  allowance  account are charged or
     credited to income.  Costs relating to the  development  and improvement of
     property are capitalized, whereas costs relating to the holding of property
     are expensed.

     The  recognition  of gains and losses on the sale of real  estate  owned is
     dependent  upon  whether  the  nature  and  terms of the  sale  and  future
     involvement of the Bank in the property meet certain  requirements.  If the
     transaction  does  not  meet  these  requirements,  income  recognition  is
     deferred and  recognized  under an  alternative  method in accordance  with
     Statement of Financial Accounting Standards ("SFAS") No. 66, Accounting for
     Sales of Real Estate.

                                       15
<PAGE>

     LONG-LIVED ASSETS

     Land is carried at cost.  Premises  and  equipment  are stated at cost less
     depreciation  computed on a straight-line  basis over the estimated service
     lives of the related assets (30 to 50 years for buildings, shorter of lease
     period  or  estimated  life  approximating  10 to 15  years  for  leasehold
     improvements and 3 to 10 years for equipment). Expenditures for maintenance
     and  repairs  are  charged to  operations  as  incurred;  expenditures  for
     renewals  and   improvements   are  capitalized  and  written  off  through
     depreciation and amortization charges. Equipment retired or sold is removed
     from the asset and related accumulated  depreciation amounts and any profit
     or loss resulting  therefrom is reflected in the accompanying  consolidated
     statements of operations.

     Goodwill  arose from a merger  which was  accounted  for under the purchase
     method of accounting and is being amortized over its estimated  useful life
     of 20 years.  Accumulated  amortization  at December  31, 2000 and 1999 was
     approximately $561,802 and $602,667, respectively.

     The Company  continually  evaluates whether events and  circumstances  have
     occurred  that  indicate  such   long-lived   assets  have  been  impaired.
     Measurement of any impairment of such  long-lived  assets is based on those
     assets' fair values and is recognized  through a valuation  allowance  with
     the resulting charge reflected in the accompanying  consolidated statements
     of  income.  There were no  impairment  losses  recorded  during any period
     reported herein.

     EARNINGS PER SHARE

     Basic  earnings per share ("EPS") is computed by dividing net income by the
     weighted average number of shares  outstanding  during the period.  Diluted
     EPS is computed in the same manner,  except the number of weighted  average
     shares  outstanding is adjusted for the number of additional  common shares
     that would have been  outstanding  if the potential  common shares had been
     issued.

     The following table represents the earnings per share  calculations for the
     years ended December 31, 2000, and 1999:
<TABLE>
<CAPTION>
                                                        NET                                 PER SHARE
               FOR THE YEARS ENDED                     INCOME                 SHARES         AMOUNT
               -------------------                     ------                 ------         ------
          <S>                                      <C>                     <C>           <C>
          December 31, 2000
                Basic earnings per share           $    1,741,601          1,789,457     $       0.97
                Dilutive securities                             0                  0             0.00
                Diluted earnings per share         $    1,741,601          1,789,457     $       0.97

          December 31, 1999
                Basic earnings per share           $    1,677,722          1,791,079     $       0.94
                Dilutive securities                             0              5,395             0.01
                Diluted earnings per share         $    1,677,722          1,796,474     $       0.93

</TABLE>

     Options to purchase  48,500 shares of common stock at $10.125 per share and
     options to purchase 54,560 shares of common stock at $8.8125 per share were
     outstanding  during  all four  quarters  of 2000.  These  options  were not
     included in the  computation  of diluted EPS because the options'  exercise
     prices were greater than the average market price of the common shares. The
     options,  which expire on August 28, 2006 and May 26,  2009,  respectively,
     were still outstanding at December 31, 2000.

     RECLASSIFICATIONS

     Certain  amounts in the 1999 financial  statements  have been  reclassified
     from  amounts  previously  reported in order to be  comparable  to the 2000
     classification. These classifications have no effect on previously reported
     retained earnings or net income during the periods involved.


                                       16
<PAGE>

     PENDING ACCOUNTING PRONOUNCEMENTS

     In June 1998,  the Financial  Accounting  Standard  Board  ("FASB")  issued
     Statement of Financial  Accounting  Standards ("SFAS") No. 133,  Accounting
     for  Derivative   Instruments  and  Hedging   Activities.   This  Statement
     establishes  accounting and reporting standards for derivative  instruments
     embedded in other contracts  (collectively  referred to as derivatives) and
     for  hedging   activities.   It  requires  that  an  entity  recognize  all
     derivatives  as  either  assets or  liabilities  in the  balance  sheet and
     measure  those  instruments  at fair value.  Under  certain  conditions,  a
     derivative  may be  specifically  designated  as a  hedge.  Accounting  for
     changes in fair value of derivatives will depend on their  designation.  In
     June  1999,  the  FASB  issued  SFAS  No.  137  Accounting  for  Derivative
     Instruments  and Hedging  Activities- A Deferral of the  Effective  Date of
     FASB  Statement No. 133. This  Statement  amends the effective date of SFAS
     No. 133, which will now be effective for all fiscal  quarters of all fiscal
     years  beginning June 15, 2000. In June 2000, the FASB issued SFAS No. 138,
     Accounting  for  Certain   Derivative   Instruments   and  Certain  Hedging
     Activities-An Amendment to FASB Statement No. 133. This Statement addresses
     a limited number of issues causing implementation difficulties for numerous
     entities  that  apply  SFAS133  and  amends the  accounting  and  reporting
     standards of SFAS No. 133 for certain  derivative  instruments  and certain
     hedging activities.

     The Bank uses  derivatives  to hedge  interest rate exposures by mitigating
     the interest rate risk of mortgage  loans held for sale and mortgage  loans
     in process. The Bank regularly enters into derivative financial instruments
     in the form of forward  contracts,  as part of its  normal  asset/liability
     management  strategies.  The Bank's  obligations  under  forward  contracts
     consist of "best effort"  commitments to deliver  mortgage loans originated
     into the  secondary  market  at a future  date.  In  addition,  the  FASB's
     Derivatives  Implementation  Group ("DIG") recently announced that interest
     rate lock  commitments  related to loans that are originated for later sale
     are to be classified as derivatives.  In the normal course of business, the
     Bank regularly  extends these rate lock commitments to customers during the
     loan origination process.

     On January 1, 2001,  the Bank adopted SFAS No. 133, as amended.  Management
     completed  its  assessment  of the impact of this  Statement  on the Bank's
     financial position and results of operations and such impact is immaterial.

     In September  2000,  the FASB issued SFAS No.140,  Accounting for Transfers
     and Servicing of Financial  Assets and  Extinguishments  of Liabilities,  a
     replacement of FASB Statement No.125.  This Statement revises the standards
     for accounting for  securitizations and other transfers of financial assets
     and collateral and requires certain disclosures. The Statement is effective
     for  transfers  and servicing of financial  assets and  extinguishments  of
     liabilities  occurring  after March 31,  2001.  However,  the  Statement is
     currently effective for recognition and  reclassification of collateral and
     for disclosures  relating to  securitization  transactions  and collateral.
     Accordingly,  disclosures  pertaining  to  collateral  have  been  properly
     included in these consolidated financial statements.

                                       17
<PAGE>

2.   SECURITIES

     The amortized cost,  unrealized gross gains and losses,  and estimated fair
     value of securities available-for-sale at December 31, 2000 and 1999 are as
     follows:
<TABLE>
<CAPTION>
                                                                              December 31, 2000
                                                     ----------------------------------------------------------------
                                                       Amortized         Unrealized       Unrealized         Fair
                                                         Cost            Gross Gain       Gross Loss        Value
                                                         ----            ----------       ----------        -----
       <S>                                            <C>                 <C>            <C>             <C>
       Securities of U.S. Government Agencies         $47,000,000         $26,474        $(272,660)      $46,753,814
       Federal Home Loan Bank Stock                       975,000               0                0           975,000
       Other Securities                                    28,677               0                0            28,677
       Mortgage-Backed Securities                      13,386,187          55,006         (130,153)       13,311,040
                                                      -----------         -------        ---------       -----------
                                                      $61,389,864         $81,480        $(402,813)      $61,068,531
                                                      ===========         =======        =========       ===========

                                                                              December 31, 1999
                                                     ----------------------------------------------------------------
                                                       Amortized         Unrealized       Unrealized         Fair
                                                         Cost            Gross Gain       Gross Loss        Value
                                                         ----            ----------       ----------        -----

     Securities of U.S. Government Agencies           $48,000,000        $694,512      $(1,579,000)      $47,115,512
     Federal Home Loan Bank Stock                         925,000               0                0           925,000
     Other Securities                                      40,695               0                0            40,695
     Mortgage-Backed Securities                        16,767,721          16,315         (266,079)       16,517,957
                                                      -----------         -------        ---------       -----------
                                                      $65,733,416        $710,827      $(1,845,079)      $64,599,164
                                                      ===========        ========      ===========       ===========
</TABLE>
     The   amortized    cost   and   estimated    fair   value   of   securities
     available-for-sale  at December 31, 2000 by contractual  maturity are shown
     below. Expected maturities will differ from contractual  maturities because
     the  issuers  may have  the  right to call or  prepay  obligations  with or
     without call or prepayment penalties.

                                                      Amortized         Fair
                                                         Cost           Value
                                                         ----           -----

Due in one year or less                              $15,000,000     $14,937,626
Due after one year through five years                 32,000,000      31,816,188
Due after five years through ten years                    28,677          28,677
                                                      ----------      ----------
                                                      47,028,677      46,782,491

Federal Home Loan Bank Stock                             975,000         975,000
Mortgage-Backed Securities                            13,386,187      13,311,040
                                                      ----------      ----------
                                                     $61,389,864     $61,068,531
                                                     ===========     ===========

     Securities  of  approximately  $18,960,960,  and  $18,326,000  at  December
     31,2000, and 1999, respectively,  were pledged to secure deposits. Deposits
     associated   with  pledged   securities   had  an   aggregate   balance  of
     approximately  $17,577,677  and  $15,153,000 at December 31, 2000 and 1999,
     respectively.  Proceeds  from sales of securities  available-for-sale  were
     $12,017  and  $4,000,093  in 2000,  and 1999,  respectively.  Gross  losses
     realized on those sales were immaterial.

                                       18
<PAGE>
3.   LOANS RECEIVABLE

     Loans receivable, net, are summarized as follows:

                                                   December 31,    December 31,
                                                      2000             1999
                                                      ----             ----

Real estate mortgage loans with variable rates   $  42,352,776    $  42,848,539
Real estate mortgage loans with fixed rates         54,238,495       51,438,830
Real estate construction loans                      39,044,106       38,446,289
Commercial loans                                    16,798,531       14,363,880
Consumer loans                                      13,099,150       12,442,463
                                                   -----------      -----------
                                                   165,533,058      159,540,001

Allowance for loan losses                           (1,338,631)      (1,222,978)
Loans in process                                   (11,887,366)     (11,580,237)
Other unearned amounts                                (286,476)        (307,096)
                                                   -----------      -----------
                                                 $ 152,020,585    $ 146,429,690
                                                 =============    =============

     During fiscal years 2000 and 1999, certain executive officers and directors
     of the Bank were loan  customers of the Bank.  Total loans  outstanding  to
     these  persons at  December  31, 2000 and 1999  amounted  to  $359,508  and
     $345,494,  respectively.  The change from December 31, 1999 to December 31,
     2000  reflects  payments  amounting to $72,854 and advances of $86,868 made
     during the year.

     The Bank has a credit  concentration  in residential  real estate  mortgage
     loans.  Approximately $106 million and $96 million at December 31, 2000 and
     1999, respectively, of the Bank's total loan portfolio represented first or
     second mortgage  residential  real estate loans.  Substantially  all of the
     Bank's loan  customers are located in the Bank's  primary  lending areas of
     Walker, Winston,  Jefferson,  and Shelby Counties in Alabama.  Although the
     Bank has generally conservative underwriting standards,  including a policy
     calling for low loan to collateral  values, the ability of its borrowers to
     meet  their   mortgage   obligations   is  dependent  upon  local  economic
     conditions.  At December 31, 2000, the largest amount loaned by the Bank to
     one borrower was $2.5 million which was  approximately 15% of the Company's
     stockholders' equity.

     A reconciliation of the allowance for loan losses is as follows:

                                                2000           1999
                                                ----           ----
            Balance at beginning of year      $1,222,978      $1,200,586
            Provision                            530,000         177,000
            Charge-offs, net of recoveries      (414,347)       (154,608)
                                              ----------      ----------
            Balance at end of year            $1,338,631      $1,222,978
                                              ==========      ==========

     The Bank was servicing first mortgage loans for others totaling $65,517,757
     and $71,206,596 at December 31, 2000 and 1999, respectively.

     At  December  31,  2000  the  Bank  had  outstanding  loan  commitments  of
     $22,113,556  including  $11,887,366  in undisbursed  construction  loans in
     process; $8,696,940 in unused lines and letters of credit and credit cards;
     and  $1,529,250  in  commitments  to originate  mortgage  loans  consisting
     primarily of 30-day  commitments.  Commitments  to  originate  conventional
     mortgage loans  consisted of fixed-rate  mortgages for which interest rates
     had not been established, all having terms ranging from 15 to 30 years.

     The recorded investment in impaired loans at December 31, 2000 and December
     31, 1999 was approximately $634,000 and $331,000,  respectively. There were
     $279,000  and $66,000 in specific  reserves on these loans at December  31,
     2000 and 1999,  respectively.  The average recorded  investment in impaired
     loans during the

                                       19
<PAGE>

     year  ended  December  31,  2000 and 1999 was  approximately  $354,633  and
     $325,088, respectively.  Interest income on impaired loans was not material
     for either period.

4.   REAL ESTATE OWNED

     Activity in the allowance for losses on real estate owned is as follows:


                                                    2000             1999
                                                    ----             ----

          Balance at beginning of year           $ 681,780         $ 536,000
          Provision                                 46,000           458,785
          Charge-offs, net of recoveries          (554,052)         (313,005)
                                                 ---------         ---------
          Balance at end of year                 $ 173,728         $ 681,780
                                                 =========         =========

5.   PREMISES AND EQUIPMENT

     Premises  and  equipment at December  31, 2000 and 1999 are  summarized  as
     follows:

                                                      2000              1999
                                                      ----              ----

        Land                                      $   883,230      $   883,230
        Buildings and leasehold improvements        6,297,851        6,294,008
        Furniture, fixtures, and equipment          4,170,772        4,116,499
        Automobiles                                   114,683          114,683
                                                   ----------       ----------
                                                   11,466,536       11,408,420
        Less accumulated depreciation              (5,003,058)      (4,413,045)
                                                   ----------       ----------
                                                   $6,463,478       $6,995,375
                                                   ==========       ==========

     The Bank had noncancelable  operating leases for the main and branch office
     sites. Occupancy expenses for the fiscal years ended December 31, 2000, and
     1999,  respectively,  include  rental expense under these leases of $93,060
     and  $84,770,  respectively.  Future  rental  payments  subject to periodic
     renegotiations required under these leases are as follows:


             At December 31, 2000                  Amount
             --------------------                  ------

                    2001                         $  54,684
                    2002                            54,684
                    2003                            45,300
                    2004                            45,300
                    2005                            45,900
                    Thereafter                     213,300
                                                  --------
                                   Total          $459,168
                                                  ========

     The Bank has a lease  agreement  for the  building in which the main office
     branch is located  that  generated  income of $105,727  and $85,976 for the
     fiscal years ended December 31, 2000, and 1999, respectively. The Bank also
     has a lease  from a  related  party for a  building  that  formerly  housed
     administrative offices. This lease generated income of $50,000, for each of
     the fiscal  years ended  December  31, 2000,  and 1999,  respectively,  and
     expires December 31, 2001.

                                       20
<PAGE>

6.   DEPOSITS

     Deposits at December 31, 2000 and 1999 are summarized as follows:

                                                         2000            1999
                                                         ----            ----

Passbook accounts                                    $ 14,083,239   $ 14,798,171
NOW accounts                                           13,507,179     15,068,042
Money Market deposit accounts                           8,848,025      9,771,744
Noninterest-bearing accounts                            7,467,552      7,646,537
                                                      -----------    -----------
                                                       43,905,995     47,284,494

Time deposits:
     Fixed-rate certificates less than $100,000        92,947,330     95,026,094
     Fixed-rate certificates greater than $100,000     50,617,429     45,573,456
                                                      -----------    -----------
                                                      143,564,759    140,595,550
                                                      -----------    -----------
                                                     $187,470,754   $187,884,044
                                                     ============   ============

     The amounts and scheduled  maturities of time deposits at December 31, 2000
     are as follows:

                    2001                             $108,316,924
                    2002                               22,447,206
                    2003                                8,119,910
                    2004                                1,356,787
                    2005 and thereafter                 3,323,932
                                                     ------------
                                                     $143,564,759
                                                     ============

     Interest expense on deposits is summarized as follows:

                                                   2000               1999
                                                   ----               ----

        Passbook accounts                      $   367,766        $   398,237
        NOW accounts                               295,939            309,081
        Money Market deposit accounts              323,710            414,692
        Time deposits                            8,236,354          7,709,547
                                                ----------         ----------
                                                $9,223,769         $8,831,557
                                                ==========         ==========

                                       21
<PAGE>

7.   BORROWED FUNDS

     Borrowed funds at December 31, 2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
                                                                                             2000            1999
                                                                                             ----            ----

     <S>                                                                             <C>                 <C>
     Warrants payable: $150,000 with an interest rate of 5.84% maturing one year
     or less;  $335,000 with an interest rate of 5.87% maturing greater than one
     year  through 3 years;  $390,000  with an interest  rate of 5.92%  maturing
     greater than 3 years through 5 years;  $2,375,000  with an interest rate of
     5.99% maturing after 5 years                                                    $    3,250,000      $    3,390,000


     Short term  advances  from the Federal Home Loan Bank of Atlanta:  $750,000
     daily rate  credit with an interest  rate of 6.35% at  December  31,  2000;
     $7,500,000  with  an  interest  rate  of  6.98%  maturing  July  30,  2001;
     $4,000,000  with an interest rate of 6.85% maturing  November 30, 2001; and
     $5,000,000 with an interest rate of 6.85% maturing December 31, 2001                17,250,000          18,500,000
                                                                                     --------------      --------------
                                                                                     $   20,500,000      $   21,890,000
                                                                                     ==============      ==============

</TABLE>


     The Bank has an approved credit  availability of $29,000,000 at the Federal
     Home Loan Bank of Atlanta.  The maximum amount  outstanding  under advances
     from  the  Federal  Home  Loan  Bank of  Atlanta  during  2000 and 1999 was
     $22,250,000 and $19,500,000,  respectively.  The average amount outstanding
     during 2000 and 1999 was $17,690,000 and $3,550,000, respectively.


                                       22
<PAGE>

8.   INCOME TAXES

     Income tax expense  (benefit),  included in the consolidated  statements of
     operations, is comprised of the following:

                                         Federal         State           Total
                                         -------         -----           -----
Year ended December 31, 2000:
      Current                         $   766,246    $   143,671    $   909,917
      Deferred                            125,112         23,459        148,571
                                      -----------    -----------    -----------
                                      $   891,358    $   167,130    $ 1,058,488
                                      ===========    ===========    ===========

Year ended December 31, 1999:
      Current                         $   818,179    $   153,409    $   971,588
      Deferred                            (11,005)        (2,063)       (13,068)
                                      -----------    -----------    -----------
                                      $   807,174    $   151,346    $   958,520
                                      ===========    ===========    ===========

     Total income tax expense differs from the amount  determined by multiplying
     income  before  income  taxes  by the  statutory  federal  rate of 34%,  as
     follows:


                                                          2000          1999
                                                          ----          ----

Tax expense at federal income tax rate               $   952,030   $   896,322
Increase (decrease) resulting from:
      State income tax, net of federal tax benefit       110,306       101,250
      Amortization of goodwill                            13,894        13,894
      Other                                              (17,742)      (52,946)
                                                     -----------   -----------
                                                     $ 1,058,488   $   958,520
                                                     ===========   ===========
Effective income tax rate                                     38%           36%
                                                     ===========   ===========

     Temporary differences between the consolidated financial statement carrying
     amounts  and  tax  bases  of  assets  and  liabilities  that  give  rise to
     significant portions of the net deferred tax asset relate to the following:


                                                    December 31,   December 31,
                                                        2000          1999
                                                        ----          ----

Allowance for loan losses                          $   435,992    $   462,929
Unrealized loss on securities available-for-sale        89,256        418,419
Other real estate reserves                              36,443        116,489
Litigation reserves                                      1,379         38,426
Other                                                   25,840         15,423
                                                   -----------    -----------
                      Deferred tax asset               588,910      1,051,686
                                                   -----------    -----------

Depreciation                                          (470,780)      (455,822)
FHLB stock                                            (128,328)      (128,328)
                                                   -----------    -----------
                      Deferred tax liability          (599,108)      (584,150)
                                                   -----------    -----------
Net deferred tax (liability) /asset                $   (10,198)   $   467,536
                                                   ===========    ===========

                                       23
<PAGE>

9.   COMPENSATION AND BENEFITS

     The Bank  has a  noncontributory  profit  sharing  plan and a  contributory
     401(k) plan. The Company's  contributions to these plans were approximately
     $0  and  $41,000  for  the  years  ended   December  31,  2000,  and  1999,
     respectively.

     The Company and the Bank have an employment  agreement  with a key officer.
     This agreement  provides for salary  continuation for the remaining term of
     the contract and insurance benefits for a 12-month period in the event of a
     change in control of the Company.  This contract expires in April 2002. The
     maximum  aggregate  liability  to the  Company  at  December  31,  2000  is
     approximately $165,000.

     On August 3, 2000, Pinnacle  Bancshares,  Inc. announced a stock repurchase
     program to acquire up to  120,000  shares of common  stock,  or 6.7% of the
     Company's  currently  outstanding  shares.  The repurchase  program will be
     dependent upon market conditions, and there is no guarantee as to the exact
     number of shares to be repurchased by the Company. As of December 31, 2000,
     the Company has repurchased 16,702 shares of common stock.


10.  LONG-TERM INCENTIVE COMPENSATION PLAN

     The Bank maintains the 1996 Stock Option and Incentive Plan ("Option Plan")
     which  provides for a number of forms of stock-based  compensation  for key
     employees of the Company.  Under the Option Plan, eligible employees may be
     awarded  incentive  and  nonqualified  stock  options,  stock  appreciation
     rights,  and restricted stock. The Option Plan provides for the issuance of
     up to 170,000  shares of the Company's  common  stock,  54,500 of which are
     available  to be granted at December 31,  2000.  In  addition,  each option
     vests  three years after the grant date and expires no later than ten years
     after the grant date.  The exercise  price of each option is  determined by
     the stock option committee but, in the case of incentive stock options, the
     price shall not be less than the fair market value on the grant date.

     A summary of the status of the Company's  stock option plan at December 31,
     2000 and 1999 and the changes during the years then ended is as follows:
<TABLE>
<CAPTION>
                                              2000                            1999
                                  -----------------------------   ---------------------------
                                                  Exercise                          Exercise
                                   Shares           Price            Shares           Price
                                   ------           -----            ------           -----
 Outstanding at beginning of
<S>                                  <C>         <C>               <C>         <C>
     Year                            103,060     $    9.26         57,060      $      8.81

 Granted                                   0             0         48,500            10.13
 Exercised                                 0             0         (2,500)            8.81
                                     -------     ---------        -------      -----------
 Outstanding at end of year          103,060     $    9.26        103,060      $      9.26
                                     =======     =========        =======      ===========

 Exercisable at end of year           54,560     $    8.81         54,560      $      8.81
                                     =======     =========        =======      ===========
 Fair value of options granted           N/A                        $2.07
                                     =======                      =======
</TABLE>
                                       24
<PAGE>

     The following  table  summarizes  information  about these stock options at
     December 31, 2000.


                                        Number outstanding     Remaining
                          Exercise              at            Contractual
                           Price         December 31,2000         Life
                           -----         ----------------         ----

                          $   8.81             54,560          6 years
                          $  10.13             48,500          8.4 years
                                              -------
                                              103,060
                                              =======

     In  accordance  with  the  provisions  of  SFAS  No.  123,  Accounting  for
     Stock-Based  Compensation,  the  Company  has elected to continue to record
     compensation  cost under  Accounting  Principles  Board Opinion No. 25 and,
     accordingly, does not recognize compensation cost for options granted at or
     above  market  value of the  related  stock.  Had  compensation  cost  been
     determined,  consistent  with SFAS No. 123, the  Company's net income would
     have reflected the following pro forma amounts:

                                                Fiscal Year       Fiscal Year
                                                   Ended             Ended
                                                December 31,      December 31,
                                                    2000             1999
                                                    ----             ----

    Net income--as reported                   $   1,741,601     $  1,677,722
    Net income--pro forma                         1,720,487        1,661,980

    Basic earnings per share--as reported     $        0.97     $       0.94
    Basic earnings per share--pro forma                0.96             0.93

    Diluted earnings per share--as reported   $        0.97     $       0.93
    Diluted earnings per share--pro forma              0.96             0.93


     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes option-pricing model with the following assumptions:

                                                2000             1999
                                                ----             ----

          Expected dividend yield               N/A             $ 0.40
          Expected stock price volatility       N/A                27%
          Risk-free interest rate               N/A              5.59%
          Expected life of option               N/A            4 years

                                       25
<PAGE>

11.  STOCKHOLDERS' EQUITY

     Dividends are paid by the Company from funds provided by dividends from the
     Bank. However,  certain regulatory restrictions exist regarding the ability
     of the Bank to transfer funds to the Company in the form of cash dividends,
     loans, or advances. As of January 1, 2001 approximately $3.4 million of the
     Bank's  retained  earnings was  available  for  distribution  without prior
     regulatory approval.

     The  Company  and the  Bank  are  subject  to  various  regulatory  capital
     requirements  that  prescribe  quantitative  measures of the  Company's and
     Bank's  assets,  liabilities,  and certain  off-balance  sheet  items.  The
     regulators have also imposed qualitative guidelines for capital amounts and
     classifications  such as risk  weightings,  capital  components,  and other
     details. The quantitative  measures to ensure capital adequacy require that
     the Company  and Bank  maintain  amounts  and  ratios,  as set forth in the
     schedule below, of Total and Tier I capital (as defined in the regulations)
     to risk-weighted assets (as defined) and of Tier I capital to average total
     assets (as  defined).  Failure to meet  minimum  capital  requirements  can
     initiate  certain actions by regulators  that, if undertaken,  could have a
     direct material effect on the Company's  financial  statements.  Management
     believes,  as of December 31, 2000 and 1999, that the Company and Bank meet
     all capital adequacy requirements imposed by its regulators.

     As of December  31, 2000 and 1999,  the most recent  notification  from the
     Federal  Deposit  Insurance  Corporation   categorized  the  Bank  as  well
     capitalized under the regulatory framework for prompt corrective action. To
     be categorized as well  capitalized,  the Bank must maintain  minimum Total
     risk-based,  Tier I risk-based,  and Tier I leverage ratios as set forth in
     the table.  There have been no conditions or events since that notification
     that Management believes have changed the institution's category.

     Actual  capital  amounts as well as required and well  capitalized  Tier I,
     Total, and Tier I leverage ratios as of December 31 for the Company and the
     Bank are as follows:
<TABLE>
<CAPTION>
                                                                                                          To be Well-Capitalized
                                                                                 For Capital                  Under Prompt
                                                                                                               Corrective
                                                             Actual            Adequacy Purposes             Action Provisions
                                                      --------------------    ---------------------      -----------------------
                                                       Amount      Ratio        Amount      Ratio           Amount        Ratio
                                                       ------      -----        ------      -----           ------        -----
                                                                          (Dollar Amounts in Thousands)
As of December 31, 2000:
<S>                                                    <C>         <C>           <C>          <C>          <C>            <C>
      Total Capital (to Risk Weighted Assets):
           Consolidated                                $20,425     14.0%       =>$11,668    =>8.0%               N/A          N/A
           Pinnacle Bank                                19,074     13.1        =>$11,668    =>8.0%         =>$14,585      =>10.0%
      Tier I Capital (to Risk Weighted Assets):
           Consolidated                                 19,086     13.1        =>5,834      =>4.0                N/A          N/A
           Pinnacle Bank                                17,735     12.2        =>5,834      =>4.0            =>8,751        =>6.0
      Tier I Capital (to Average Assets):
           Consolidated                                 19,086      8.3        =>9,204      =>4.0                N/A          N/A
           Pinnacle Bank                                17,735      7.7        =>9,204      =>4.0           =>11,505        =>5.0
As of December 31, 1999:
      Total Capital (to Risk Weighted Assets):
           Consolidated                                $19,359     14.7%       =>$10,509    =>8.0%               N/A          N/A
           Pinnacle Bank                                17,929     13.6        =>$10,509    =>8.0%         =>$13,136      =>10.0%
      Tier I capital (to Risk Weighted Assets):
           Consolidated                                 18,136     13.8        =>5,254      =>4.0                N/A          N/A
           Pinnacle Bank                                16,706     12.7        =>5,254      =>4.0            =>7,881        =>6.0
      Tier I Capital (to Average Assets):
           Consolidated                                 18,136      8.0        =>9,103      =>4.0                N/A          N/A
           Pinnacle Bank                                16,706      7.3        =>9,103      =>4.0           =>11,379        =>5.0

</TABLE>
                                       26
<PAGE>

     COMPREHENSIVE INCOME

     Comprehensive  income  is  the  change  in  equity  during  a  period  from
     transactions and other events and circumstances from nonowner sources.  For
     the Company,  comprehensive income includes changes in unrealized gains and
     losses on securities available-for-sale and net income.

     In  the  calculation  of  comprehensive  income,  certain  reclassification
     adjustments are made to avoid double-  counting items that are displayed as
     part of net  income  and  accumulated  other  comprehensive  income in that
     period   or   earlier   periods.   The   following   table   reflects   the
     reclassification  amounts  and the  related  tax  effects for the two years
     ended December 31:
<TABLE>
<CAPTION>
                                                                           2000
                                                        ---------------------------------------------
                                                          Before                            After
                                                           Tax             Tax               Tax
                                                          Amount         Effect            Amount
                                                          ------         ------            ------
<S>                                                      <C>             <C>              <C>
Unrealized gains arising during the year                 $ 813,019       $(329,333)       $ 483,686
Less reclassification for adjustments for
    gains included in net earnings                               0               0                0
                                                         ---------       ---------        ---------
Net change in unrealized gain on securities              $ 813,019       $(329,333)       $ 483,686
                                                         =========       =========        =========

                                                                           1999
                                                       -----------------------------------------------
                                                          Before                            After
                                                           Tax             Tax               Tax
                                                          Amount         Effect            Amount
                                                          ------         ------            ------
Unrealized losses arising during the year              $(1,180,746)      $ 434,297        $  (746,449)
Less reclassification for adjustments for
    losses  included in net earnings                          (141)            (48)               (93)
                                                       -----------     -----------        -----------
Net change in unrealized loss on securities            $(1,180,887)      $ 434,345        $  (746,542)
                                                       ===========       =========        ===========
</TABLE>

12.  FAIR VALUES OF FINANCIAL INSTRUMENTS

     SFAS  No.  107,  Disclosure  About  Fair  Value of  Financial  Instruments,
     requires disclosure of fair value information about financial  instruments,
     whether or not recognized in the balance sheet, for which it is practicable
     to estimate that value. Financial instruments are defined as cash, evidence
     of ownership in an entity,  contracts that convey either a right to receive
     cash or other  financial  instruments  or an  obligation to deliver cash or
     other  financial  instruments,  or  contracts  that  convey  the  right  or
     obligation to exchange  financial  instruments on potentially  favorable or
     unfavorable terms. The Company has a variety of financial instruments which
     include  items  recorded  on  the  consolidated   statements  of  financial
     condition  and  items  which,  by their  nature,  are not  recorded  on the
     consolidated statements of financial condition.

     Quoted market prices, if available, are utilized as an estimate of the fair
     value of financial instruments. In cases where quoted market prices are not
     available,  fair values have been  estimated  using  present value or other
     valuation techniques. These methods are highly sensitive to the assumptions
     used by management, such as those concerning appropriate discount rates and
     estimates of future cash flows.  Different  assumptions could significantly
     affect the estimated fair value amounts  presented  above.  In that regard,
     the derived fair value estimates  cannot be  substantiated by comparison to
     independent  markets  and,  in many  cases,  could not be  realized  in the
     immediate  settlement  of the  instrument.  Further,  assets  that  are not
     financial instruments are not included in the following table. Accordingly,
     the aggregate  estimated fair value amounts  presented do not represent the
     underlying value of the Company.

                                       27
<PAGE>

     A  summary  of  the  Company's   disclosure  of  fair  value  of  financial
     instruments  made in accordance with the requirements of SFAS No. 107 is as
     follows:
<TABLE>
<CAPTION>
                                       At December 31, 2000      At December 31, 1999
                                      ---------------------      --------------------
                                       Carrying   Estimated      Carrying  Estimated
                                         Amount   Fair Value      Amount  Fair Value
                                         ------   ----------      ------  ----------
ASSETS:                                              (In Thousands)
<S>                                    <C>        <C>            <C>        <C>
      Cash on hand and in banks        $  3,480   $  3,480       $  5,290   $  5,290
      Interest-bearing deposits           1,136      1,136          2,177      2,177
      Securities available-for-sale      61,069     61,069         64,599     64,599
      Loans held for sale                 1,337      1,337            894        894
      Loans receivable, net             152,021    152,486        146,430    146,128
      Accrued interest receivable         2,332      2,332          1,982      1,982


LIABILITIES:
      Deposits                         $187,471   $187,487       $187,884   $188,180
      Other borrowed funds               20,500     20,500         21,890     21,890
      Accrued interest payable            1,432      1,432          1,738      1,738
</TABLE>

     The  following  methods  and  assumptions  were  used  by  the  Company  in
     estimating the fair values provided above:

     CASH ON HAND AND IN BANKS AND INTEREST-BEARING DEPOSITS. The carrying value
     of  highly  liquid  instruments,  such as cash on  hand  and in  banks  and
     interest-bearing  deposits are considered to approximate their fair values.
     The carrying amount of accrued interest in these  instruments  approximates
     fair value.

     SECURITIES AVAILABLE-FOR-SALE AND LOANS HELD FOR SALE. Substantially all of
     the  Company's  securities  available-for-sale  and  loans  held for  sale,
     primarily to third-party investors, have a readily determinable fair value.
     Fair values for these  securities are based on quoted market prices,  where
     available.  If not  available,  fair  values are based on market  prices of
     comparable  instruments.  The carrying amount of accrued  interest on these
     instruments approximates fair value.

     LOANS  RECEIVABLE,   NET.  For  loans  with  rates  that  are  repriced  in
     coordination with movements in market rates and with no significant  credit
     risk, fair value estimates are based on carrying values. The fair value for
     certain  mortgage  loans is based on quoted  market prices of similar loans
     sold  in  conjunction  with  securitization   transactions,   adjusted  for
     differences  in loan  characteristics.  The fair values for other loans are
     estimated by  discounting  future cash flows using  current  rates at which
     loans with  similar  terms  would be made to  borrowers  of similar  credit
     ratings.  The carrying amount of accrued interest on loans approximates its
     fair value.

     DEPOSITS.  The fair  value of  deposits  with no stated  maturity,  such as
     interest and noninterest-bearing  deposits, NOW accounts, savings accounts,
     and money market accounts, is by definition, equal to the amount payable on
     demand at the reporting date (i.e.,  their carrying  amounts).  Fair values
     for  certificates  of deposit are  estimated  using a discounted  cash flow
     analysis that applies rates currently  offered for certificates of deposits
     with similar remaining maturities.  The carrying amount of accrued interest
     payable on deposits approximates its fair value.

     The economic value attributed to the long-term relationship with depositors
     who provide  low-cost  funds to the Company is  considered to be a separate
     intangible asset and is excluded from the presentation.

     OTHER BORROWED  FUNDS.  The fair value of other borrowed funds is estimated
     using discounted cash flow analyses, based on the current rates offered for
     similar  borrowing  arrangements.  The carrying amount of accrued  interest
     payable on other borrowed funds approximates its fair value.

                                       28
<PAGE>

     OFF-BALANCE  SHEET  ITEMS.  The  Company's  off-balance  sheet  instruments
     consist  of  commitments  to extend  credit,  primarily  one-to-four-family
     mortgages;  unfunded commitments of credit, primarily unfunded construction
     loans;  and standby  letters of credit.  The carrying amount of unamortized
     fees related to these items is not material and,  because of the absence of
     any known credit risk, the estimated fair value of these  unamortized  fees
     approximates the carrying value.

13.  CONTINGENCIES

     The Company and the Bank are parties to  litigation  and claims  arising in
     the normal course of business.  Management,  after  consultation with legal
     counsel,  believes  that  the  liabilities,   if  any,  arising  from  such
     litigation  and claims will not be material to the  consolidated  financial
     statements.

                                       29
<PAGE>

14.  CONDENSED PARENT COMPANY FINANCIAL STATEMENTS

                             STATEMENTS OF CONDITION

                           DECEMBER 31, 2000 AND 1999

                                 (IN THOUSANDS)


                                                        2000        1999
                                                        ----        ----
ASSETS:
      Cash on hand and in banks                         $    13   $     1
      Interest-bearing deposits in other banks            1,406     1,475
      Investment in subsidiary                           17,879    16,419
                                                        -------   -------
         Total assets                                   $19,298   $17,895
                                                        =======   =======


LIABILITIES                                             $    68   $    46
STOCKHOLDERS' EQUITY                                     19,230    17,849
                                                        -------   -------
         Total liabilities and stockholders' equity     $19,298   $17,895
                                                        =======   =======


                            STATEMENTS OF OPERATIONS

                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

                                 (in thousands)

                                                 2000    1999
                                                 ----    ----
INCOME:
      Dividend income from Pinnacle Bank       $  716   $1,217
      Interest income                              78       45
                                               ------   ------
             Total income                         794    1,262

EXPENSE                                            29       17
                                               ------   ------

INCOME BEFORE EQUITY IN UNDISTRIBUTED
     INCOME OF SUBSIDIARY                         765    1,245
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY      977      433
                                               ------   ------
           Net income                          $1,742   $1,678
                                               ======   ======


                                       30
<PAGE>
                            STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

                                 (in thousands)
<TABLE>
<CAPTION>
                                                                        2000           1999
                                                                        ----           ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                   <C>            <C>
      Net income                                                      $ 1,742        $ 1,678
      Adjustments to reconcile net income to net cash provided by
           operating activities:
           Undistributed income of subsidiaries                          (977)          (433)
           Increase in other liabilities                                   22             11
                                                                      -------        -------
                      Net cash provided by operating activities           787          1,256
                                                                      -------        -------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Repurchase of shares of common stock                               (128)             0
      Proceeds from stock options exercised                                 0             22
      Cash dividends paid                                                (716)          (717)
                                                                      -------        -------
                      Net cash used in financing activities              (844)          (695)
                                                                      -------        -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                          (57)           561

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                          1,476            915
                                                                      -------        -------
CASH AND CASH EQUIVALENTS AT END OF YEAR                              $ 1,419        $ 1,476
                                                                      =======        =======
</TABLE>
                                       31

<PAGE>

SELECTED QUARTERLY INFORMATION  (UNAUDITED)


A summary of unaudited results of operations for each quarter of the years ended
December 31, 2000 and 1999 follows:
<TABLE>
<CAPTION>
                                                                   FIRST            SECOND         THIRD          FOURTH
                                                                  --------          --------      --------       --------
                                                                  QUARTER           QUARTER       QUARTER         QUARTER
                                                                  --------          --------      --------       --------
YEAR ENDED DECEMBER 31, 2000
<S>                                                               <C>             <C>             <C>             <C>
      Interest revenue                                            $4,326,121      $4,389,965      $4,569,576      $4,519,687
      Interest expense                                             2,519,373       2,590,090       2,731,514       2,732,170
      Net interest income after provision for loan losses
                                                                   1,686,748       1,679,875       1,668,062       1,667,517
      Noninterest income                                             287,871         349,111         346,556         266,362
      Noninterest expense                                          1,263,565       1,284,395       1,279,849       1,324,204
      Net income                                                     443,092         463,320         458,001         377,188
      Basic and diluted earnings per share                               .25             .26             .26             .20
YEAR ENDED DECEMBER 31, 1999:
      Interest revenue                                            $3,896,651      $3,930,271      $4,040,385      $4,263,180
      Interest expense                                             2,302,127       2,245,392       2,261,335       2,429,630
      Net interest income after provision for loan losses
                                                                   1,467,524       1,564,879       1,759,050       1,923,550
      Noninterest income                                             440,976         340,373         262,955          72,157
      Noninterest expense                                          1,295,511       1,241,385       1,242,451       1,415,875
      Net income                                                     386,269         410,660         488,655         392,138
      Basic earnings per share                                           .22             .23             .27             .22
      Diluted earnings per share                                         .21             .23             .27             .22
</TABLE>

                                       32

<PAGE>
                              CORPORATE INFORMATION
                     DIRECTORS -- PINNACLE BANCSHARES, INC.
                                AND PINNACLE BANK

                                 Greg Batchelor
                 President, Dependable True Value Hardware, Inc.

                                   O. H. Brown
                      Warren Averett Kimbrough & Marino,LLC

                                 James W. Cannon
              Senior Vice President - Operations, Burton Golf, Inc.

                               Melvin R. Kacharos
                                     Retired

                                  Sam W. Murphy
                Chairman of the Board & Chief Executive Officer,
                           Murphy Manufacturing, Inc.

                              Robert B. Nolen, Jr.
                                    President
                            Pinnacle Bancshares, Inc.
                                  Pinnacle Bank

                                  Max W. Perdue
                                     Retired

                                  Al H. Simmons
                              Chairman of the Board
                            Pinnacle Bancshares, Inc.
                                  Pinnacle Bank
                   Insurance Agent, Pittman & Associates, Inc.

                              J. T. "Jabo" Waggoner
                                 Vice President,
                       External Affairs HealthSouth Corp.

                      OFFICERS -- PINNACLE BANCSHARES, INC.

                              Robert B. Nolen, Jr.
                                    President

                                 Mary Jo Gunter
                      Vice President & Corporate Secretary

                                  Marie Guthrie
                    Treasurer & Principal Accounting Officer


                                       33

<PAGE>

                            OFFICERS - PINNACLE BANK

                              Robert B. Nolen, Jr.
                                    President

                                 Mary Jo Gunter
                     Senior Vice President Banking Services
                              & Corporate Secretary

                                   John Kirby
                     Senior Vice President Birmingham Region

                                Marilyn K. Gober
                         Vice President - Retail Banking

                                  Marie Guthrie
                                   Controller

                                   Alan Grice
                 Vice President - Lending & Business Development

                                   Donna Hyde
                             Vice President- Lending

                                   Rick Brown
                             Vice President- Lending

                                  Jaye Ottinger
                        Vice President - Mortgage Lending

                                 Carl Schoettlin
                            Vice President - Lending

                                  Carmen Sparks
                         Vice President - Loan Servicing

                                  Brenda Steele
                          Vice President & I.S. Officer

                                   Pam Elliott
                          Haleyville Regional President

                               Edward A. Davidson
                          Birmingham Regional President

                                  Susie Roberts
                     Vice President-Office Manager - Sumiton


                                       34
<PAGE>
                                     OFFICES
               Main Office, 1811 2nd Avenue/Jasper (205/221-4111)
             Mall Office, 204 Highway 78 East/Jasper (205/221-1322)
           Sumiton Office, 790 Highway 78 East/Sumiton (205/648-6091)
          Haleyville Office, 1012 20th Street/Haleyville (205/486-2225)
          Birmingham South, 2013 Canyon Road/Birmingham (205/822-2265)
        Trussville Office, 2064 Gadsden Highway/Trussville (205/661-9625)

                                 TRANSFER AGENT
                         Registrar & Transfer Co., Inc.
                              Cranford, New Jersey

                                 GENERAL COUNSEL
                     Maddox, MacLaurin, Nicholson & Thornley
                                 Jasper, Alabama

                                    AUDITORS
                               Arthur Andersen LLP
                               Birmingham, Alabama

                             ADDITIONAL INFORMATION
                  Analysts, stockholders and any other parties
                 interested in obtaining additional information
                          may contact Marie Guthrie at
            Post Office Box 1388, Jasper AL 35502-1388 (205/221-4111)

                                 ANNUAL MEETING
      The 2000 Annual Meeting of Stockholders of Pinnacle Bancshares, Inc.
                       will be held at CHS Activity Center
                     204 19th Street East, Jasper , Alabama
                          at 11:00 a.m. on May 23, 2001



                                   FORM 10-KSB
      A COPY OF THE PINNACLE BANCSHARES, INC. ANNUAL REPORT ON FORM 10-KSB
           FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000, AS FILED WITH
             THE SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE TO
               STOCKHOLDERS OF RECORD FOR THE 2001 ANNUAL MEETING
                     WITHOUT CHARGE UPON WRITTEN REQUEST TO
                                  MARIE GUTHRIE
                            PINNACLE BANCSHARES, INC.
                              POST OFFICE BOX 1388
                           JASPER, ALABAMA 35502-1388


                                       35